Faultline has been taking part in an online discussion (join the Advanced Television group on LinkedIn), and we continue to be amazed at how much effort goes into bemoaning the future potential loss or reduction in linear TV.
Most people on these discussion boards (consumers and people in broadcasting) think internet TV won’t amount to anything, things will stay the same, and even young people will one day subscribe to Freeview (DTT service in the UK) or cable and make do with that. They don’t understand that this generation is lost forever.
On this discussion board figures are spouted such as ‘even computer literate kids only watch 5 minutes a day on the internet and that’s on their PC.’ We find it incredible that a) people want things to stay the same and b) expect them too.
This is of course because most people have little imagination. We are old enough to remember phones coming into middle class domestic homes for the first time and when TV sets showed mostly black and white pictures. We suppose there were people back then who said that color was not needed and what’s wrong with the coin operated phone box at the end of the street.
That’s why, no matter what you think of things like Google TV, and how disappointed you may or may not be with video on your iPad, these things will emerge and become commonplace, as will 3D TV, one way or another (perhaps without the glasses) along with HD video conferencing from your TV. It just takes a little longer than everyone thinks, usually to work out who is going to pay for what on the equipment front.
But as for the notion that watching video over the internet is over-stated, we think the opposite is the case. The Pew Internet and American Life project has known for some time that people openly admit that using the internet means they watch less TV. In January this year it also concluded that 6% of US people so far have paid for videos, movies, or TV shows online, and back in June it did a specialist survey on video over the internet, and found that roughly half of all US adults have used the internet to watch or download video, with 18-29 year-olds leading the way. The viewing of movies or TV show over the internet rose this year from 16% to 32% of adult internet users. This is a tsunami, not an eddy current.
Respected screen research company DisplaySearch says that 21% of all TV sets shipped in 2011 will have an internet connection. This is around 40 million devices, so what are they going to do with it? Just watch linear TV? It goes on to say that some 122 million ‘connected’ TV sets will ship in 2014, more than half of annually shipped TVs.
Right now the biggest problems remain technical, transposing formats and transcoding codecs, but gradually that’s going away as the world settles on 3 or 4 adaptive streaming techniques for all video. The other problem is that there are few connections from a home gateway to a TV set, and who is going to run another Ethernet cable around their home, through doors, to their TV set.
What most people do, and will continue to do, is link these Connected TVs with WiFi. Right now hardly any of those connected TV sets have WiFi, which means that not all of them will end up being used. For instance in the UK none of the first generation Canvas boxes will come with WiFi and that’s a specialist box which expects an internet connection from the home gateway.
This is because no-one is quite sure yet which type of WiFi they want to put in there. WiFi signals drop about 15% of their packets on average, and to video that’s a serious problem. But there are a lot of solutions on the horizon. We have covered two specialist companies, AirTies and Celeno, who use MIMO and either add to the firmware, or offer a new chip or both. There is the 60 GHz version of WiFi and its neighboring specialist standard, Wireless HD and there is 802.11ac, a new version of WiFi, due around 2012, which does for WiFi what DOCSIS 3 did for cable ‘ uses wider channels (40 or 80 MHz wide) in the 5GHz band and can multiplex more than one channel for a single delivery.
A report this week from In-Stat, says that this 802.11ac technique will become standard and chips using it will rise from none right now to 1 billion devices a year by 2015, even though the spec has not yet been finalized. These will still need specialist firmware to support for video, but that’s a given at the 1 Gbps speeds that this will use. Right now there are opportunities here for WiFi equipment makers to send video capable WiFi across the room/around the house, and then plug it back into the Ethernet port of connected TVs’ in fact Turkish AirTies has launched its UK business almost entirely around supporting Canvas boxes next year with this additional wireless connectivity.
We think that we’d prefer this over shifting to 60 GHz (which is line of sight only) for the simple reason that these systems may well end up the wrong side of health scares, given that you are sending something close to a peak RF power emission of 10 Watts around your home, around a tenth of the power of a Microwave Oven.
So once the WiFi issue is resolved on connected TVs, tuning to the internet will be a little like changing the channel, with no-one having to do any messing around with wires, plugs or TV tuning modes.
