A Blog by Jonathan Low


Dec 16, 2016

When Will Media Companies Realize They Are Being Disrupted By the Distributors Of Their Own Content?

The more pertinent question might be, 'and what can they do about it even if they do realize it? JL

Rich Raddon comments in ZEFR's blog:

Networks rely on the size of their audiences to garner higher distribution fees and drive their advertising business, and the new platforms are drawing audience members away by offering them more personal content choices. More content choice means more competition among content. Millennials didn’t even bring up networks. They talked about content in terms of a specific show or an individual — often, an individual who started their career in social media.
2017 will be the year the networks (and media companies) realize they are being disrupted by the very distributors of their content — the platforms.
BTIG analyst Rich Greenfield defines a platform as "an application (or service) that has direct access and a relationship with the consumer,” which is an apt description of leading digital platforms like Facebook, Netflix, Hulu, YouTube, Snapchat and Amazon. Borrowing from the vernacular of the past, these platforms are “smart pipes” or “virtual pipes” that deliver the right type of content to the right individual at the right time on the right device.
These “smart pipes” are changing the way consumers interact with their favorite content — and traditional delivery systems want in on the future. Earlier this year, Comcast CEO Brian Roberts made the shocking announcement that Netflix, once considered an existential threat to cable, would be fully integrated into the Xfinity X1. Today, the Xfinity X1 system is capable of accessing live, on-demand, DVR and web programming all from one interface, simple and powerful for the consumer — in a word, a platform.
Last month, AT&T launched DirecTV Now, a subscription platform that delivers a slimmed-down package of content for a lower monthly cost (a “skinny bundle”), which appeals to those considering cutting the cord from their traditional cable and satellite service altogether.
Competing telco giant Verizon is taking an ad-supported approach to its platform strategy. The company boldly declared that, with its acquisitions of AOL and Yahoo, its newly merged platform would compete for brand dollars with Google and Facebook. It’s a courageous statement, given the fact that 85 percent of all incremental advertising dollars is being spent with the duopoly of Google and Facebook.
But why is this proliferation of platforms so disruptive to networks and other media companies? Shouldn’t it be creating more opportunities and more fees for the distribution of their content? More fees, yes; bigger profits, no. Networks rely on the size of their audiences to garner higher distribution fees and drive their advertising business, and the new platforms are drawing audience members away by offering them more personal content choices. More content choice means more competition among content.
At this year’s WSJ Live Conference, Marni Walden, president of product and new business at Verizon, zeroed in on another problem facing the old-media guard. She said that in a recent survey of millennials by Verizon, they didn’t even bring up networks. They talked about content in terms of a specific show or an individual — oftentimes, an individual who started their career in social media.
Game on. In this world of open access to content, network shows such as “Modern Family” are fighting for eyeballs right alongside videos from YouTube stars like Dude Perfect and Netflix originals like “Stranger Things."
Media companies have responded to this new reality by investing in or acquiring other media companies that have additional audiences on these digital platforms, like BuzzFeed and Vice Media, which have received separate $400 million investments from NBCUniversal and Disney, respectively. But this strategy is akin to putting a Band-Aid on a gunshot wound. If networks really want to attack the cause and not just the symptom of viewership erosion, they only have two options: Become a platform or more fully leverage the platforms that exist.

a platform

HBO is enjoying a modicum of success with its standalone streaming platform, HBO Now, which has an estimated 1.5 million subscribers paying $15 per month to get access to original series as well as some recent film releases. If anything, the modest subscriber numbers prove how difficult it is to build a direct-to-consumer platform — and this is when you have “Game of Thrones."
Jason Hirschhorn’s Media Redef newsletter provides a compelling analysis in an article published earlier this year from authors Matthew Ball and Tal Shachar, who propose that a platform can never achieve success without one of three “feeds": A scale feed (driven by a vast library of content), a social feed (driven by social networks) or an identity feed (driven by a bundling of niche multimedia experiences).

Leveraging a platform

The second option is for networks to fully leverage the platform with data and technology. That means investing in and developing advertising solutions that take advantage of the entirety of the platform (even non-owned and operated content). Additionally, the networks need to build technology that harnesses the deep trove of data on these platforms. The data and the understanding of the data are the key advantage the platforms have over the networks.
Rich Greenfield, in his blog post, “Content Dethroned,” meticulously spells out how the platforms are successfully producing content utilizing all these tools and will continue to do so. But the networks can leverage each one of the platforms in unison with data informing the what, the when, the how and the where of content creation and distribution. Only the networks and media companies are in a position to take advantage of a true cross-platform strategy by building a content-decision engine.
I recognize that these options represent daunting challenges for the networks, but they must be dealt with if they hope to level the playing field. That means picking a lane and sticking with it — the toe-in-the-water approach we’ve seen in the past will never get them there.
This brings us back to the one prediction I made in 2016 that was way off base. I said that in 2016, media companies would awaken to the market disruption and start to look more like data and tech companies. They didn’t. And because of it, the platforms have been laughing all the way to the bank. Let's see what 2017 brings.

