- January 12, 2015
- Posted by: Kauser Kanji
- Category: OTT
Instead of making the usual predictions, here are some VOD industry developments that we’ll all be thinking about in 2015.
Hello, a belated happy new year and welcome back to work! It’s customary at this time of year to make some predictions about the twelve months ahead but I imagine that you’ve read quite a few of those already. Instead, here are some industry developments and talking points that I suspect we’ll all be thinking about, in one way or another, in 2015.
Tell us what you think in the comments box at the bottom of the page or via Twitter @consultVodkr.
#1. Will the Success of The Interview lead to more Premium VOD trials?
The Interview starring Seth Rogen and James Franco was, as we know, initially pulled in December after a cyber-attack and threats made to cinemas planning to show the movie. Eventually, Sony Pictures did release it on a limited basis and on VOD via Google Play, YouTube and a range of other platforms.
Online revenues have been impressive: just ten days after the movie came out, Sony announced that The Interview had made $31m from VOD and $5m from cinema tickets. Not bad for a film that cost $75m to produce and market. Does the success of this unplanned experiment signal that studios may decide to release more movies straight to VOD or at least simultaneously to theatres and online?
I’m not so sure. We’ve been here before with “premium VOD” – DirecTV and Disney amongst others have tried but ultimately dropped the notion – and the arguments for and against all eventually lead back to one overriding sentiment: the existing distribution model for new movies ain’t broke; there’s nothing to fix. Expect it to stay that way until someone comes up with a better business plan or audiences decide they no longer want to watch content on the big screen. Talking of which…
#2. American Box Office Receipts Went Down 5% in 2014; SVOD and EST rose by over 25%
Over the holidays, the Guardian newspaper reported that the “North American box office in 2014 is expected to wind up at $10.4bn, 5% down on last year’s record $10.9bn.”
By contrast, SVOD revenues in the US increased by 25.81% according to figures published by DEG (Digital Entertainment Group) at CES last week. That market is now worth over $4 billion a year. Electronic Sell-Thru figures were also up a massive 30.4% to $1.5bn. There was some bad news however: TVOD sales were down 6.68% to $1.97bn and total US home entertainment spending fell by 1.8% to $17.8bn.
Was it just a bad year for new movies? Maybe. But these numbers also suggest that in terms of price / demand elasticity, SVOD services are likely to see more sustainable long-term growth than pay-per-view offerings.
#3. As SVOD Rises so Linear Viewing Continues to Decline
Ofcom’s Communication Market Report 2014 cited figures from BARB which stated that here in the UK:
“Average daily viewing dropped from 241 minutes in 2012 to 232 in 2013 among all individuals, with all age groups experiencing declines… However, among 16 to 24 year olds viewing has declined for three consecutive years: from 169 minutes in 2010 to 148 in 2013.”
Moreover, according to its own Digital Day research, Ofcom said that:
“UK adults spent on average 4 hours and 17 minutes per day viewing audio visual content through a variety of media. Sixty nine per cent of this viewing was to live TV and recorded television accounted for a further 16%. Viewing online content represented 10% (consisting of 5% on demand catch-up services such as BBC iPlayer or 4oD, 3% on other downloaded or streamed services such as Amazon Prime Video or Netflix, and 2% on short video clips). A further 5% was spent on physical media such as DVDs or Blu-ray.”
My sense is that things are worse for linear viewing than those stats suggest and that’s mainly because there’s no mention of active vs. passive viewing. When we switch our television sets on we’re not always intently watching the show or movie that’s presented to us – the TV can sometimes just be a window into the world. When you fire up a video on your tablet or smartphone however, you’ve gone to the trouble of opening an app (or visiting a site) and are actively choosing something to watch.
I suspect that if BARB or Ofcom ever measured this type of engaged viewing their figures would be markedly different. Either way, the bell is tolling for linear broadcast television especially among younger viewers.
#4. Is Netflix Becoming a Broadcaster? Are Broadcasters Behaving More Like Netflix?
Despite some gripes about its user interface and the way it presents its content catalogue, Netflix has in the space of three years gone from being an all-American import to a daily part of our viewing diet here in the UK. It’s now hard to imagine life without it. The next stage in Netflix’s quest for world domination is making even more original content – up from seven original or continuing productions in 2014 to twenty-six this year (Ted Sarandos, Netflix’s chief content officer, is on record as saying that he wants the service to be launching a new original series or season of content “every two and a half weeks or so”) – and in this way, Netflix is behaving like a traditional broadcaster: conduct audience research, commission pilots, take some risks, hedge your bets, hope that a healthy proportion of new shows go on to become hits and syndicate. Repeat.
