Do you remember the first time you heard about video-on-demand? My introduction to the concept was in 1998 when I was working at Nettec PLC, an early internet consultancy, and I visited the offices of a potential client, Bryan Morrison, a music producer and agent, in London. A silver-haired, straight-talking cockney, fond of smoking big cigars, Bryan had represented, amongst others, Pink Floyd in the 1960s and, latterly, Wham! and George Michael. Now, during the first dot com boom, he had the idea of streaming concerts live for a fee. It wouldn’t work, yet, – the lack of bandwidth available to viewers was the biggest hurdle – but Morrison was a visionary and ahead of his time in imagining business models, customer acquisition strategies and seeing where internet technology might take us.
I was thinking about this a couple of weeks ago when I was having a chat with a European broadcaster about what might happen next in the future TV revolution. Our impression (his, from working in the industry since 2010 and mine, from interviewing 15 senior broadcaster, operator and service-provider execs for a report I was writing earlier this year) was that right now we’re into the fourth major VOD product cycle. The chronology – and current market context – goes something like this:
Cycle #1: 2006 – 2012: Getting your first VOD Products to Market
This was the pioneer phase which saw broadcasters launching first-gen services, attracting audiences, digitising back-catalogues (with the help of Netflix and Amazon who wanted to buy the content), securing rights, introducing simulcast and setting up asset and content management systems as well as new workflows for ingest, transcoding, metadata and live-to-VOD.
Cycle #2: 2012 – 2015: Upgrading Legacy Systems & Bringing in Specialist Suppliers
Many of those first major broadcaster VOD services were largely developed in-house using existing broadcast infrastructure. Whilst this methodology allowed for bespoke, fit for purpose, development, it was expensive and resource-heavy in terms of manpower, planning, designing and marketing. And by the time some technologies had been implemented, they were already semi, if not wholly, obsolete.
To overcome these issues, service-providers started engaging vendors who provided specialised solutions for each of the 30-odd stages in the “glass-to-glass” chain. By deploying external suppliers, broadcasters were able to take advantage of commoditisation, expert knowledge, experience of live implementations and increasing economies of scale to cut away some of their legacy systems and power their VOD products more cheaply and efficiently.
Cycle #3: 2015 – 2018: Monetisation, Getting on to New Platforms & Content Strategies
By now, boards of directors all over the world were looking for their VOD services to start paying for themselves. And they did – to an extent. Programmatic ad buying and SVOD experimentation led to greater digital revenues but generally not enough to cover the drop in linear ad income.
As an example, ITV posted net advertising revenue of £1.72bn in 2015 falling to £1.59bn in 2017 (down £128m). “Online, pay and interactive” income rose £60m during the same period (£188m in 2015, 248m in 2017). As a slight aside, the real bonanza for ITV was in its content production business which saw a revenue increase of £725m from 2013 – 2017.
At the same time, product teams were working on three core projects:
- Continued optimisation of their backend systems (including evaluation and rationalisation of their vendor rosters);
- Refreshing their user interfaces and introducing new features like sign-in, registration and content recommendation to grow and engage audiences;
- Ensuring that their VOD services were available on the final big platforms like Chromecast, Amazon Fire and HbbTV (via set-top boxes).
Cycle #4: 2018 –
And so, we arrive at the present day. I’ll be writing a 2019 VOD predictions piece later this month but for now, here are four things that I think might characterise this next product cycle over the next three years:
- The big CAPEX era, at least for most broadcasters with mature VOD services, is over.
I’m talking about internal infrastructure expenditure here rather than content acquisition, one-off licence fees for software solutions, systems integration projects or developing for new platforms (like automotive, AR / VR). New use cases for set-top boxes (controlling the connected home, IOT etc.), in all their form factors, mean that operators will continue to spend in this area too albeit that they’ll aim to adapt existing middleware rather than building their own operating systems. For technology vendors then, there’s still plenty to bid for especially if you factor in emerging markets and the rise of specialist VOD services (sport, D2Cs from film studios etc.). And expect to see more suppliers merging, grouping together in formal working partnerships or being acquired (e.g. Massive and W12 in the last month).
- Demographic shifts mean that established services will enjoy continued growth.
Online video was born into a scheduled world and as linear people (if you’re over the age of say, 25), we’ve all gotten used to the idea of on-demand viewing. There’s a whole generation of kids now, however, for whom VOD is their main method of accessing content; for them, it’s linear that is the curiosity. This trend will only continue so we’ll see strong growth for established VOD services (e.g. BBC iPlayer just posted its best-ever monthly programme request results). The counter-balance to this is that in the same way we, as over-35-year-olds, didn’t, when we were children, usually think about who the production company was for a show that we were watching, Gen Zs and even Millennials don’t care who the broadcaster is. Their loyalties lie with the TV show brand itself, the aggregator (Netflix, Amazon, Sky, Hulu etc.) and to the device they’re using. Product developers will need to tackle this conundrum perhaps through greater use of personalisation, content recommendation, innovative marketing and AI (see below).
- VOD and Broadcast teams are now remerging
The first broadcaster VOD services were often conceived and created by people that were already in the building (e.g. CTOs, editorial staff, producers etc.) and who were seconded to work on the new on-demand projects. Over time, online video became strategically important enough to warrant a dedicated and specialised internal workforce. Now, this trend is starting to reverse because of four factors:
– The relative maturity of the VOD infrastructure;
– The convergence of systems (e.g. live-to-air and live-to-VOD);
– A desire to centralise talent to work on common challenges like IP delivery;
– And the understanding that linear and on-demand aren’t separate activities – that audiences, wherever they are, expect to be served with a holistic and consistent product / brand experience. As one of my interviewees put it earlier this year, “Get real comfortable with TV not being about what’s on the telly”.
And it saves money of course. As the beat of the monetisation drum grows louder and more frequent, nine of the fifteen execs I spoke to told me that their VOD technology and / or product development teams were shrinking and that there was a move to re-amalgamate broadcast and VOD departments.
- Greater innovation – and experimentation – are key for growing ad revenues
Linear ad revenue is not falling off a cliff – in writing the report I mentioned earlier, I studied the finances of a range of broadcasters (PSBs, commercial and hybrid) across Europe and North America and found that on average, linear ad revenues fell by just over 8% between 2013 and 2016 – but there’s a realisation that the current advertising business model needs to evolve as more viewing shifts to on-demand. My interviewees cited a number of ideas / innovations that they planned to experiment with in the quest to grow sustainable digital ad revenues. These include:
– Merging linear and OTT ad sales teams so that ad campaigns can be sold across platforms to extend reach;
– Trying out different ad slots, formats, lengths;
– Charging differently for ads, offering different tiers and charging more for time-slot / TV show exclusivity;
– Using personalisation features to ensure that viewers don’t see the same ads repeatedly and that they experience targeted, rounded campaigns;
– Selling to “future customers” (brand recognition) rather than focusing on immediate campaign ROI;
– The desire for a holistic measurement system that unified standards and included both linear and VOD;
– “People don’t fundamentally hate advertising. They hate stupid advertising and they hate repetitive advertising and they hate advertising that treats them like they’re dickheads,” (senior exec at an APAC broadcaster).
Thoughts? Are we indeed in the fourth major VOD product cycle? And what do you think broadcasters, film studios, operators and service-providers will be focusing on over the next three years?