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Home Broadcasting Television

Will traditional TV be a quaint relic of a bygone age?

by Tim Spira
April 8, 2014
in Television
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The value of the ‘long-tail’ of technology
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Television is in a state of flux thanks to the digital onslaught. Is online a positive force or the worst thing that can happen?

“The recent years of the broadcasting sector have been the most turbulent in its history.” So begins a recent report on the future of broadcasting published by consulting firm Accenture. At first glance, the statement seems exaggerated, if not entirely misplaced. After all, the television business, which accounts for the bulk of value in the broadcasting industry, has by and large sustained both revenues and viewership numbers in the face of a deep and protracted global economic recession. Indeed, compared to print, which has suffered devastating erosion of both circulation and advertising revenues, television broadcasters have thrived.

But, like the swan gliding gracefully across the water, the TV industry has been paddling frantically just beneath the surface in response to rapidly shifting currents. That’s because any television executive with an ounce of foresight understands that ubiquitous broadband internet connectivity is inevitable, and that new online distribution models will see the economics of broadcasting transform just as pervasively as those of newspapers, music and the corner travel agency.

This is not necessarily bad news for TV broadcasters – at least not the more progressive variety. In fact, there are several reasons why broadcasters are more favourably placed than their print counterparts to adapt to the online era.

The first of these is that, as things stand, television and online are inherently complementary media types. A case in point is the much-vaunted phenomenon of ‘second-screening’, which describes how TV viewers interact with a mobile or tablet device while watching TV. Countless case studies show that social media, in particular, drives engagement with TV, and that television, in turn, drives social media conversations. Media companies in more advanced internet markets than our own have been quick to pick up on these new social trends and introduce new kinds of advertising opportunities. Twitter’s Amplify product, for instance, offers broadcasters the chance to punt their shows with promoted in-Tweet video clips. Several broadcasters have even partnered with Twitter to offer show sponsors’ pre-roll inventory attached to Amplify clips.

On a more prosaic note, television advertisers have begun looking to online video as a way of amortising the high production costs of television commercials across multiple platforms. Buoyed by its unmatched cost-effectiveness as a branding medium, pre-roll advertising is now the fastest-growing of all online advertising formats. And consumers – again, in more advanced internet economies than our own – have also demonstrated a willingness to pay for high quality video content. In October, Netflix, the pioneer of internet-delivered programming, notched up its 40-millionth paying subscriber. With nearly 30 million subscribers in the US, Netflix now reaches more homes than HBO, America’s second largest pay-TV network.

Against this backdrop, broadcast players in developed markets have had little option but to begin experimenting with new forms of distribution and monetisation. Aside from the promise of additional revenue streams, broadcasters have the benefit of hindsight, and understand what happens to industries that adopt a strategy of comfortable denial while history gradually renders their business models defunct.

For example, the BBC has begun experimenting with releasing certain programming online before it is broadcast on traditional channels. Counter-intuitively, rather than undermining broadcast viewing numbers, the strategy seems to be creating buzz and thereby increasing ratings. Across the Channel, Italy’s Mediaset and France’s Canal+ have launched on-demand internet services that each boast over a million subscribers. And in the US, NBCUniversal, Fox Broadcasting and Disney’s ABC Television got together to create Hulu, an aggregator of on-demand video content that shares advertising revenues with the owners of the programmes it distributes. In 2010, Hulu launched a paid service, Hulu Plus, which gives subscribers additional premium content as well as the ability to stream content on phones and tablets. By the first quarter of 2013, Hulu Plus had surpassed four million paying customers. Hardly Netflix numbers, but more than your average corner travel agency.

Local television companies are also dipping toes in the water with on-demand services like DStv’s Box Office Online and a catch-up service introduced by e.tv earlier this year. The growth of these over the top (i.e. internet-delivered) services has been limited by the painfully slow rollout of affordable broadband. But this constraint will inevitably fall away. Access speed is already becoming less of a factor at the higher end of the market. Telkom recently upgraded many of its 4Mbps ADSL lines to 10Mbps – more than ample for a decent quality video stream. Add to this the rapidly growing penetration of tablets, smartphones, smart TVs and digital media players, like Apple TV, and suddenly the well-heeled segments of South African society now have a whole host of options for getting video content into their living rooms. Satellite TV is no longer the only game in town.

In the US, pay-TV companies fearfully refer to “cord-cutters” – people who drop their subscriptions to traditional pay-TV services in favour of over the top alternatives. And while we’re a long way from cord-cutting becoming a mainstream trend in this country, it’s not science fiction either. In fact, with a little technical nous and a subscription to one of several services that fudge your domain name server, it’s quite possible for South Africans to subscribe to services like Netflix – something that must be a source of concern to the likes of MultiChoice.

So, aside from everything broadcasters have going for them as we head into an online future, it is equally imperative that they understand that the new dynamics of technology and consumer behaviour will not favour those who cling to established business models. Just because TV and the internet are playing nicely together at the moment does not mean that traditional broadcast and pay-TV models are safe. On the contrary, it’s likely that the generation that has grown up watching what they like, when they like, on a device of their choosing, will regard traditional linear television as a quaint relic of a bygone age.

That’s a bitter pill to swallow if your business model is premised on a linear conditional access platform – even one that features personal video recorder (PVR) functionality and handful of on-demand content. Platform operators will need to start getting used to the fact that in the future their most dangerous threats will come not from rival pay-TV operators, or even free-to-air broadcasters, but rather YouTube, Netflix and a host of other online video offerings with a plethora of divergent business models.

And the game is also changing rapidly for the free-to-air broadcasters that rely on advertising revenue. With the emergence of multi-channel pay-TV platforms in the last couple of decades, broadcasters felt the initial effects of audience fragmentation, and the knock-on impact on inventory pricing as ad dollars were spread ever more thinly across multiple channels – a trend that’s likely to intensify with the launch of digital terrestrial television (DTT). But this pales in comparison with the hyper-fragmentation of the open internet.

To differentiate themselves and thrive in this new competitive landscape, today’s television broadcasters will need every weapon in their armoury. Fortunately for them, they have quite a few: strong brands, consumer and advertiser relationships, and, above all, exclusive content. Now they just need to figure out how best to apply these competitive advantages outside their traditional comfort zones.

This story was first published in the March 2014 issue of The Media magazine. 

Tim Spira is general manager of eNCA online.

 

Tags: HBONetflixonline videopay TVtelevisionTim SpiraTV

Tim Spira

Tim Spira is CEO of Fin24.com, the financial media division of Media24, a subsidiary of the Naspers goup. Platforms span newspapers, magazines, online and mobile media. Brands include Fin24, Finweek magazine, Sake24, McGregor BFA and Miningmx.

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