In the opposite direction, traditional broadcasters are now starting to take on more Netflix-like characteristics by opening up their archives, offering pure SVOD (in the case of Sky’s NOW TV and the upcoming HBO and CBS streaming services) and TVOD (BBC Store) options and incorporating better content recommendation functionality into their on-demand services (see #7 below). Incidentally, by “pure SVOD” I mean unrelated to a cable or triple / quad-play subscription.
Ultimately, the distinction won’t matter. Audiences care only about fast and reliable access to quality content for a price that represents good value. If your brand has a reputation for satisfying these needs then customers will come to you whether you’re a broadcaster or a stand-alone VOD service provider.
#5. Does Quad-Play have a Limited Lifespan?
You’ve finished university, have started a new job and are now renting a flat with one or more housemates. Yay – welcome to the world of adulthood! On the surface, things feel pretty similar to when you were a student: people still use public transport, listen to music, go to the pub, desperately try to get off with each other on a Friday night and aim to lead happy, fulfilled lives. The difference now is that you have a bit more money in your pocket to help do these things. And with this extra cash you’ve noticed that rather inexplicably, anyone over 25 seems to actively want to pay for access to digital entertainment.
They pay to watch TV, movies and sports instead of using BitTorrent, pirated streams or apps. They pay for fixed-line broadband – well, there’s no way around that you suppose; 4G is too expensive and impractical for heavy bandwidth usage. They pay for the ability to make landline calls from home when it seems entirely superfluous; who even does that anymore? They pay for a monthly subscription to a smartphone instead of just “topping up”. And most crazily of all, they’re happy to pay one or maybe two companies sometimes over £100 a month to provide this “quad-play” proposition when they clearly don’t need to. Madness!
You’re not going to do this. With your new-found spending power you’ll invest in a connected TV (with Freeview Connect) and maybe a tablet so that you can watch catch-up and on-demand TV shows and movies. You’ve realised, incidentally, that paid VOD services are usually more stable than pirate streams and there’s no hunting for torrents or waiting for things to download so you’ll shell out for Netflix and maybe a NOW TV puck. You’ll reluctantly get fixed-line broadband but only until 5G kicks in which promises to let you download 33 HD movies in a single second. That data package comes with your smartphone subscription so you’ll keep that for a while – that’s the only “cord” you can’t imagine cutting for now (and is that why BT just acquired EE you wonder?). Even then, internet access will eventually be truly recognised as a basic human right and the state will have to provide it so you won’t need to fork out for that anymore. As for your home phone “talk” contract, well, you’ll pay the bare minimum you can because it’s entirely unnecessary.
“Silly adults,” you think. “Luckily, my generation is going to inherit the Earth!”
#6. Necessary Back-end Upgrades
I’ve spoken to a number of broadcasters both at home and abroad over the past twelve months who have been making necessary upgrades to their back-end infrastructures. I say “necessary” because these jobs were often delayed in the rush to get minimum viable front-end products launched on different platforms.
So far, development (or rather re-development) has been concentrated on cloud storage, encoding and transcoding on the fly (that is, digitising content or repurposing existing digital files into different formats), workflow and scheduling. These are fundamental and large-scale projects that can dramatically increase the efficiency of front-end delivery and performance and save money in the long term by migrating operations away from antiquated and costly legacy systems.
The improvements made by the BBC with its Video Factory are a good example of this and some seriously talented people who don’t usually get much external recognition at many of the UK’s leading broadcasters are leading change. In turn, suppliers like BeBanjo (for scheduling), Nativ (for workflow) and Brightcove (following its acquisition of Zencoder and Unicorn Media) are being recognised for their best-in-class products.
I hear that more back-end work is planned for 2015 and for companies to look again at the way they handle things like metadata, media asset management, dynamic ad insertion and linear to VOD content delivery and dissemination.
#7. Content Recommendation & Personalisation
Ah, content recommendation – that old chestnut. We’ve been talking about it for years, glancing enviously at Netflix and wondering why we can’t do the same. Well, we kind of can and have albeit in a minimalist sort of way. Sky’s HD set-top box, for example, includes suggestions based on the content you’ve previously viewed; BBC iPlayer now includes an upgraded “You may also like” element and lots of other VOD services offer similar functionality.
The problem is that most live content recommendation implementations are founded on pretty basic algorithmic, content based filtering principles (see here for a full explanation of the different content recommendation philosophies). To effect a true Netflix-style approach you have to fold collaborative filtering and some human curation into the mix. This takes serious effort, time, money, logistical planning (which platforms do you enable it on first?) and a solid business case which explains the benefits to decision-makers. These include: greater viewing and engagement, more advertising revenue potential, better reputation and goodwill and crucially, in the medium to long-term as linear viewing falls away, the perception of your VOD service as one of the must-turn-to “channels” for an evening’s entertainment.
