Is Netflix Coming Our Way?

By Alex Street

The nature of competition in pay TV markets could be about to change. Internet-enabled TVs and connected devices represent a fundamental change to the way content is distributed and markted to the viewer. I’d like to address these issues by looking at one company’s attempt to build a hybrid distribution strategy that capitalizes on the growth of internet-enabled devices connected to the TV set.

Historically, a single TV platform has been in control of the viewer experience in the home. If I was a Sky customer, Sky controls everything interesting to do with TV in my home. In fact I pay them to do so. The arrival of video on demand products on Blu Ray, games consoles and internet TVs challenges this control. For example, quite soon, in my home, when it comes to watching movies or catch up, I’ll have a choice of platform at the point of decision. In other words, instead of picking up the Sky remote, I’ll have several remotes all competing to deliver me the same thing and or similar things. I will no longer be limited to the TV platform I subscribe to. This puts device manufacturers in direct competition with pay platforms and this isn’t a challenge one American company seems to fear.

Netflix started out as a simple movie rental company that delivered your DVD rental by post. However, as the company name suggests, they never saw themselves as being simply pigeon holed into just offering a postal service. Netflix has an advanced hybrid distribution strategy taht uses the open web to deliver movies to the viewer. Netflix is now available on games consoles (Xbox 360, PS3 and Wii), BD-Live Blu Ray players (Samsung, LG and Insignia) and internet TVs from LG, Sony and Vizio. Netflix is also now available on the iPad. This strategy puts them in direct competition with US cable and satellite operators. Netflix claims that by offering streaming cross-platform streaming options it can drive premium subscriptions and tap into the $66b US home entertainment market. At the end of the first quarter, April 2010, Netflix reported it had 13.9m subscribers, representing 35% YOY growth. This is expected to hit 16.6m by the end of 2010, a 400% increase in subscribers since 2005. Graph 1 shows this rapid increase in Netflix subscribers, in the context of the number of US DVD households and movie goers. As graph 2 illustrates, this expansion has been partly driven by a more competitive subscription rate, with average fees falling from $17 to $12 a month.

In order to tap further into the lucrative home entertainment market, Netflix has to drive online streaming and attract more pay TV subscribers. Firstly, Netflix is already driving more users to stream online. More than half – 55% of subscribers – now stream movies and TV shows from Netflix over the internet. Graph 3 details the average number of movies streamed compared to the average number of DVDs shipped to each subscriber, each month. In terms of the total volume shipped and streamed, Netflix believes that streaming will surpass postage as the primary delivery format for movie rentals within 2 years. Conceivably, much of this will be driven by an expansion in the base of the devices that can be streamed from. Secondly, in order to grow its subscriber base Netflix is offering TV shows in order to attach cable subscribers. This puts Netflix in direct competition with US cable and satellite operators who have combined subscriber based of around 105m. Increasingly these operators are also offering VOD products on multiple screens in the home. However, the domestic market isn’t the only way Netflix is looking to grow. Netflix will launch in a foreign market later this year. Moreover, a readily available distribution base exists in the games consoles and BD-Live players, by virtue of their international manufacturing standards and global brand presence. This is not an option open to domestic cable and satellite providers who have sunk costs.

All in all, the online streaming market is there to be colonised. Netflix is one of the first companies to develop a hybrid distribution strategy on this scale. We’re going to have to get used to the competition at the TV screen and develop ways to deal with it. Essentially, there’s a functionality rush occurring on the TV set and it’s not simply a question of the best, most commercially viable and economic way to distribute content, it’s who can offer the most compelling user experience.

Download the original article from NMA, here.

Filed under: Commercial Models, Distribution & Devices, Future Content

Is The VOD Industy Lying To Us Or To Themselves

By Nigel Walley

Martin Johnson, the England rugby coach stood in front of the cameras after the England Scotland game at the weekend and said that he saw improvement in the England team.  Like most of the English sporting audience, who had just watched a dire display of turgid rugby, I gulped in shock  and stared at the screen feeling very uncomfortable.

My discomfort came from the fact that Martin Johnson should be able to do no wrong in my eyes.  He is someone I revere, and for whom I desire success in a very difficult job.  But he was talking rubbish.  What I couldn’t work out was whether he knew he was but was fronting up, or whether he actually believed the stuff he was saying.  It is discomforting when people I like, and want to succeed, spout stuff that is not believable. Particularly if I am not sure that they believe it either.  I am beginning to feel this way about a whole host of new media initiatives that are currently underway.

