Discovery Communications has taken a bold step into OTT by launching an ad supported Internet only network complete with original short form content produced specifically for online consumption. However the channel called TestTube is more of an each way bet than an experiment, since Discovery Channel stands to gain whatever the fate of its traditional outlets in bundled pay TV services.
In fact Discovery’s chief digital officer Jean-Briac was being disingenuous when he insisted that TestTube was pitched squarely at the company’s traditional 25 to 54 year old demographic market when it is clearly targeted at 18 to 34 year olds and mostly males at that. This can be seen from the launch content with shows like ‘Shots of Awe’, ‘Blow It Up’ and ‘Nature Hates You’ which are not notably touchy feely or reflective and rather different from the staple diet available on the other channels. This was more or less admitted by Jim Louderback, CEO of Revision3, the Internet TV content producer and distributor company acquired by Discovery to enter OTT and its partner in the TestTube venture, who indicated that it was important to target the 18-34 demographic as they would be the future viewers paying one way or another, whatever happens to pay TV bundles.
Revision3 was founded in 2005 focusing initially on general programming for cable TV but has turned increasingly to production and distribution of nonfiction content for online platforms. This set it up perfectly for Discovery Communications’ emerging online strategy based on original content, with the acquisition for around $35 million coming in May 2012.
During the year of planning and development for TestTube, Revision3’s online audience has grown over 175% and its number of video streams has more than tripled. It has also launched several channels based on podcasts and content from Discovery Communications’ online assets including Discovery News, while signing various producers and presenters that specialize in online content, such as the Fine Brothers and gaming expert Adam Sessler.
There are 15 short-form series for the launch and more in the pipeline, with distribution continuing through Revision3’s existing outlets, including its mobile site and apps along with YouTube, Xbox, Apple TV, Roku and various distribution partners, as well as the new TestTube site.
One of the challenges for such ventures is how to pitch the content and monetize it. The established YouTube audience has been built around often rather quirky short form content and Discovery says its shows for TestTube represent an attempt to bridge the gap between that and the slicker more polished traditional content. At the same time it is going for a large part of the sector, mostly young and predominantly male, that is currently outside pay TV. This is where the hedge is, for if pay TV maintains its current penetration many of the young target audience for TestTube will in time become subscribers, with the aim then being for the content to carry them along and entice them to sign up to a package as they become more affluent. This in turn will feed into and sustain Discovery’s existing business model in pay TV distribution. But if on the other hand the recent cord cutting trickle turns into a torrent and online platforms do gain substantially more eyeballs for premium content then with TestTube Discovery will have a strong stake in the ground and be well placed to compete.
Discovery is little different here from its competitors, but it has gone further in dispensing with the conventional TV Everywhere strategy whereby it rides along with the online strategies of its pay TV distribution partners in making primarily the same content available online, subject to rights agreements. Instead TestTube is producing original content exclusively for online consumption.
The move comes at a time when Discovery has actually been gaining share across its existing 25 to 54 demographic market, increasing the number of people watching its content per night by 10% to 846,000 over Q1 2013. But according to audience monitoring group Nielsen, Discovery’s flagship Discovery Channel lost 6% of its viewers in the 18-34 age group over the past season.
Having noted this trend for several years and been witnessing growing competition for young viewers in the online sector, Discovery decided it should take the risk of launching a full blown online channel. It also calculated that this would not cannibalize its existing audience that already subscribe to pay TV as the programming is quite distinct and targeted.
Discovery Networks is also in a distinctive position by specializing in non-fiction content, while its major competitors in this genre, such as Time Warner, NBCUniversal and Viacom, are better known for fiction content.
The nearest equivalent is the National Geographic Channel (Nat Geo), which airs non-fiction TV programs, mostly produced by the non-profit making National Geographic Society. However Nat Geo is majority owned by News Corp’s Fox Cable Networks, along with the sibling network Nat Geo Wild, which focuses on animal programming. The two together then cover the same ground as Discovery, but so far have taken the conventional route to OTT by making existing programming available online.
There has been a trend towards acquisition of dedicated online content producers among Discovery’s competitors, along the lines of its Revision3 deal. Time Warner for example led a $36 million investment round in Maker Studios, which produced YouTube content, in December 2012. Then in May 2013 DreamWorks Animation paid $33 million for YouTube teen network Awesomeness TV.
We now know following Netflix’s success with the US version of the political drama House of Cards modeled on the UK series of the same name over two decades earlier, that online content does not need to be radically different or shorter form. But that was compelling episodic fictional content, so that lesson may not quite carry over to non-fictional genres, which probably does have to be shorter and snappier to attract online audiences, particularly on tablets and smartphones.
But what Netflix has shown is that content made exclusively for online consumption can pay big dividends. It picked up 3 million subscribers, including 2 million in the US alone, during Q1 2013 when House of Cards was going out. Of course it was gaining subs anyway so those numbers are not attributable just to House of Cards, but it did lead to a spike, and the total gain amounted to an increase in revenues of over $70 million for the quarter alone, not so far short of the $100 million Netflix spent on producing the House of Cards series. It also increased stickiness, with 90% of Netflix subscribers reporting that “House of Cards” made them less likely to cancel, according to a survey by financial services company Cowen.
The lesson for nonfiction distributors is that the online market has come of age and they need to embrace it, in their case with original content to increase their audience base, while perhaps in time providing a new dimension for traditional customers.