1) Free ad-supported video viewing (AVOD) will continue its meteoric growth, but consumers will retaliate against poor advertising experiences.

The industry is already starting to pay the price for egregious ad loads and disruptive, irrelevant ad experiences. A report by PageFair and Adobe says that 16 percent of the U.S. online population blocks ads, an increase of 48 percent from the previous year.
But this type of ad blocking is just the tip of the iceberg, and the advertising industry needs to wake up and heed the warning signs. For advertisers, this is a call to action to create more compelling and relevant content that is tailor-made for each digital platform. For publishers and platforms, it is a call to action to further innovate and create experiences that align with consumer expectation, mindset and intent.

2) YouTube and Facebook will continue to square off, and it will probably result in a split decision.

In the video arena, each of these platforms offers tremendous audience scale and distinct advertising solutions: YouTube has Google Preferred and TrueView, and Facebook has people-based marketing. As brand marketers shift their broadcast budgets to these open platforms, they will demand certain assurances with regard to brand and content alignment, especially given the variety of uploaded content. Meanwhile, audiences will be equally demanding with their content and viewing experiences.
Two different constituents with a strong set of expectations will most likely result in a split decision. This is to say, one of the platforms might win with the audience, and the other platform might win with the advertisers. YouTube’s new ad-free subscription service, YouTube Red, is a strong step to diversify revenue and dependency on advertisers. Now the challenge is to prove they can convert a percentage of those billion-plus free viewers into paying customers.

3) Cord-cutting and cable unbundling will increase, making the “skinny bundle” an increasingly attractive option.

cord cutting emarketerThe latest forecasts demonstrate that a growing percentage of Americans are “cutting the cord” (4.9 million households in 2015) — and those in the business of television are rushing to keep up. At last year’s CES, Dish premiered its Web-based Sling TV service, which is designed to appeal to a younger generation of “cord-cutters” and “cord-nevers.”
In 2015, HBO, Showtime and CBS all debuted standalone streaming services. These new Web-based TV services — coupled with popular offerings like Netflix, Amazon and Hulu — have opened consumers’ eyes to the reality of the “skinny bundle.” As consumers adjust to the appeal of making a la carte programming choices, the industry will head directly into my next prediction…

4) The subscription video on demand (SVOD) wars are just beginning, ushering in a new disruptive, hypercompetitive era.

Disney CEO Bob Iger alluded to the fact that disruption was occurring in the multichannel television universe (cable), and that it wouldn’t be inconceivable to go direct to consumers with Disney’s flagship brand, ESPN. That in turn sparked a massive investor sell-off of TV-related stocks. That market shock might go down in history as the sounding bell for what will certainly become known as The Era of SVOD. Netflix, Amazon, Hulu, HBO, YouTube Red (as well as more niche SVOD players like Crunchyroll, DramaFever and NBC/Uni’s new Seeso, to name a few) are all vying for consumer attention and the accompanying subscriber revenue.
James Murdoch spoke plainly at the Goldman Sachs Conference last September about the power of OTT (“over-the-top” content, delivered digitally) and how it directly relates to increased control in a disruptive market. The major issues facing those competing in the SVOD arena not only includes subscriber acquisition, but also retention, given that consumers can unsubscribe with a simple click. In the race to attract paid subscribers, platforms that have large audiences viewing free content can be powerful conversion funnels. This bodes well for YouTube Red. The other SVOD players will need to leverage the scale of free viewing platforms to drive subscriber growth or quickly become irrelevant in the war for consumer attention.

5) Media companies will become data and tech companies in order to survive and thrive.

This last prediction is actually a warning. I’m a fan of creative IP and the machine that has honed that process of leveraging that IP to drive large media companies. But the biggest mistake anyone can make in this world of nonlinear streaming distribution with diverse global audiences is to think that a media company of tomorrow only needs to focus on yesterday’s playbook.
The greatest coup Netflix pulled off in its early days was to downplay with the media companies (from which it was licensing content) the importance of its data and the substantive role that data could play in building enterprise value. Today, we know that Netflix data (which isn’t shared externally) drives its development, production and distribution strategies and decisions. Its data is driving its growth, and growth is everything — especially when everything is up for grabs.


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