We are in the midst of a significant wave of big consumer technology and service punts at the moment. If you look at the level of commercial activity around PC VOD, TV VOD, HD TV and even 3D TV, the volume of launches planned for 2010 and 2011 feels like the height of the dot.com boom, apart from the small inconvenient backdrop of a global recession.  As part of this frenetic activity, all sorts of people who I really like, and want to succeed, are quoting numbers at me which make me feel uncomfortable.  The numbers in the business cases being expounded, were they to come true, represent significant changes in consumer behaviour, mass adoption of a host of new things, and general consumer enthusiasm for things which, if truth be told, there has been little indication of demand.  And once again, I can’t work out if the people involved believe the numbers either.

Consumer demand is a tricky thing to understand.    There are times when we, we are told, that we ignore the consumer at our peril. The customer is king. But almost by definition, our industry has always worked on the principle of ‘if we build it they will come’.  None of the great things that the internet has spawned were based on meeting an explicit demand, so why should I worry now.

Also, at the heart of many of these launches are good old competitive fights for market supremacy.  PC VOD is a case in point.  It is quite clear that there won’t be sufficient consumer demand for all the new PC VOD players to succeed, but the consumer will benefit from the competition.  As consumers, do we now care what happened to Netscape, or AltaVista?

For new media, these existential issues are nothing new.  But for the TV market, this is probably the craziest phase we have ever seen.  This week we have seen the announcements that some of the major electronics brands are ready to launch the new generation of Flatscreen TVs.  These things have 3D capability, IPTV capability, DLNA home networking capability and, almost as an afterthought, the new HD chips in their Freeview receivers.  Everyone seems to want to get into the market before the World Cup and the launch of Sky’s 3D channel.

Ignoring the cyclical problems caused by the recession, which will naturally dampen consumer demand, this explosion in TV technology is predicated on a level of consumer willingness to spend over the next two years, which would be hopeful in the good years.

The new media industry has always accepted this craziness as a cost of doing business.  But lets not forget that, alongside all the success stories, there have been a long series of high profile, venture capital sapping, failures along the way.  I liked the people at Boo all those years ago, but didn’t believe their numbers.

This blog is the original, unexpurgated version of an article that appeared in New Media Age in April 2010.

Nigel Walley

Filed under: Commercial Models, Distribution & Devices, Future Content, IPTV, 3D, DLNA, Future Programming, On-Demand, PC VOD, VOD

Why do I still watch broadcast TV?

