Is RTL Having A ‘Friends Reunited’ Moment With The SpotXchange Deal?

August 8 2014

RTLs recent acquisition of a majority stake in SpotXchange gave Decipher a nervous moment of deja vu last week, reminding us of a previous broadcaster’s dramatic foray into emerging digital media.

In 2005, ITV under a previous management regime, paid £175M for the British social media site FriendsReunited. The deal delivered £30M to the founders, Steve and Julie Pankhurst. At the time this was charitably viewed as an ‘unusual’ deal – what Sir Humphrey would have called ‘brave’- although Friends Reunited was one of the most visited UK web sites of its day. But the reality for ITV was this was a deal made in desperation by a management team who didn’t understand the new market that was unfolding in front of them. They needed a ‘digital’ play and didn’t know how to deliver it.

With hindsight there were two major issues with the deal. The first was that the ITV management had no idea what to do with FriendsReunited. At a strategic level, they vainly hoped that such a high profile deal would buy them into the world of new media valuations and convince the City that they had a strategy for the emerging digital media world. In the short term the ITV share price rose 1/2p, but that was the extent of its impact.

On a tactical level, there was some vague noises about combining the FriendsReunited customer base with the then stumbling   It was also to deliver audience marketing for the online elements of shows like Pop Idol – a pre-cursor to XFactor – and the other ITV web sites. The problem was that this wasn’t an attempt to move up or down the value chain, it was a leap onto a completely different value chain in a market they didn’t understand. It was also a foray into pay content by a business that was free-to-air at heart. No successful content or commercial integration was ever achieved.

The second problem was that ITV bought their way into a market that had experienced its first explosion of growth, but which was to experience a brutal cycle of supplier consolidation before further consumer growth appeared. FriendsReunited had arrived at a point where it needed aggressive VC investment and international expansion to maintain its competitive position in the face of emerging competition from Bebo and Facebook. Or its founders could cash out, which is what they did.   ITV at that time were seen as a declining cash cow by the City and they certainly weren’t the kind of partner that could fund the necessary global investment for Friends to compete or deliver a international network that Friends could exploit.

Also, the social media phenomenon was changing from a ‘pay service’ model to a ‘free-to-use’ model. FriendsReunited needed to evolve to survive but ITV and the City couldn’t countenance turning it free and giving up the one bit of revenue they were getting from an online entity – particularly given the premium ITV had paid for it.   FriendsReunited was ultimately suffocated by its association with the old ITV and it failed to protect its customer base from, first Bebo, then Facebook.  In 2009 ITV sold FriendsReunited for £5M effectively destroying £170M of shareholder value and condemning a generation of ITV management.

And so to RTL and their purchase of 60% of SpotXchange, the ‘video supply-side platform and programmatic marketplace’ for $144M. As the FT pointed out here this is also an ‘unusual’ deal and RTL is the first TV broadcaster to buy an ad exchange.  This would be a groundbreaking deal if it didn’t feel so similar in many respects to the ITV/FriendsReunited deal.  Firstly, like the old ITV RTL needs a better ‘digital’ story than any of its organically grown properties have delivered. It has also needed an answer to the question vexing all broadcasters – how to deal with the arrival of programmatic advertising systems in the market for digital video. Like the FriendsReunited deal, there are two familiar problems: how to integrate SpotXchange into the RTL business and how to continue to invest in it as the market for exchanges aggressively consolidates.

The first of these problems, managing SpotXchange and combining it with the RTL business in a way that is meaningful for both parties, is painfully similar to the ITV/Friends situation.  Firstly, if RTL brings SpotXchange close to the RTL properties – effectively making it the in-house ad infrastructure for RTL properties – it destroys its ability to compete in an aggressively consolidating market.

Secondly, RTL can’t favour SpotXchange or vica versa in any media deals without compromising it.  It will alarm potential advertisers about the decision making process behind how their money is allocated to RTL owned media sites. Advertisers are already nervous about the consolidation of media agencies and exchanges – leading some advertisers to build their own (like P&G and Unilever) or to demand that their media agencies given them open access to other players in the market (as outlined in the ExchangeWire note here). Having an exchange owned by a media owner is just another flavour of the same problem. The SpotXchange CEO Mike Shehan said ” we’ve taken a route that will allow us to operate independently while becoming a core part of RTL’s global business and strategy.” It may turn out that those two options are mutually exclusive.

Most importantly, for RTL as a media owner, the deal doesn’t help them defend the key strategic problem they face with the ‘agency-owned’ exchanges. That is the ability and willingness of media agencies to use their TV budgets as bargaining chips to force access for their programmatic systems into media owners’ digital properties. The old ‘if you don’t let us plug our trading system into your video player, we’ll pull the TV spend off your broadcast channels’ ploy. Owning their own exchange makes this more likely to happen, not less, as the media agencies now have a competitive reason to undermine the trading systems owned by the broadcaster.

In the long term there may have to be a regulatory solution to the vertical integration that is happening in the online ad market. The regulators may need to look at whether media agencies AND/OR media owners should be allowed to own the exchanges at all.