Implementing personalisation features should, in theory, be easier in that through a single sign-in the best VOD products (e.g. 4oD, Vevo etc.) enable favourites, play and watch lists, device synchronisation and parental controls. In theory. In practice, just getting past the question of whether to make users register with your own service or via a social network like Facebook or Twitter (and the various integrations, responsibilities and marketing opportunities, knock-on effects for CRM and / or billing systems that these factors engender) is, from experience, a serious strategic discussion that providers will consider. Better to kick it into the long grass (aka 2016’s Development Roadmap)? Maybe. But this is functionality that users are coming more and more to expect as standard.
#8. New Services, New User Interfaces?
When was the last time you saw an online video service user interface and thought, “Wow, that’s cool”? For me, it’s been a while and I look at UIs all the time (partly out of geekish interest and partly because it’s my job in helping to maintain our VUI Library product). I used to be in love with Vevo on iPad but their most recent upgrade is, in my opinion, a backward step. Netflix (which never shows me Recently Added or New Releases anymore), BBC iPlayer and Amazon Instant Video are a little underwhelming. The real innovations, I’ve found, come from suppliers who have the room to experiment without the pressure of immediately satisfying / pleasing audiences.
Aesthetically, Vinson, the Dutch white-label VOD service provider, has a lovely, bouncy feel which mimics the haptic quality of using an iPhone or iPad. From a performance perspective, both Brightcove – which has a video player that is five times faster to load than YouTube – and Vision247’s Perception (industrial design but superfast, super reliable, super-functional UI) are worth name-checking. And the Swedish white-label service, Magine, definitely deserves a mention combining, as it does, a clean interface and linear / VOD features. But what’s next?
In 2015, I’m looking forward to seeing Channel 4’s replacement for 4oD called All4 (part-developed by Ostmodern), HBO and CBS’s new SVOD streaming services, Project Ethan from Sky which is likely to include a new set-top box and cloud storage – expected in September) and the new BBC Store from BBC Worldwide.
#9. Who Wins the VOD Wars?
It’s been nearly nine years since Sky and Channel 4 launched their VOD services; just over seven years since BBC iPlayer went live; maybe six years since Amazon Instant started streaming; three years since Netflix hit the UK and eighteen months since BT Sport televised (and VODevised) its first Premier League football match. Writing this down reminds me how young the on-demand industry really is. But is current longevity any guarantee of long-term longevity?
The mantra we’re told is that content is king. You could add that content is also ker-ching. Better content = more subscribers (or TVOD buyers) = greater sustainable revenue = greater investment in more content. A virtuous circle has been established and incumbents seem to be embedded. But are they? Sky, for example, could lose its Premier League football rights in the next auction due to be concluded in March. Equally, Netflix and Amazon, which are both pioneering pilot episodes / seasons, could end up with failures on their hands.
And then there are the predators in the grass. Vodafone has announced that it will launch new broadband and TV services this spring; Alibaba had a record-setting $25bn IPO on the New York Stock Exchange in September and is rumoured to be eyeing the television market and Apple, Microsoft and Facebook are all sitting on big pots of cash trying to figure out what to buy next. Finally, of course, there’s Google. Will it ever get its act together with YouTube?
Overall, we’re some way away from finding out who the long-term VOD winners are.
#10. How Much is a TVOD Service Actually Worth?
I was initially a bit perplexed by the news last week that Blinkbox had been sold by Tesco to TalkTalk for just £5m. “Why so cheap?” I wondered especially since the TVOD company comes with “400,000 paying customers a month, a well-known brand name; plus Tesco’s broadband and fixed-line voice customer bases, which have 75,000 and 20,000 users, respectively” according to Business Insider magazine.
In that context, £5m would seem to be a bargain. But then I talked to a few friends in the industry and did some maths and found that maybe this really was the going rate for a TVOD service. The rudimentary numbers I used were as follows:
- 400,000 paying customers a month each spending on average £3 per transaction = £1.2m;
- About 70% of that goes to the film studios / content-owners = £840,000. That leaves Blinkbox with £360,000 a month or £4.3 million a year which is then used to fund technology, staff, premises, other licensing activities, future investment funds and marketing.
That doesn’t leave a lot of net profit. If TalkTalk was working on a x3 profit valuation then £5m seems about right. Any thoughts?
In conclusion, I have a feeling that 2015 is going to be a kick-ass year for online video and I’m looking forward to reporting on the future of television in the next twelve months! As ever, leave your comments below or tweet us @consultVodkr.