The king is dead. Long live the king.
TV as we know it has died. TV has never been more alive.
How can TV be in this quantum state of limbo? To put it simply, TV as we know it has dramatically changed over the last five years or more accurately, TV viewing habits have changed, and the market is racing to keep up. What was up until a few short years ago a living-room centric, pre-scheduled experience, is now an on-demand, anytime, anywhere activity, allowing connected consumers to watch more content than ever contemplated before.
TV today is TV on the people’s terms, and it’s a shift disrupting a $100 billion market to a degree only a few thought possible.
An online video platform with content curated solely for the LGBTQ community? Check.
An iPad video app targeted to preschoolers? Check.
A premier Spanish soccer app, so you can see Ronaldo’s winning goal from any angle? Check.
People aren’t just simply cutting the cord or swapping out overpriced packages for skinnier bundles. Rather, what the cord-cutters, cord-shavers, and cord-nevers are doing is taking control of their media, going for more personalized services, with more tailored content options. Generation “I” is demanding a new television model, one that varies from the old model in several key dimensions. They can be summarized as follows:
And the market is quickly responding to this demand. Netflix, Hulu, and Amazon all offer full libraries of original and aggregated content. Sling and YouTubeTV offer skinny bundles for live content, including sports packages. Pay TV operators (cable and satellite operators, and increasingly rising fixed line and mobile out-of-band) are now offering triple or quad play packages that include TV as an integral part of the service, with content owners continuing their steady march towards the consumer.
In the days of broadcast and cable-only distribution options, content owners and rights holders had to go through pay TV operators to get their content on the air. Now, they can market directly to their viewers. Media giants like Disney, Viacom and Time Warner (HBO, CNN, WB) all have a direct-to-consumer offering, with more and more content owners stepping out and developing their own standalone services.
With Facebook rumored to enter the original content space and online content becoming mainstream with Oscar and Emmy nominations, the TV market isn’t only getting more competitive but also becoming very crowded.
Essentially, the TV market is a free-for-all.
With the pressure continuously mounting from tech behemoths, pay TV operators are trying to find strength in numbers and are banding together with telecommunication firms, such as AT&T, DirecTV, Vodafone and Kabel Deutschland.
After consolidating audiences, this new breed of multi-offering service providers is trying to get their hands on as much content as possible, resulting in an unprecedented consolidation in the industry with a tsunami of M&A activity, like AT&T and Time Warner, and Telefonica and Canal, to name just two large business deals.
Media companies are hastening to deliver to consumers during this hectic time, but while they are shifting their business models from B2B to B2C, they are facing some headwinds. These companies have almost never dealt with a customer base directly, and have no domain expertise in managing consumers or offering end-user services.
Many content owners and media companies are stuck with this classic problem:
On one hand, numerous viewers want to consume their content, while on the other hand, companies lack the resources required to support these numbers of viewers. Take HBO for example; on what seems like an almost yearly occurrence, during the premiere of the seventh season of its most popular show, Game of Thrones, the HBO Go and HBO Now apps crashed due to heavy traffic. The social backlash was immediate, and while HBO eventually fixed the problem midway through the premiere, the fiasco likely left some viewers with a sour taste in their mouths.
In the competition between media companies, service providers, tech companies, and aggregators, everybody is looking to accomplish the same goal; build an IPTV service, offer a reliable connected experience, host an extensive library of content, and be scalable so that the service can grow with its audience.
Each company wants to develop the next generation of IPTV, though IPTV, Internet TV, and online TV are quickly changing to be summed up by one word: TV. In the same way that every TV and every phone today are ‘smart’ (no more feature phone! Yay!), every TV experience in the near future will be connected, and to survive in this market, it must meet the consumer on their terms.
As a result, any entity wanting to compete in this disrupted market must consider all the elements necessary to meet these demands. The best way to think about it is as a structure supported by four pillars. Each pillar is crucially important - if one is missing or is too weak, the entire house comes crumbling down.
Let’s consider the four pillars in turn.
1. Content
Content is king. The media companies know it, the service providers know it, and tech companies like Netflix and Amazon know it.
In a recent survey, 451 Research found that 33% of online TV and streaming subscriber chose their platform based on the original content offered. Moreover, 50% of consumers surveyed chose availability of movies as their top reason for settling on a given streaming service.
