2014 has been the year of unbundling and TV Everywhere. Content is king and networks, advertisers, and cable service providers are adapting quickly. Networks are finding better ways to monetize content online and on OTT platforms than they have been in the recent past, advertisers are reaching more targeted audiences, and cable service providers are also internet service providers.
Millenials are large drivers of this sea change – they spend 48% more time viewing online video than the average user and some (“cord nevers”) do not have cable and do not consider purchasing it.
Brightcove, a leading provider of video publishing and monetizing solutions, has 5,500+ customers (essentially every major player in the TV, OTT, and video content space) that rely on the company to guide it through the changing digital video landscape. For more on how the landscape is evolving, the argument for and against remaining a paying cable customer, and how networks can capitalize on OTT engagement and monetization heading in 2015, we spoke with Josh Normand, Brightcove’s VP of Sales:
Lost Remote: What’s the argument for people to remain paying cable customers?
Josh Normand: Consumers tend to complain about cable bundles, but they do offer advantages. If you tried to assemble your own bundle from available services on an a la carte basis, adding a $7 subscription here and a $15 service there quickly gets expensive. Some channel aggregators like Dish are talking about offering non-linear bundle options. As the media landscape evolves, it’s likely that bundles will still exist, but they’ll be offered through different channel aggregators. It’s also important to remember that the purchasing power cable provides to independent channels funds innovation, much as networks use hit shows to finance pilots.
We may think of cable as television, but most consumers get their home internet from a cable provider, whether or not they subscribe to the paid television offerings of the provider. For DBS subscribers, they are likely paying both their satellite bill and their Internet bill to different providers, as (prior to the acquisition) DirecTV’s CEO succinctly stated that for digital, they need to “ride on someone else’s highway.”
Content rights is an important part of the paid television landscape. As long as sports and appointment-driven content (e.g., Oscars) exists, there remains value for exclusivity and revenue creation at multiple tiers of the system.
LR What’s the argument for both networks to unbundle and for consumers to cut cords?
Normand: HBO’s recent announcement of the upcoming HBO GO launch indicates one of the options that is available to networks: They can offer an a la carte digital subscription. On the question of cord cutting, there is no definitive answer since it depends on the individual’s viewing and content consumption habits. With so many options available for consumers now, like Apple’s in-season content purchasing options, it’s possible to cut the cord but still remain up to date on favorite shows. Consumers can ask themselves where and on what device they consume the most content. If it’s a device other than a TV and they tend to consume content on the go, cutting the cord could be a viable option. Live sporting events are the one exception – unless you’re willing to watch from a bar or a friend’s house, you will still need that cable cord…for now!
We should think of unbundling and cord cutting as independent actions. If we look at HBO GO, they are not trying to massively disrupt a lucrative relationship with the pay TV operators. Instead, they are looking to engage the 10MM+ homes that are broadband-only (customers of the same pay TV operators that HBO has existing carriage deals).
Programmers should think — borrowing a phrase from a European customer — of innovation over disruptive. Unbundling should be looked at as an opportunity to expand the available offerings (not replace). There is a significant audience which are cord cutters (or cord nevers) due to price sensitivity, e.g., homes with changing economic factors or college students where digital access is available but mobility of the screen may be more valuable than a “shared” television.
Programmers may find that offering bite-sized options, up-sells/cross-sells, transactions, subscriptions can create a more diverse and sustainable business model which doesn’t have to be a zero sum game with broadcast.
LR: With networks offering so much content on OTT platforms, how can they best engage the growing number of Gen Y viewers using these alternate sources?
Normand: The best way to engage millennials and TV viewers of any age is to build a digital product around consumers’ needs rather than designing it to protect distributors. The unpopularity of the TV Everywhere business model is a great illustration of this principle. It was originally developed by Time Warner Cable to allow cable customers to access content through web-based channels, but it doesn’t make it easy for users. People generally don’t know their cable credentials, and they don’t want to be blocked from watching content they’re already paying for just because they access it from broadband supplied by a different company. A user-friendly model would be a great way to reach Gen Y – and everyone else.
Consumers want content anywhere, anytime, and on any device. We need to find ways to remove the friction and fragmentation due to the proliferation of devices and the tangled web of content rights and restrictions. There are some things that television does very well — high quality content without disruption is the norm, curation of content, etc. (as infinite choice can be a paralyzing factor in decision making).
TV Everywhere should truly be television everywhere and we should treat it as such. Modeling TV Everywhere to households and “in home viewing” was the norm. Slowly, it’s evolving to extending access of that content out of home and offline, but it’s a very slow change.
LR: How can networks maximize monetization on OTT platforms? What networks are doing this best right now?
Normand: The key to monetizing OTT is to build an audience, and the key to building an audience is to provide viewers with a great experience. Although no one has found the perfect formula, companies are doing this right now using a variety of models, including Netflix’s subscription only model and Hulu’s subscription plus ads approach. Once HBO GO goes digital, we’ll see more experimentation with OTT monetization models, perhaps including a pure OTT “try it before you buy it” strategy that is marketed through social networks like Facebook. Something like that would be a good approach to find younger viewers, who have completely different ways of discovering new content; they tend to find shows to watch by interacting with friends online or through online searches. OTT is still a fairly new concept, and we’ll probably see the OTT business model reinvented several times over during the next several years.
Maximizing monetization on OTT in the long-term will be a reflection of how Programmers can continue to produce and acquire quality content and minimize the friction and effort to package, distribute, and price these offerings to their audience. The more quickly they can create this offerings, experiment, and innovate, the faster they can understand how to engage their audience. If one thing is for certain, the rate of change continues to accelerate and Programmers who have the best content and most effective tools can help guide their audience.