What's Next For Content?
In November I was invited to speak at a conference in Mexico on the subject of “What’s Next for Content” outlining my predictions on the future of the video content business. Of course, if I was able to predict anything accurately then I would be rich already and living on an idyllic island off the coast of this fine country…But the topic did make me consider the trends in the entertainment business, where they are likely to lead and what role the telco can, will, and must fashion for itself over the next few years.
We all remember the excitement of 15 years ago when telcos realized that their new broadband networks could multicast video, giving them an equivalent method of distributing linear channels to households to the established pay TV companies using cable and satellite networks. And we all remember what happened next. In many markets, crushing disappointment as telcos worked out painfully, at great cost, and over a long time that satisfying viewers’ entertainment requirements was a lot more than the technical ability to deliver channels into the home.
With a few notable exceptions, IPTV at telcos was a commercial failure 15 years ago. And it’s taken 15 years for the industry to learn what entertainment retailing is actually about and how the trends are themselves defining the future role for the IP network provider. Let’s look at a few of those trends in no particular order and see where they take us.
4 Main Trends
Short and Sweet
- The former boss of Disney and Dreamworks Jeffery Katzenberg has started a new studio with US$1 billion backing to make professional short-form content for small screens because that’s where young people are watching video these days. I suspect that the short-form content will not be the recipes, gaming walkthroughs, or self-help guides to replace iPhone batteries that litter YouTube, but rather high-quality dramas made by television professionals that happen to be presented in 10-minute chunks, reflecting shrinking attention spans or the duration of a daily commute on public transport. The short-form format popularized by amateur compilations of cats jumping a cucumber or unfortunates slipping on black ice in their driveways is now being turned into professionally produced drama.
- The world’s oldest public service broadcaster, the BBC, has shut down one of its linear channels and diverted the brand (BBC3) and programming budget to an OTT on-demand video service. It’s still making original programming for the same youthful target audience and still creating breakout mainstream hits (the latest being the mockumentary series “This Country”), but they premier online first while the broadcaster saves the cost of DTT, satellite and cable bandwidth, up-linking and carriage fees for a whole linear channel.
High Budget OTT
- After being sacked for a widely-publicized “unprovoked physical and verbal attack” on a producer, one of the biggest global TV stars of the hugely popular worldwide phenomenon Top Gear, Jeremy Clarkson, was snapped up with his co-presenters by Amazon Prime Video to front a high-budget version of their road trips called The Grand Tour distributed around the world on Amazon’s OTT video service. Meanwhile, the top TV producer Ryan Murphy has jumped ship from Fox/FX to Netflix with a promised US$300 million budget to perform his magic in the less regulated arena that is OTT video. In case you don’t follow such things we have to hope that his output for Netflix will be more like American Crime Story, Feud, American Horror Story, Murder House, or Asylum, and his breakout hit Nip/Tuck than the dreary Scream Queens or the incomprehensible American Horror Story Hotel. The trend is clear. Tier 1 TV talent both in front of and behind the camera is now moving from the constraints of network and cable TV channels to high-budget OTT services.
- One of my old TV colleagues is now heading up a well-funded international OTT sports video service called Eleven Sports, which is busy buying up whatever rights it can get its hands on to stream direct to viewers. Meanwhile, Amazon bought the rights to stream 20 UK Premier League games a year from 2019 (satellite incumbent Sky and BT got most of the games). The rights Eleven Sports and Amazon are buying are emphatically tier two or tier three rights, but it’s early days for this unproven way of monetizing sports viewing, and the trend of that most coveted of video content – sports rights – moving to new OTT streaming services has clearly started.
So, four clear content trends. Now, do you remember the last time somebody launched a new linear TV channel? Of course not. All the new publishers are OTT services primarily looking for a direct relationship with their viewers.
And the big names are spending big too:
In 2018, Netflix is spending around US$8 billion, Amazon Prime about US$ 5billion, the US-only Hulu around US$2.5 billion, and Apple has earmarked US$1 billion for original content in 2019 on its as-yet unnamed new video service.
These budgets are similar to traditional broadcasters on non-sports content. NBC Universal spends more than US$10 billion while Fox, Time Warner, and Disney all spend around US$8 billion a year on original content. Smaller cable networks like AMC with its popular The Walking Dead franchise spends about US$1 billion. Apparently even FaceBook spends US$1 billion on original video content though I must admit I see no evidence of this in my feed of repurposed cats, natural disasters, and terrifying road junctions in developing countries.
A few years ago, people talked about The Sopranos, Mad Men, Breaking Bad, and The Shield. Now, you can’t get to the water cooler without wading through conversations about The Handmaid’s Tale, The Crown, and Transparent. All high-budget original productions funded and published by new OTT services. Even established brands are premiering hot new shows online. CBS All Access started life as a catch-up TV service for the US broadcast network but is now the home of the latest incarnation of the studio’s most enduring franchise Star Trek.
And who knows what Disney’s putting together for its OTT service launching in 2019 but it’s likely to be the greatest competitor so far to Netflix if not an actual Netflix-killer.
So, in all this frenzied OTT activity, what about the poor telco with its “dumb pipe” of the early 2010s? After resolutely failing to take on cable and satellite pay TV 15 years ago, telcos and other IP-network owners are starting to define their role. And it’s not going head to head with the companies that really know entertainment.
Show Me the Money
We’re now entering the third phase of telco data monetization. It began with 3G and ADSL when revenue was driven by raw subscriber growth. After everyone had a connection, the second phase was characterized by the monetization of the data itself.
Marketing departments created tiers of data packs to sell at increasing retail prices, and then tempted subscribers to move them up the value chain by using more data and buying higher-priced packs. They’re now discovering that this second phase is a mug’s game that creates a race to the bottom in any truly competitive market, as rivals grab promiscuous subscribers by offering slightly more data for slightly less.
And so we enter a very welcome phase three: the monetization of experience. You see, content is nothing without experience. It is crucial to the HD, 4k, AR and VR video that will be flooding our pipes over the next few years from all these professional OTT services. Monetizing experience isn’t just about network quality of service. It starts with the retailing experience and runs through content discovery and technical QoS to customer support and billing. And who is best placed to deliver this experience to the end user? The beleaguered telco with its increasingly-smart “dumb pipe”. It turns out the OTTs need telcos after all for all the things they are poor at or have no control or credibility over as a pure OTT service.
So, to answer the original question, what’s next for content is a model where OTT services are bundled, retailed, billed and supported by a high-quality intelligent network provider to create a truly excellent end-to-end experience for the end user who is – after all – the one paying for all this.
A final observation: doesn’t the future end up looking quite like the old model where branded linear channels from HBO, Discovery, and MTV were bundled, retailed, billed and supported by the cable and satellite pay TV operators of old. It didn’t take us too long to get there.
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