If RTL decide to keep SpotXchange at arms length to protect its marketing credibility, we have to ask how RTL can help it compete and grow as we hit a wave of consolidation in the market. As a potential investment partner for SpotXchange, RTL may be better positioned than ITV was for FriendsReunited. It is already an $8Bn, international media conglomerate. However, SpotXchange is still playing in a market with a fundamentally different risk profile to most of the RTL stable of companies, and like FriendsReunited, its needs are more suited to the VC market not the corporate finance market.  Only time will tell if RTL parent Bertelsman is happy to deliver the scale of financing and support necessary for SpotXchange to continue to invest and compete. The internet has shown itself to be a brutal environment and its not yet clear how many exchanges the world needs – it is likely that some (many?) will merge or fold. AOL’s CEO Tim Armstrong was quoted recently saying “there are 200 ad tech companies, and it feels like there are going to be chairs for 25 to 30 over time”.

RTL have taken a punt on SpotXchange being one of them. Mike Shehan said that they did the RTL deal “Instead of selling to a major US technology company, and becoming one feature in a giant ad tech stack”. However, in the long run, that may prove to have been the most logical way for SpotXchange to exit the market. For Shehan, like Steve and Julie Pankhurst, they have a significant personal cash pile to cushion any concerns about poor decision making. Anyone holding Bebo or Friends Reunited shares right now may feel differently.

Final Thought

Our final concern with the deal is timing. Armies are often accused of preparing for the last way, not the next one. Similarly, this deal feels like a response to the last great digital media battle, not the next one – the convergence of web and broadcast ad-tech in the connected home era. (This is the focus of Decipher’s current FutureMedia2014 Research). The market is still deciding who is going to drive this next form of consolidation.  Decipher believe that it will be entities that can deliver advertising into broadcast, on-demand, PVR and second screen video across all broadcasters in a single market. But we believe that it the market will also favour companies that can do it on a pan-regional or global basis for international advertisers. The only companies who can logically do this are the emerging international TV ‘platforms’, not the ‘broadcasters’.  Had UPC or the newly merged Sky Europe or even Vodafone bought SpotXchange it would have made sense.  Sky’s AdSmart is the first platform level programmatic innovation to emerge in Europe. RTL has a small German cable play, but can’t in any way be counted as a competitive international TV platform. Neither RTL or Bertelsman can deliver this market to SpotXchange and it may be the ultimate weakness that scuppers the deal.

BBC News – Given Lemons, Make Lemonade

July 18th 2014

By Nigel Walley

Two seemingly separate things occurred at the BBC yesterday that got us thinking about the future of broadcast news. James Harding announced some very difficult cuts and changes to way BBC News is created and delivered as part of the broader DQF process.   It was an austere message about cost savings, interspersed with some vision about ‘digital transformation’ and ‘re-orientating BBC News for a digital future’.   At the same time, a separate part of the BBC – BBC R&D – announced a series of technical innovations to be showcased at the Commonwealth Games in Glasgow under its ‘Future of Broadcasting’ initiative.

Along with the various 4K and 3D innovations that the Glasgow initiative announced (on the BBC R&D blog here), it included details of how the BBC will be ‘demonstrating the editorial and creative potential of a new internet-based broadcasting systems’ as well as ‘demonstrating the potential for richer, more interactive and more personal ways of telling stories to audiences’.

It struck us here at Decipher that the two issues, the need to change News, and the arrival of groundbreaking news broadcasting technologies, could be brought together to create a positive new role for the BBC News Channel, right at the moment that its future is being challenged.

James Harding’s comment about preparing for a digital future struck us as odd – firstly making us wonder how much ‘analogue’ news the BBC creates nowadays? More importantly, it made us wonder how much of the digital and interactive innovation the BBC is driving around news he is aware of?   In particular, we wondered how exposed the News teams are to current innovations being rolled out, in particular the BBC’s Connected Red Button. Glastonbury3As we have outlined previously, we believe the BBC Connected Red Button project is a hugely important step towards understanding what a future broadcast channel looks like. In many ways it is much more important than iPlayer, which arguably has a limited shelf life now, in the face of competition from the major national and international TV distribution platforms. But the Connected Red Button is a window into a future linear broadcast experience.  Although, for reasons that we will explain, it is not a consistently good experience.

The Connected Red Button project means that, on some platforms*, it is now possible to press the Red Button while watching a BBC channel and pull up all sorts of clever, interactive web overlays. Some of these, for example the Glastonbury one, are truly groundbreaking. The Connected Red Button service can provide enhanced content for the show on screen, it can provide channel specific routes into BBC iPlayer and it can provide text and video news overlays. However, for BBC News Channel the outcome is currently a mess. Firstly, the news content in these overlays is controlled and produced by a different BBC department – BBC Online. This applies even for those that appear as ‘News’ overlays over the BBC News Channel. This means that there is no editorial synchronicity between the on-screen information and that being produced by the underlying broadcast channel. The overlays don’t support the on-screen stories and, worst of all, they don’t synchronise visually. Very often the Red Button overlays actually clash directly with the on-screen graphics and tickers produced by the channel (see screenshot below). It shows two separate BBC News teams, operating completely independently of each other, indifferent to or unaware of the overlap.