Adrian Stroud – June 2009

I recently challenged myself to work-out why I still watch so much ‘live’ TV. I don’t mean news or sport because I can rationalise those genres quite easily. I mean bread and butter programming.
The challenge came about because I was debating just how much more damage all the VOD services and PVRs will do to live TV viewing figures in the long-run. This is important because it is those live viewing figures that contribute the vast bulk of advertising impacts. VOD currently delivers far, fewer impacts per hour of viewing than live TV, so the ‘end game’ for advertising funded TV programming is defined by this question. My guess was that live TV won’t drop more than perhaps 25%, no matter how many VOD and time shifting gadgets like Sky+ launch, but I could not say why. I suspect I’m making the mistake of confusing the technology with the benefits.
VOD and the PVR are the rational way to consume all but the livest of live TV events. So, when VOD has all the content you want and it is available on every screen in the house, why would you want to watch ordinary old broadcast TV at all?
Live TV has one strong thing going for it – ‘missability’. When you turn your TV on, the rational thing to do is to check a few favourite channels to see if something is sneaking past you that you might like. If I find something valuable in this initial foray into live TV I’ll add it to my Sky+ planner. But here is an odd thing, having committed to recording a newly discovered programme and all subsequent episodes; I’ll probably continue browsing likely sources of live entertainment. When I’m in this mode I’m not actually looking to make a commitment to something I really enjoy. I’m probably expecting to be interrupted or be forced to change channel to meet someone else’s taste. The stuff I really like is salted away for some future, quiet, uninterrupted hour that never comes. So missability is a factor for me at the moment but what if just about every TV programme you could think of was available on demand? How can you miss something then?
Misability is not always what drives me to the broadcast channels first. The conditions under which it seems appropriate to commit to a piece of VOD material are quite specific. The kids must be in bed (a deadline that slips further and further into the evening) and a joint decision must be made with Mrs Stroud as to the duration available for shared viewing and of course there is then a debate about exactly what to watch.
By habitually recording things I like and then delaying their consumption to some future ideal moment that never arrives, I could easily end-up watching less programming that I really enjoy than I did when I had to strike while the iron was hot.
Here is another odd thing. Watching one of my ‘favourite’ programmes sometimes just does not appeal as much as watching short bursts of fairly random content. When left alone with the remote control and hour to waste, I’m likely to channel hop. I might leave a programme in a dull bit and give it another chance a few minutes later knowing that it will have moved-on.
The use of Sky+ to time-shift seems to have levelled off at about 15%. This is an average drawn from a very wide spectrum of behaviour so don’t worry if you are not typical. It is not an average like the average shoe size for men is 10, it is more like the average score for a blindfolded darts player will be 10.
Maybe 15% has always been the average amount of consciously planned TV viewing, and VOD and PVRs have simply revealed this underlying truth? Maybe 85% of viewing was always low-commitment and ‘a bit random’ and we were unconsciously quite happy with this. Let’s face it, how could TV have become such a world-wide hit, occupying many hours a day for most people in most countries if ‘fairly random, low commitment viewing’ was not fun?
So the reason I watch live TV is rational but it is not about being live, it is about serendipity and the way it can be randomly sampled – it is a about browsability. When I channel-hop into a programme half way through, I know that is what I have done and that is exactly what I wanted to do. I don’t want to navigate a hierarchical menu system, highlight a title, see the channel indents, pre roll and then sample ten minutes of scene-setting before a drama gets going. I want a random few seconds somewhere in the middle. I don’t even want a ‘sampler’ of best bits edited together. If I go back to the same programme five minutes later I want it to have moved-on by five minutes. If I’m channel hopping while the children are still around I want to know that I’m not going to stumble across something violent, rude or frightening. Of course, when they are safely in bed these become positive selection criteria.
I have yet to see a VOD system that has the browsability of live TV and that encourages the same happy-go-lucky lack of commitment to viewing a whole programme. But surely a VOD system could mimic these attractive features of broadcast TV and offer added benefits? I suspect that the current generation of VOD systems are assuming that our TV consumption is more planned and sensible than it really is.
Rather than thinking about what the end-game is for live broadcast versus on demand, the real question might be how much TV viewing will remain low-commitment, fairly random sampling? It would be surprising if on-demand systems did not eventually meet the need for browsability better than the current broadcast channels. But if they do, will they be able to deliver about fifteen, spots an hour like live TV does? If you have some cash for research I’d love to see what can be done.

Filed under: Ad Formats & Cases, Commercial Models, Distribution & Devices, Future Advertising, Interfaces & Functionality, IPTV, PVR / DTR / DVR, 4OD, BBC, BT Vision, CH4, CH5, ch5 on demand, demand five, iPlayer, IPTV, ITV, ITVplayer, Joost, Sky, Sky Anytime, SkyPlayer, Tiscali, topupTV, VOD

Whose Shares Wins? ITV vs Google

See Decipher discuss the Susan Boyle case on Channel 4 news here

Much was made in the press about ITV not earning any revenue from all the people watching the clip of Susan Boyle on Britain’s Got Talent on YouTube.  This has been described by various commentators as a missed revenue opportunity, and a commercial failure for ITV.  This completely misses the point.  Over 50 million people tuned into watch the Susan Boyle clip on YouTube.  It was the best two minute ad for a TV programme that has ever been distributed and ITV didn’t pay a penny for the privilege.  You have to ask how many posters a TV company would have to buy to get an equivalent, media impact.  The only statistic of interest should have been the uplift in audience, from the episode before to the episode after the YouTube explosion of Miss Boyles version of Les Miserables. There was a 2 million uplift.

There has been a bizarre implication in all the media coverage over the last two weeks, that because of this example, YouTube is somehow a 21st century business and that ITV is an old fashioned business that doesn’t get it.  ITV maybe sitting in the middle of firestorm of reduced ad spend, but at least advertisers are spending with it.  They are barely spending with YouTube, which costs Google the best part of a billion dollars a year to run, but makes it only 200 million dollars in return.  It is one of the last of the dot.com absurdities – a great functionality in search of a business model. 