At that point, if we believe US researcher Parks Associates sales of Internet-connected TVs will collectively reach 350 million by 2015, and we note that three of the mostly highly valued companies in the world, Apple, Microsoft and Google, have all seen fit to enter the business of making internet set tops (Microsoft did after all show an internet set top at CES), the world will be set to sample OTT content far more easily and far more cheaply.
So does this mean the death of Linear TV any time soon? Well, not right away. There are many pigeon steps to that outcome if it ever comes. But there are key landmarks.
Right now when we talk about OTT services we talk (in the UK and Europe) largely about broadcaster initiatives such as iPlayer and other players. In the US it’s more likely Netflix, Hulu, Roku, Amazon, Apple and Google TV and perhaps Hulu Plus. And these services will stimulate people to acquire devices which are capable of taking video over the internet. Companies like Google have a vested interest to open this up from solely being for internet delivered broadcast catch up, to any internet held video, and put ads on it. Apple won’t help, it likes Walled Gardens, but others, like TiVo will.
Slowly it will be possible for TV production companies to take projects which have failed to find a broadcast or pay TV sponsor and get their investment back by showing it over the internet in return for ad revenues – just like web pages. This could become a slow burn for about ten years, until we finally have companies who ONLY make video productions for the internet, who will by then have mastered SEO and integration with social networks to maximize that revenue.
Most broadcast networks around the world would go into worrying losses once they lose about 10% to 20% of their advertising, and unless they cut their expenditure on content, they become non-viable. Which leaves the entire TV industry slightly altering its content model and going cap in hand to online audiences like Netflix in the US, to pay for content creation as well as the best content creators pursuing less broadcast and more pay TV funding sources.
Netflix will give way to more Netflix style operations and funding transitions for companies like HBO. Netflix now has a frightening number of customers (20 million) and all those homes are watching a couple of hours of OTT video a week (so much for the 5 minutes a day estimates). This could accelerate the demise of free to air TV channels, with collapsed TV advertising revenues and lead advertisers to need more video internet opportunities.
Companies like Nielsen have so far always said that TV viewership continues to rise despite surveys like Pew Internet and American Life project pointing out that clearly it is not. It’s not that Nielsen is lying exactly but it alters its methodology each year to put its customers in a better light. That’s not sustainable and TV ad revenues will fall and internet ad revenues will rise around video.
In this clandestine, hidden fashion, it’s obvious that TV viewing has been on the slide for about 6 years, always disguised as a new viewing record somehow. In Pay TV, if there was also an unbundling event, where services are forced to let consumers buy just the channels they want, how many of the 300 channels in pay TV bouquets would consumers continue to support? And for each one which is dumped by Pay TV, that’s a video production company looking somewhere else and perhaps finding the internet as an outlet.
So this is a gradual change, and what accelerates it is the fact that right now Pay TV companies are prepared to sponsor the purchase of new equipment, which makes internet viewing on the TV viable. Once that happens it may take 10 to 15 years, but our linear publishing schedule will get more boring, and we will constantly be looking for new cool content – where else but over the internet.
Technology will also accelerate. Take the English language versions of the cop series Wallander. First there were some Swedish books, then some Swedish films, made years ago, then a Swedish TV series, now an English language re-make, perhaps the US will also make a version. What happens when Google can offer you real time voice translation (it does it for now the written word on web sites), why would you not watch the original Swedish version over the internet with English subtitles or voice over. We are not far, technologically speaking, from this opening up, giving us a huge global view of video, rather than the parochial view we have today.
So what we will actually witness is Pay TV attracting more homes than free to air broadcast. In the UK there are 13.5 million pay TV homes out of around 24 million, over 50%, in the US it’s more like 85% penetration of 111 million homes.
Slowly we drift to pay TV, but at the same time we are sampling OTT TV, and finding it cheaper than our pay TV subscriptions. For a while they will co-exist together. When someone does a Netflix across Europe (either Netflix or Amazon) and across the rest of the world, then suddenly no-one will bemoan the mass exodus from linear TV, because it will be an impoverished experience by then anyway.
Already we hear stories of children coming home at Christmas, plugging a laptop into the TV, and watched online for the whole Christmas period. No longer enamored of the linear TV model of yesteryear, and ignoring their parent’s wishes to watch linearly.
So while it’s okay for consumers to say it will never happen, our industry cannot allow itself that luxury and instead must plan to position all contributing suppliers into the OTT eco-system. Those that don’t do it soon enough, will become history.