RedButtonNews4The BBC R&D announcement about Glasgow talks breathlessly of ‘augmented video – that can draw graphical overlays on top of video streams. As with subtitles, these graphics can be activated or deactivated by the viewer’. The BBC R&D people have either forgotten about Connected Red Button or have invented the next generation of it, with new and improved interactive capability. We are hoping it is the latter, and that they have created an interactive broadcasting system that can solve the News mess currently on screen in Connected Red Button using homes. And this is where the BBC News Channel could come in to its own.

By the middle of next year it will be possible to reach the majority of both the free-to-air (FTA) and payTV audiences with a linear IP streamed version of a broadcast channel.  Any Freeview box or screen sold since 2012 has had to have this function  included.  It is odd that this functionality has arrived first on the FTA boxes and the pay boxes like BSkyB are only now playing catch up. This means that the BBC R&D vision of delivering a ‘new internet-based broadcasting system’ is very close to being a reality. (BT Sport is already delivering its HD channel over the internet to its YouView based customers and there are 25 IP streamed pay channels from Viacom on Freeview boxes – via VuTV).  Once the Sky boxes become Web enabled (as opposed to merely internet enabled), the BBC News Channel could be moved to an IP streamed distribution model, dramatically reducing distribution costs, and creating the basis for a live, on-air research & development environment.

James Harding’s difficult announcement about cuts and changes did speak about a ‘the opportunity to lead a fourth revolution in news’. As well as saving money, a fully IP and interactive BBC News Channel could become the test bed for all news and broadcasting innovation at the BBC. At its simplest this could allow presenters to advise viewers when more info is available via the connected overlays and viewers could choose to turn them on or off. A much more ambitious vision would allow the channel to pioneer other emerging forms of linear and on-demand combinations. It could pioneer broadcast/web integration and experiment with new relationships between programming and social media and/or user generated content (UGC). By default this would become a UK test bed as other broadcasters would look to BBC News Channel for ideas and inspiration. More importantly, putting control of the interactive content into the hands of the BBC News channel, would create a simplified, slimmer news operation.

It would, of course need the support and co-operation of the on-screen journalists anchoring the channel. One of the key lessons learned in the first wave of red button interactivity was the importance of having the presenter prompt the viewer to interact. It just doesn’t work if the presenters aren’t driving the interactivity.  At the moment, apart from the fact that the on screen presenters have no idea what is on the Red Button news content, there is no incentive for them to prompt the viewer to use it because of the chaos it causes visually.

To add another layer of complexity to the presenters’ jobs may seem too high a hurdle. But, what may not be apparent to the public is how much of an evolution the news channels and their presenters have already been through. A decade ago, a news presenter would read an autocue and notes in a studio that appeared, to them, pretty much how it appeared to the general public. Now, many sit in studios flush with green screen walls and surrounded by information screens, prompts and dynamic links to outside broadcast partners that would not be unfamiliar to visitors from NASA mission control. It has become a highly complex, interactive job that they do with great aplomb. The new environment would be an extension of an existing job evolution, not a revolution for them.

This coming together of new tech at a time of austerity means that the BBC have an amazing opportunity to link up various different innovation initiatives and to focus them on the idea that BBC News Channel could and should be the test bed for next generation broadcast innovation. It should be where the BBC play with all the ideas that could make up a 21st century news channel.  The arrival of these opportunities at a time of austerity and cuts isn’t a problem, its an amazing opportunity.  When given lemons, make lemonade.

Nigel Walley

Twitter  @nwalley

*Currently on Tivo, and Freeview and soon to be on YouView and next year Sky.

The Convergence of TV and Video Advertising

 Click Here To See the Overview of FutureMedia 2014 Programme

Future Media Logo Options2014-06For the Q3 wave of our Future Media Research Programme in 2014 we have been looking at the evolution and convergence of the TV and video advertising industries. The big background theme we’ve been exploring is how these two industries, their technologies and their very different business practices will gradually come together at a time of great change and convergence across screen based media.

At the current point in time it feels like more of a collision than a convergence, with the two industries squaring up over the comparative quality of their data, audience analysis, targeting, addressability, ad distribution and insertion systems.   Claim and counter claim between the two industries indicates that we are not comparing apples to apples at the moment, and that both industries start from a very different world view. The TV is still very much an ‘audience’ based media – celebrating shared or group viewing experiences on the big screen. The web is still a ‘viewer’ based media – celebrating the individual experience on personal devices.   The TV ad industry still tells a better story about capturing and exploiting mass culture in a single country. The web tells a better story about managing global media budgets for global clients across multiple territories. They are not incompatible stories, but the market is struggling to reconcile them.

Technical systems convergence and the drive towards web and cloud systems across all industries heralds the potential for these worlds to converge. This could bring with it a revolution in the commercial aspects of sales, pricing, deal structure and a corresponding shift in industry power. However, the cultural and organisational barriers to this are huge. Our 2014 review is intended to audit and provide explanations for all these aspects of ad evolution and most importantly, put them into the context of a rapidly evolving TV industry.