The press commentators declared that ITV’s shareholders were funding content that YouTube were exploiting to build a business and that they should be up in arms about it.  But this perspective was not based on a sensible analysis of commercial outcomes.  If you look at the issue from a revenue gained point of view, the only shareholders who should be up in arms are Google’s.  Their expensive acquisition, YouTube,  distributed an amazing two minute advert for Britain’s Got Talent from ITV for free on their platform.  For Google or YouTube to get the equivalent value out of ITV you would have to pay them millions pounds.

YouTube is the best thing that has happened to the TV industry in the last 20 years.  The idea that people are tuning into the UGC site, rather than watching TV is preposterous.  There is just no evidence that it is happening.  Consumers get the idea of relative value between them. YouTube is a clip sampling destination, not a TV destination. 

More importantly brands understand the relative value. T-Mobile the brand behind another recent YouTube hit  – the Liverpool Street Station dance scene -  quite clearly understand the comparative value exchange at work here.  When they wanted to launch their follow on campaign to the dance scene, they chose not to launch on YouTube, but paid serious money to good old ITV to put their ad into the centre break of…….you guessed it…Britain’s Got Talent. You can bet that the perceived price and value of the spots they used had increased dramatically because of YouTube’s free support and the extra 2 million pairs of eyeballs it delivered.   If I were a TV exec I would be gagging to get promo footage of my shows onto YouTube.

The only cause for complaint among ITV shareholders must be that Google let YouTube provide ITV with a global promotional base for BGT, but ITV don’t own the global rights to exploit the programme asset. But that is a different moan.

See Decipher discussing the media coverage on Channel 4 News here.

Filed under: Commercial Models, Future Content, Future Programming, Future TV, ITV, Nigel Walley, On-Demand, YouTube

Could Free TV be the new Pay TV?

The other night I went to bed with Paxman. His typical wit and insight on the global credit crunch got me thinking about where the belt can be tightened in my own household. As the Sky EPG finally bid me farewell after I had convinced myself that there was nothing on worth watching live and everything on my Sky+ box demanded more than the 12 minutes or so I was prepared to give it, my mind focussed what I pay for TV. A rather interesting picture started to form.

I, like Parkinson and Felicity Kendal, am a Sky+ fan. It’s easy and works for me. Point, shoot, job done. I would estimate that 75% of my watching is ‘off line’, so to speak. However, a review of what is currently sitting on my hard drive is rather revealing – Heroes, Madman, Jonathan Ross and at least 2 movies for the wife, QI, the cricket, Have I Got News for You and Panorama for me. Mmm..mostly provided by free to air channels. OK, so why am I not on FreeView? They have Sky+ like recorders, so why the reluctance? Well sorry for being picky but the picture just doesn’t do it for me. All this ‘digital TV means quality’, ‘like the step up from LP to CD’ is rubbish. I’d put it on the TV in the kitchen at a push, but on my beautiful new HD Ready 40” work of art you have got to be joking. The truth is multi-channel broadcast TV needs lots of bandwidth. An awful lot of it, in fact, and digital terrestrial (that’s Freeview from that old aerial still sitting on the roof) does not enjoy an over abundance of it.

So Freesat. There’s an idea. HD too and in a few month’s time with a rather neat PVR. So, all I need to do is convince the wife that Film4 does provide all she really needs and we are laughing. Mmm, not sure that’s going to do it.

I see that iTunes launched their video service in the UK last month. This is online video retailing at its most impressive. I could also use this as an excuse to buy that exquisite Apple TV device. Plug one end into the TV, the other into the phone line and I get more video content than the wife can ever want. It will talk wirelessly to my computer and my iPod Touch to share the content around my house. Very neat. It’s HD as well.

So let me work this out. Multichannel TV, PVR, movies on demand that we pay for only when we watch them and much of all of this in HD. Compared to the £55 per month I currently pay Sky for my fully loaded Sky+ HD service I would be able to watch pretty much everything I currently want to watch, watch it when I want to watch it, have my wife rent 2 movies per week from a choice currently over 1,000 (£2.50 to £3.50 a go) for less than £25.

But where’s my sport? Well I can always take the £30 I save and meet my friends down the pub and watch it there. Although I still have to find the additional £200 to buy the hardware. Now, where’s my calculator….

 

Filed under: Commercial Models, Add new tag, freesat, Freeview, HD, multichannel, PVR, Sky