Over the past few years, the growing success of streaming-only shows like Orange is the New Black (Netflix), Transparent (Amazon), and The Path (Hulu), along with multi-picture deals, Academy Award nominations, and A-list names show that these services are Hollywood’s new showcase. Online content has gone a long way from the webisodes and web series of the dot-com bubble era.
So, within this first pillar, if you own content, make sure all of it is available. This is not about distribution of your back catalog. This is about putting your best content leg forward. If you don’t own content, make sure to either develop original programs or gain the rights to them. When people open their TV (or their TV app), what they really want to do is watch TV. Give them the content they want, or they won’t come back; it’s that simple. Of course, make sure that your platform allows you to support all types of content (live, on-demand, time-shifted) and allows you to keep the content offering fresh and personalized so that consumers can easily find and consume the content they want.
2. Infrastructure
Until recently, most TV operators relied on managed networks to get the signal across to their subscribers’ homes. Broadcasters in the meantime, have relied on on-prem hardware to distribute their signal from local broadcast stations. Delivering TV over unmanaged Internet Protocol (IP) networks requires a complete re-working of the broadcast infrastructure.
At first glance, it seems as if this might require a cost-prohibitive investment in new hardware and software. When considering the cloud, however, the picture becomes much more optimistic.
Operators need an infrastructure which can be scalable and robust. Therefore, the clear trend is opting for the elasticity of the public cloud which offers the ability to increase or decrease capacity to better support traffic spikes and heavy usage. Think about it as the TV-Cloud. Anybody wanting to compete in this market in the next few years needs to either build a TV-Cloud or license the capacity from a vendor who has already built one. It’s the only way to guarantee availability and quality of the service to millions of consumers, and leasing a share of a previously built TV cloud is the only way to cut costs down substantially.
3. Software
For several decades, Pay TV operators invested heavily in network and broadcasting hardware. The focus was on creating the local network by piecing together equipment from hardware manufacturers. Importantly, when TV moves to the cloud the focus shifts from hardware to software, but unlike hardware, putting software components together is not something most providers can do on their own.
It is one thing to be able to connect a satellite dish to a transcoder or monitoring server, but it requires an entirely different skillset to normalize content or metadata on the cloud or to develop and approve an app in the app store. Apps for set-top boxes, smart TVs, smartphones, tablets, and browsers are just the tip of the software iceberg, which goes deep, when talking about the possibilities with the cloud.
Software facilitating a next-gen TV service must also include metadata normalization, user management, entitlement and access control, security and digital rights management (DRM), audience measurement and analytics, integration with commerce and monetization platforms, mobile device management, self-help portals, and much more. There is no way around it - the software necessary to satisfy consumer demand includes millions of lines of code that orchestrate dozens of software components.
There are only a handful of software vendors who own and continue to develop these types of software. Past hardware providers have failed in turning themselves into TV software shops and are now paying a big price if they aren’t exiting the market altogether.
The future of TV, like a lot of other things, is in software, and it is fundamental to get the right software in place from the right vendor. From the four pillars perspective, software is the load-bearing pillar.
4. Service
Service in this context has two flavors. First, there are one-time services necessary to customize the software, integrate it with Operation Support Systems and Business Support Systems (OSS/BSS), localize it and brand it. Then there’s the need for ongoing services to manage the content, infrastructure, and software to ensure a continually high-quality offering. The end-game is a true TV-as-a-Service offering, provided by a vendor. So, if you’re a content owner, you focus on what you do best—creating content. If you’re a Pay TV operator, you focus on what you do best—marketing packaged triple or quad play consumer offerings.
When dealing with any third party, the service you receive is critical to the end result. You want a company with a professional services team flexible enough to deploy the platform best suited for your budget and needs, and an operations team that can help operate it with the reliability you deserve.
In summary, turbulent times are upon the TV industry. There will be winners, there will be losers, but when the dust settles, only the houses with the right pillars will remain standing. Given the complexity, and the fact that neither pay TV operators or media companies have the capacity to develop all four pillars on their own, partnering with a third party that can help them launch a new service or modify their existing service is essential for all but a select few, like Netflix or YouTube. Those companies have invested billions of dollars each and have amassed teams of over 1,000 engineers to build their offerings in-house.
In other words, to compete with Netflix’s House of Cards, the rest of the industry must develop houses of steel.