Exploring The Wider TV Tech Context

The context is, in many ways, the hardest to pin down. We all seek simplicity in life but for the foreseeable future, the context for TV ‘distribution and consumption’ is only get more complex. There are so many things changing that it can be hard to keep up and it is clearly a much broader phenomenon than just the convergence of different ad-tech systems. In the TV industry there are wider q4articlequotewhite2changes that may or may not affect advertising – such as video quality standards. The TV industry is already halfway through an upgrade from SD to HD and this may still have a few years to run – although its not clear that all channels and all content will make the switch. It is likely that both standards with be with us for the foreseeable future. Now a third standard, Ultra HD is being discussed, and it is highly likely that the coming generation of set top boxes will be operating with channels using all three standards. For advertising creatives there are opportunities as well as new costs to consider. From an ad-tech point of view this may slow the shift to IP (because UHD file sizes are so big). Our report lays out the potential implications of the arrival of UHD for both the creative and the distribution aspects of the advertising industry.

Irrespective of the video standard used, distribution of linear channels is going through a similar fragmentation. Broadcast channels are still the mainstay of TV programme distribution (over satellite, aerial and cable) but, UHD not withstanding, we now have a spreading network of Unicast and Multi-cast IP delivered channels arriving at the set top box (STB) .  BT Sport is the first major multi-cast IP channel (if you receive it via YouView that is). Boxes which can receive both types of linear IP channel, as well as broadcast, and present them via channel slots on the EPG are now common in the Freeview market and beginning to appear in pay TV boxes. The ultimate landscape for channel distribution will be a combination of all types of broadcast and IP.   For the web-based advertising-tech world, however these channels represent the Trojan horse into the set top box for the programmatic ad systems now beginning to dominate web video. The big questions are which ones, and what are the commercial deals they will do to get their systems into the boxes. Our Q3 review looks at the route for programmatic ad systems into linear TV and set top boxes and examines who is positioned to exploit this new advertising opportunity and whose business is threatened. We also look at how the distribution choices affect how new ad systems may work. We look at Sky’s Ad Smart addressable ad system and show how it might work with all the channel types described as well as explaining its role in the broader context for TV addressability and linear ad innovation.

At the same time as simple linear channels are turning to IP, new ‘converged’ broadcast and web channels, which merge the signals into combined interactive linear channels, are being developed. Building on the BBC’s recent red button activity, players like Arqiva and Simplestream have created a new generation of interactivity within linear. Outside the BBC, commercial channels are now looking at how web and broadcast convergence could deliver new advertising formats within a linear channel’s content. This could take a number of formats from next gen red button, through to Spotify style thematic VOD channels (as we once had in innovative TV platforms like Homechoice TV). Within each of these new channel formats lies the potential for advertising to be addressed, inserted and measured in a slightly different way. We audit these possibilities and explain the commercial possibilities.

As well as ad innovations around linear channels, the TV industry knows that there are also more innovations to come in the way that STBs deliver content to viewers. There will be a continued blurring of the functionality of q4articlequotewhite3personal video recorders (PVRs) and on-demand (OD) systems with the difference between PVRs and OD is increasingly just a commercial/legal one, not a technical one. This blurring has two aspects – firstly, recording capacity is beginning to move to the cloud (eg Magine and other nPVRs). How resident advertising in recorded programmes is treated in these recorded formats and the ability to swap out advertising, or use data to target within these formats is now being explored by third party providers. Secondly, PVRs are increasingly being used to host on-demand programming (eg pushVOD on Sky, or DishNetwork’s Primetime service) – the potential for advertising to be inserted into these programme formats at the box or hosted locally has been solved technically but now needs commercial solutions to be developed. Our study examines the challenges behind these solutions and looks to the players that could exploit them. What has become clear is that the STB/PVR is evolving into a more powerful media server able to deliver a home-wide TV experience. Within this connected home vision, the box will also increasingly contain an ad server. The first manifestation of this new ad server STB is the Sky Ad Smart solution.  We pull out the potential of these formats, explain the technical and commercial mechanisms and explore how ‘Ad Smart’ style systems will work in this context. Most importantly, we address the question of who can deliver this functionality outside of the Sky customer base, and into the free-to-air market.

At the same time, more web like short-form OD content – advertising and programming – has arrived at the set top box. Sometimes this opportunity is built into TV versions of the YouTube app (as with Smart TV), but increasingly short-form is being integrated into the wider TV experience (eg the EaselTV/Brightcove hosted-video ad formats on VirginTivo, or the Adconian/Yume short form ads on Smart TVs). This is not new, and anyone who saw the original US TiVo boxes installed at iBurbia in 2005 would have seen hosted advertising from Buick and Charles Schwab promoted via banners on the Tivo EPG and played out through the core system. We are now seeing the second coming of this ‘integral short-form’ format. However, its role, value and pricing are yet unresolved. Our Q3 report offers pointers to their commercialisation.

The arrival of banners and display into EPGs shows that consumer journeys into and around these new formats, are also undergoing a convergence revolution. New EPGs are increasingly being written in HTML5 and beginning to behave like web pages in the way they manage content. This includes the potential for banners and other promotional activity. As we have seen on Virgin Tivo, this means having the ability to present pictures, animation other short-cuts to the various video ad formats hosted in the system. The EPG has the potential to emerge as the most important web interface in the TV landscape, with the ability to move viewers seemlessly between content and advertising formats. Our report audits and explains current examples and highlights more to come.

