Content owners are exploring new business models to reach eyeballs on the Internet, but it isn’t clear which way forward is the best, according to Tim Hanlon, founder and CEO of The Vertere Group. Vertere is a consultant firm that focuses on media, marketing and technology.
Hanlon, who moderated a panel at CES earlier this year, said he sees the entertainment ecosystem changing shape as consumer behavior shifts and entertainment technology advances.
“There’s a verticalization and a horizontalization of television,” he said. “Horizontally, you have the stretching of the ways in which people can watch a program of any sort – whether that’s on a device, tablet, laptop, the big screen. There are a lot of different entry points to consume video.”
“At the same time, there’s the verticalization of it, which is basically more time-based: the live thing, the time-shifted thing, the completely on-demand session-based thing, there’s even the binge thing,” Hanlon said. “The two simultaneous stretches going on, that changes the very nature of what consumers frankly call ‘television,’ that’s got to scare a hell of a lot of people in the current businesses.”
“We have a mantra of where television is going, from a consumer perspective. We call it ‘good enough TV,’ Hanlon said. “Consumers are increasingly savvy in terms of finding out the things that they really want, and putting together their own bundles, their own packages of stuff.”
As more viewers are now spending more time online, and are watching more content on-demand, content owners are facing a conflict of interests in capitalizing on current trends without hurting the current distribution models, Hanlon said.
“Les Moonves said he’ll sell content to anyone that wants to buy it – it’s great in the short term, it’s very valuable, you’ve got more bidders for more stuff,” Hanlon said. “The reality is that in the long-term, or the mid-term, it is starting to potentially undermine the current distribution models.”
Hanlon said content owners are at risk of undermining the value proposition of broadcast TV to viewers by licensing content to streaming services. “So while he [Moonves] will sell a CBS studio version of ‘CSI,’ it will in essence be chipping away at the broadcast television debut window – which is what CBS’ business is predominantly still predicated on,” he said.
Consumers are getting more comfortable with the idea of waiting six months to watch a show when it becomes available on streaming services such as Netflix. We think this trend is more prevalent among Millennials, who are accustomed to catching up on series on their own time tables, and cord-nevers, who would rather wait a few months to stream a show instead of signing up for pay TV to get access to content as it airs.
“The window strategy of yore is fast-changing,” he said. “I’m not certain that every content owner and distributor is geared toward the longer term game.”
As study after study points out, linear TV isn’t going away. Nielsen’s latest report found US viewers still watch 4 hours a day of live, linear TV content, though that number drops year after year. Hanlon and others on the panel pointed to poor user experience as part of the reason viewers are turning more attention to online services, where navigation and discovery are top-of-the-line compared to the TV experience.
“Arguably you have some of the gold nuggets sitting in an MVPD product,” Hanlon said. “The reality is that through poor guidance and navigation, poor interfaces and poor roll-outs, people don’t even know half the stuff they have.”
Dish Network and DirecTV have both launched Internet TV packages that are delivered primarily to connected and mobile devices. Dish Network’s OTT product, Sling TV, offers a basic cable package for $20 per month. DirecTV offers a targeted Latino-based Internet TV service, called Yaveo, for $8 per month. “It’s clear they aren’t doing this because it’s a cool thing to do,” Hanlon said. “They’re obviously responding to what they probably believe is some kind of change in consumer behavior.”
Skinny pay TV bundles delivered over the Web have another advantage over traditional TV. Web technology allows for advertisers to deliver targeted and relevant ads to viewers in a way that traditional broadcast TV can’t. “I think these next generation OVPs, the skinny bundles, have an advantage to deliver more targeted and digital-like ad messaging that could help with some of these costs of unbundling,” Hanlon said. Such new forms of advertising could potentially “be an economic engine for these bundles,” he said. He pointed to Dish chairman Charlie Ergen, who told investors the dynamic ad-insertion was an important part of Dish’s OTT offering.
Hanlon said that content owners and service providers alike shouldn’t underestimate consumers’ willingness to seek out content on new platforms. “Most people in the industry don’t give consumers credit for their increasing savvy and ability to arbitrage the choices available to them, and see which ones are free, which ones are paid for,” Hanlon said. “That’s one trend to watch going forward. Consumers are getting smart.”
“I think 2015 will be quite a seminal year for disruption,” Hanlon said, and listed upcoming issues such as “regulatory issues, what’s going on Capitol Hill, consumer trade groups, rewrites of the Cable Act, the continued fight for broadcasters on things like Aereo, the definition of what an MVPD,” as things to keep an eye on in the coming year.