Stepping slightly away from the set top box, we are beginning to see the emergence of a TV ecosystem that links the main box system more convincingly to apps on mobile devices and Smart TVs. We have had a couple of years of tentative second screen innovation – from both programme makers and from TV platforms – some of them with advertising concepts integrated with content. But the arrival of GoogleChromecast has highlighted the potential for a much more sophisticated interaction. We look at how the next generation of second screen will help the TV industry blend advertising, data and functionality aimed at both an individual AND an audience into a combined ad ecosystem in the home. Our report examines the different content models emerging on second screen and shows where power lies in the advertising models that they bring.

Summary – The Big Themes

Behind these specific types of innovation and change there are a set of unifying themes and innovation strands that have emerged and are examined in the Q3 report. In particular, the arrival of actionable data in the TV world has kicked off a huge wave of innovation around targeting and addressability. It is likely that this will manifest itself in every aspect of the new TV advertising world described in the report.  What is initially clear is that the data available to the TV industry is very different to that which is available in the web ad-tech world. These differences hint at opportunities for a converged, complementary approach if handled correctly and we point out routes to achieve this.

Secondly, the growth in the role of time-shifted and on-demand content, of all types in the TV consumption mix, has had a profound impact on the competitive landscape and the related ad industry. The ad innovation around on demand has been focussed to date on the web players developed by broadcasters. Our report lays out the evolution of these formats as web and TV systems merge and the control and functionality of these formats shifts in the value chain.

Thirdly, the growing disconnect between ‘national’ and ‘international’ capabilities within TV players, advertisers, ad-tech companies and media agency groups is a growing concern. The open standards and economies of scale of the global ad-tech world contrasts positively with the closed, proprietary TV advertising systems in place around broadcast. Apart from the fact that the TV ad sales process can seem antediluvian to the web tech community, it is hard to see how single markeq4articlequotewhite4t broadcasters, or even platforms like BSkyB, are going to compete with the global ad-tech scale and development power of the global media agency conglomerates. However, the nuanced ’local market’ and ‘audience segments’ available through broadcast are difficult to repeat with automated systems and are where single market broadcasters earn their stripes. Within these single markets, the mass, synchronous delivery of high quality TV ad campaigns to a national audience segment is a broadcast capability that the web has yet to replicate. We explore the arguments for both sides.

Our report at simplest is an audit and exploration of the current state of ad-tech convergence as it affects all TV and web advertising players. On a wider note it explores the trends that are driving the changes in tech and commercial market structure. Finally, it provides insight and recommendations for all parts of the TV and video value chains.

Nigel Walley  – @nwalley

Note:  The Q3 Report is to be published in the first week of August. Details on how to buy the Q3 Report can be found on the Decipher web site here

Functionality Is King In Connected TV

Future Media Logo Options2014-06When it comes to technology innovation we are in a strange hiatus period in TV at the moment.  After the confusing rush of SmartTV initiatives over the last few years, we have come to a short pause in disruptive innovation.  The odd dongle is being launched (Google Chromecast and Roku etc) and the odd confusing new entrant is arriving (eg Netflix) to confuse things. But in the big scheme these are minor things (yes, even Netflix) and we are in a waiting period before the next big platform innovations hits to make sense of it all.

The big realisation of the last few years is that we are NOT moving into a world of ‘cloud’ TV – well at least not yet.  There is a growing consensus that there is one more generation of set top boxes (STBs) to come – in much the same way that the games industry realised it needed one last generation of consoles before cloud gaming could be  a reality.  These set top boxes will be more akin to media servers in our home than the simple decoder boxes we started with.

With this in mind, there are rumours of a big new STB operating system  and perhaps even a new box coming out of Sky.  Youview are heralding a raft of new innovations now that funding and shareholder issues are resolved.  Virgin are teasing the industry with a ‘will they, won’t they’ debate about replacing Tivo with the Horizon box being rolled out in other UPC countries; and Freeview are discussing a new generation of ‘Freeview Connected’ devices.

As we wait there is one other thing that has come clear.  TVs is no longer a stand alone service.  It has been bundled into a bigger ‘triple-play’ telecoms business with content and tech services increasingly becoming intertwined.  BT’s decision to give away football to subscribers of their broadband service was a wake-up call.  Football was meant to be the crown jewels of the pay TV business and here was a telco giving them away in return for broadband loyalty?  In this context it’s hard to avoid the idea that content is being commoditised in this new connected era.

But, if true, what replaces content as king?  It can’t be broadband as that is the ultimate commodity – its hard to tell the difference between providers.  But what else do we care about?  The rise of the ‘gadget’ in the consumer market has given us a hint.  The amount of time and effort that a consumer will expend buying, configuring and updating their phone and tablet has never yet been replicated in the TV world. We buy a telly or STB and expect it just to work. We don’t add to them or change them and it would probably invalidate the warranty if we tried.  While we might sit with friends and compare phone functionality, we very rarely compare set top boxes.  However, the next great tech wave to hit our homes might change this.

The near complete penetration of broadband in the UK market, and the emerging ‘app culture’ among home services providers means we are finally making credible steps towards the ‘smart’ or ‘connected’ home.  The arrival of apps like Nest and Hive – controlling aspects of home management through  a smart device – hint at a wave of tech innovation that is about to break.

Strangely the TV industry (or at least the triple play TV telcos who now provide our TV) are in a great position to capitalise on it. In this first wave of the connected home, TV owns the key bit of kit – the home gateway – and the STB plugs right into it.  Also, it seems that TV is a service that will get consumers motivated to buy new devices and spend time configuring them.  Our consumer research show that consumers are interested in home automation ideas, but not enough to get off the sofa to self-configure them.  With TV however, consumers will invest time and effort in new systems if it means they can access telly in new rooms or on new devices.

This means that TV can capture revenues in these new areas.  The new generation of set top boxes that have emerged in the US offer home automation, security and networked media, pushing a full TV service to every screen in the house.  TV companies that offer these new services have seen a resurgence in subscriptions – functionality is now king.  It would have been interesting to see the market reaction had UPC or BSkyB bought Nest.

However, for the UK platforms this vision is problematic.  The pay TV telcos can move toward services because they offer broadband and home gateways.  The free-to-air platforms may need their shareholders to un-shackle them to innovate in this area.  Up till now, the FTAs have been able to ape the services and functionality that has been pioneered by the pay TV market because it has just involved upgrading kit (ie adding PVR functionality to set top boxes).  However this new range of services needs a deeper engagement with the consumer. Most importantly, the FTAs need to be allowed to develop user relationships and keep data (as Freesat have very quietly started doing).

For all the platforms, success in this area is dependent on being in control of your software and services road map.  This is where the YouView project gets interesting with three competitive companies (including YouView’s own retail business) sharing an operating system and a road map.  The question that people are starting to ask is whether BT and TalkTalk can truly compete in a TV-centric connected home era if they have to share a development plan with each other, and with a company that competes with them in the retail sphere.

They need to show the market that they can innovate separately around a shared operating system.  Most importantly, we need to see if their operating systems can be flexible and expandable to include a range of web hosted services aimed at more than just TV.  Interesting times ahead!

Nigel Walley


Note: this article is an extract from Q2 of Decipher’s Quarterly ‘Future Media’ Report 2014. For more information please contact

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Smart TVs Are Failing The Challenge

Sept 2011 - New NW BW Head & Shoulders (thumbnail)Internet connected TV screens have been with us since 2009, when the first ones launched with Yahoo Widgets. Since then connectivity in TV screens has gone from being a ‘top of the range’ functionality to a standard feature of most TV screens sold. At the same time, connectivity rates have improved from the early, low 20% mark to around 80% of all units sold.  This has happened because the manufacturers have simplified the connection process and made it a much more worthwhile thing to do.  A huge part of this increased usefulness has come from the inclusion of high quality apps like BBC iPlayer, Netflix and Lovefilm apps on the devices.

The arrival of Smart TVs created a wave of speculation about competition at the front of the TV value chain – the bit that actually sells something to customers.   Could Smart screens cut TV services like Sky and Virgin out of the equation, and make their dependence on set top boxes seem out of date?   Most importantly could the arrival of the Smart interfaces, with web apps and functions, allow broadcasters to have direct contact with their viewers once more?  All of this seemed possible at the time.

This year at CES the question seemed fanciful and the market stats of the last few years seems to bear this out.  In the UK, around 80% of smart screen owners have a set top box (STB) plugged into them, so the ‘smart’ function is secondary at best, to the total TV experience. This can be explained by a number of factors.

First of all, is the PVR factor.  Up till this year’s screens,  Smart TVs haven’t had any built in memory.  If you wanted to create a PVR function you had to plug in an external memory and use the ‘Windows style’ folders to find and play recorded programme files.  The interfaces on these devices are clunky and their usefulness is limited by the fact that most Smart TVs  have a single tuner (meaning you can’t watch something and record another).This has played into the hands of the set top box based service providers.

Also, it is important to flag up the relative failure of on-demand compared to PVR.  After 6 years of trying, on-demand has generally failed to shake the UK viewers’ love of their PVR.  On-demand only offers a fraction of the programmes on telly, as only a minority of broadcasters offer on-demand.  On the other hand PVR functionality in a STB works with every broadcaster.  Even those broadcasters that do offer it have messed up the market with the OD scheduling on their players.  Consumers can never work out when a show will or won’t appear, and how long it will stay in the on-demand menus.  On tablets and laptops this hasn’t mattered, but on TV it is still easier to PVR something than rely on on-demand.  This is borne out by the numbers.  Even the BBC (who claim iPlayer as the main gateway into BBC content) admit that only 2% of their total TV consumption is on-demand, while 7-8% is PVR content.  Again, this has played into the hands of the set top box based service providers.

However, the biggest problem facing the Smart TV providers SmartTV Piccies2is their inability (so far) to create a consistent development landscape for their prospective business partners to play on.  The fragmented landscape of operating systems and interfaces have made it almost impossible for any  content provider outside of the big international players and the BBC, to fully engage.  In the UK, while the BBC is on almost every device, the distribution of the rest of the broadcast players is patchy.  ITV is still only on one of the 8 major Smart TV brands.  No one seems to explain to the poor consumer why their new screen has only partial coverage.

For those of us concerned with the evolution of television advertising in particular, it has been daunting that after 6 years, there is still no agreement on the size, location or functionality of ad units in these new interfaces.  This would be bad enough if it was just a problem of disagreement between manufacturers.  But even within a single brand, we have seen the formats change year on year.  Every CES one of the big TV brands announces its ‘revolutionary’ new approach to groans of dismay from the media industry. Last year it was Samsung who threw out a nicely evolving interface design with a consistent ad model for a poorly designed ‘revolutionary new OS’.  This year it was LG’s turn to do the same. The manufacturers don’t seem to realise that the advertising industry needs the ‘evolution’ of a stable format not consistent waves of ‘revolution’.

There are some companies valiantly trying to cut through the crap and to give a single point of clarity.  In the content world, the BBC have attempted to launch an application mechanism that allows for a single point of publishing to many apps and interfaces – called The Application Layer (TAP).  In advertising, Rovi have been attempting the same with their unified ad services and Rovi Remote Access Services t. These have given agencies the welcome chance to experiment with connected TV advertising across devices and formats. Using this system a growing number of brands are able to experiment with the emerging display formats for the connected TV environments.

However, we would argue that these pioneer companies are being let down by the very device manufacturers they are seeking to support. With each radical new interface launch, you can count the hours of wasted activity around the previous interfaces. The most difficult aspect of this is that nobody in the market believes that the device manufacturers have the commercial or intellectual capability to solve this themselves.  Just about everybody believes that within 10 years, all smart TVs will be running Android , iOS or Windows operating systems.

So what of the next few years?  Smart TVs will continue to sell and to be connected within our homes. They are increasingly becoming a component of a connected screen ecosystem. But it would appear that the companies best poised to exploit this are the very STB based service companies that they hoped to disintermediate.  At CES we saw Dish and Comcast demonstrating their connected home apps, sitting on a Smart TV, and connecting to a PVR somewhere else in the building.  Increasingly these platform apps – like SkyGo or Virgin TV Anywhere on an iPad –  contain the on-demand and streamed channels of all the major broadcasters. Its logical for these apps to move onto Smart TV.

So the pay platforms are best positioned to deal with the distribution complexity the screen manufacturers have created. The great strength of this is that a single platform company can link consumers and broadcasters across a network of legacy devices, saving broadcasters from massive cost – if they allow the platforms to take control

What is clear is that Smart TVs will continue to sell, to be connected and to be used for some content. But they are a long way from realising their initial promise.

Nigel Walley



CES – More Science Fiction than TV Strategy

PrintHaving had time to pause and reflect on my visit to CES this year I have come to the conclusion that this was one of the most divisive consumer electronics events in recent years. By divisive, I mean that it split the audience.  On the fourth night of the show, I went to drinks event full of British TV people and we stood around in a general mood of ‘hurrumph’!  We had come a long way, and put up with a lot of Las Vegas’ normal shenanigans and didn’t feel that we had got much out of it.  There was very little new about the future of TV there, beyond some silly bent TV screens, and a lot of posturing about 4K.

It felt that most of the serious stuff around the immediate future of TV was being developed elsewhere, in the backrooms of Sky, Dish or Comcast, and that the stuff on display was really just tweaks on what we had seen last year.  ‘There is a new connected TV home revolution coming’. Yes, we know.  ‘ A new generation of super- STBs will be at its heart’.  Yes, you told us last year.  ‘There will be apps and devices connected to every screen in your home and your life, allowing your STB to control your complete TV future’.  Yes, you showed us the demo last year.  Can you hurry up and launch the bloody things.

The next night, I had a chance to catch up with a broader group of analysts from the technology industry and they were absolutely buzzing:   ‘The best CES for years’.  I am sorry?  ‘So many different things to see’!  Really?  The big difference between the two groups was perspective (and the fact that about 3 people in the second group were wearing Google Glass(es)).    In the absence of a really transformative story this year, CES had reverted back to being a bloody great nerd-fest and the techies were revelling in the science fiction.  There were zones focusing on Auto-Tech, Health &Fitness Tech and the rather patronisingly named ‘Mommy-Tech’. The big theme behind all these zones was that miniaturisation of connectivity now means that you could stick an IP connection into just about any device you can think of, and have it send data back on just about any part of your life you can think of.

Some were sensible announcements of stuff we have been waiting for.  I can see the benefit of a 4G mobile chip in my car. Some of it will be an acquired taste. For instance the number of health-tech wrist bands was astounding. But they only seem to be worn by annoyingly tech-savvy, good looking, young fit people?  They seemed to be positively salivating at the idea of another tech device to annoy the rest of us with.  Show me a bunch of obese retirees with diabetes wearing them and I will be convinced.

Central to lots of this stuff was the focus on the ‘connected and intelligent home’. Two presentations tried to set the tone.   Cisco and Qualcomm both attempted to present their vision for an ‘internet of things’ or even an ‘internet of everything’.  Many of the people I was with during these demos found the objectives and outcomes technically clever but positively creepy.  There was a big emphasis on ‘monitoring’ (ourselves, each other, our kids etc)  which felt out of place in the current era of NSA revelations.  We just didn’t want to live in the worlds these companies envisaged.

The consumer upside of some of the weirder stuff is such a long way from being proven.  I like a toaster that can swap emails with my car as much as the next man, but there was a certain needy feel to the whole thing. CES featured a huge number of solutions looking for a problem from companies wanting to be seen to be clever.   But just because some bloke with poor social skills, who wears GoogleGlass(es) and drives a Segway likes it, doesn’t mean I have to.  I do expect my domestic appliances to get gradually more intelligent, but right now I have something at home which does the vacuuming and sends me annoying texts.*

With lots of the consumer electronics normally shown at CES you can plot a quick route to consumer adoption.  The connected home stuff just feels a long way out because so much of it requires the consumer to retro-fit stuff that is already in place.  In the UK, we know that a combination of consumer apathy and a generally Victorian housing base means that most of this stuff won’t be mainstream for years.  We just can’t be arsed.

In the week that Google bought Nest, the I keep coming back to the idea that a simple round plastic knob on the wall does 95% of what I want a central heating control to do.  The other 5% is great, but the upside doesn’t outweigh the pain of setting it up and programming it.  I could be playing with the kids instead.  Do I believe these systems are the future?  Of course, but  they will be led by US ‘new builds’ not UK retro-fits.  In the US they have an average of 1 million new housing units built each year.  That is enough of a market to get excited about.  But in the UK there just aren’t enough new housing starts or willing nerds to make a lot of this stuff mass.

Interestingly, some of the more compelling demonstrations involved entertainment content.  And it was here that most people found a vision of the future that was believable and compelling.  Having simpler, ubiquitous access to the entertainment content we own has been a consistent theme for the last few years.  It is an area where the consumer seems willing to buy new equipment and install software, because the upside for them is immediate and compelling.  Sonos is just more believable than Nest.

This is where we come back to TV because the organisations making the most compelling case to control this first-stage leap into the connected home are the pay-TV/triple play platforms.  Control of the next generation wireless router and STB puts them into the driving seat for the next few years and the outcome will be ‘video’ not ‘vacuum-cleaner’ focused.

But it would help if they just bloody got on with it.

Nigel Walley


*My cleaner Raoul.

Nigel Walley will be discussing this and other findings from CES at the MediaTel CES Debrief on 21st of Jan Details here:

Decipher are also holding their first Antenna Immersions of the year in January, looking at the state of the TV in the UK with a more TV focussed reflection on the implications of CES.  There will be sessions in London and MediaCity, Salford.  Details here:

Freesat’s App – you may have missed the point?

Freesat-App-Showcase-16.01.14Another day, another app!  So we have a new companion app from the Freesat team for their Freesat <freetime> set top box (launched  in 2012). The app delivers what we have come to expect from this Freesat team – simple, effective use of open-standard software and systems to outclass their peer group and match much of what the pay TV industry is delivering. It will be fun watching the usage numbers grow this year, and we have to suppose that its use will be strongly correlated to the take up and use of the <freetime> box , whose OS it integrates with.

Its a very nice app and there have been a lot of good reviews.  However, all the reviews we have seen concentrate on its usability (very good), its functionality links with the box – eg changing channel, setting recordings etc (once again – very good), its integration with VOD (partial – for shareholder policy reasons) and its general design (very nice).

Quite rightly the reviews don’t attempt to compare it with the YouView app which does none of those things and is much more limited in its aspirations.  But this app is interesting for bigger, more strategic reasons and everybody seems to have missed the really significant thing they have done.

They have asked Freesat customers to log-in.

More importantly, they have matched a box ID to a name, postal address and email address, so for the first time we have the beginnings of a customer database in the free-to-air bit of the industry.  Not only that, but it appears to be a system whose ability to harness data on viewing choices and TV behaviour can be grown over time.

So What?

In the last five years the TV industry moved from the simple ‘multi-channel’ era into the more complicated ‘multi-function’ phase of development (with the addition of functions like PVR, VOD etc). Through this evolution it has been possible for the free-to-air boxes to ape the functionality of the payTV boxes because none of the new functionality required consumer data.  Functions like info-rich EPGs, PVRs and TV VOD were all possible without ever requiring log-in, or user IDs.  However, the next generation of functionality will be different.

While we are still expecting EPGs, PVRs and TV VOD to continue to evolve, there is a new generation of services emerging that need consumer accounts, log-in, password and even the ability to ‘pay-up’ on occasion – a ‘freemium’ model for TV. These services will include network PVRs, personalisation, social media interaction between STBs and, no doubt, many new things that yet to be invented.  More importantly, they will require the balance between individual IDs (built through use of tablets, phones and laptops) and whole home ‘family IDs’ (built through cumulative use of the family STBs).

Its becoming clear that the free-to-air boxes can’t continue to match the pay boxes without developing some form of customer data strategy that supports this future. Freesat has recognised this and very subtly, this is what the Freesat app delivers.

This raises a difficult challenge for Youview, and in particular its development partners BT and TalkTalk. They both have customer data but it is weirdly un-connected from their TV STB and app development. The current Youview app demonstrates this very nicely, being developed by the central Youview team not their telco partners, and not integrating with very much at all let alone their customer databases (it can’t even change channel).

This means that Freesat have laid down a marker for the next stage of TV evolution, and subtly changed our definition of free TV. It would  be great to see what that team could do if they didn’t have their shareholders holding them back*.

Nigel Walley


*I, for one, would like to see this new <freetime> environment working in a Freeview box?