Documenti di Didattica
Documenti di Professioni
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NEWS
THETHEVALUE OF
VALUE OF CONTENT
CONTENT
ABLE OF CONTEN
TABLE OF CONT
TABLE OF CONTENTS
5
FOREWORD
6
KEY MESSAGES PART 1
THE ROLE OF CONTENT IN
THE CURRENT TELEVISION
INDUSTRY
12 24
EXECUTIVE
SUMMARY
PART 2 PART 3
THE ELEMENTS OF SCENARIOS FOR
CHANGE WITHIN THE INDUSTRY EVOLUTION
TELEVISION INDUSTRY
42 64
PART 4
IMPLICATIONS FOR KEY
INDUSTRY PARTICIPANTS
78
NTS
TENTS
PART 1
THE ROLE OF CONTENT IN THE CURRENT TELEVISION INDUSTRY
Two traditional ecosystems ......................................................................................................................................................... 27
Different markets, different rates of evolution ..................................................................................................................... 32
The value of content: Two-thirds of the $500 billion global TV market – and growing .................................... 34
The strategic role of content in the value chain ................................................................................................................. 35
Changes, not disruptions – until now? ................................................................................................................................... 39
PART 2
THE ELEMENTS OF CHANGE WITHIN THE TELEVISION INDUSTRY
The major forces at work ............................................................................................................................................................. 44
Significant industry changes ......................................................................................................................................................... 50
First-order implications for key players .................................................................................................................................. 60
PART 3
SCENARIOS FOR INDUSTRY EVOLUTION
Scenario 1: Gradual evolution within the current industry structure ........................................................................ 66
Scenario 2: Disruption driven by the rise of multiplatform navigation ..................................................................... 69
Scenario 3: Disruption driven by exclusive entertainment content ............................................................................ 72
Scenario 4: Disruption driven by the direct-to-consumer strategies of content creators
and broadcast networks ............................................................................................................................................................... 74
Scenario 5: Disruption driven by online content aggregators moving into linear streaming
of broadcast networks ................................................................................................................................................................... 76
PART 4
IMPLICATIONS FOR KEY INDUSTRY PARTICIPANTS
Implications for content creators and rights holders ........................................................................................................ 80
Implications for broadcast networks ....................................................................................................................................... 81
Implications for infrastructure-based subscription TV distributors ............................................................................. 83
Implications for online content aggregators ......................................................................................................................... 85
Tuning in to the future ................................................................................................................................................................... 86
This is an industry made up of three key segments: content owners, and rights holders; FTA and Subscription
TV channels; and distributors and aggregators. Our report is focused on the nature of change in the industry
and primarily focused on the potential implications of these changes for the channels, distributors, and
aggregators.
We are publishing this report as the industry is facing a higher degree of uncertainty about its future than
at any other point in history. Our goal is to stimulate discussion among industry decision-makers, influen-
cers, and academics. We hope this work challenges conventional wisdom and provides a valuable contri-
bution to the ongoing industry discourse.
* For example, television programming versus either user-generated video or two- to three-minute professionally
produced video segments.
4 | 5
K
KM
key messages
EYKEYMESSAGES
KEY MESSAGES
MESSAGES
relationships, and value capture. Over time, » The development of technology infrastruc-
ture (streaming network topology, connected
this might be as disruptive as the changes devices, and software) capable of delivering
a high-quality video experience directly to the
experienced by the music, newspaper, TV; by 2017, 74 percent of the European Union
and magazine industries. and 96 percent of the U.S. will have access to
“video ready” fixed broadband
» Increased availability of high-quality online
content, including professionally produced
television entertainment
Until recently, the nature of change in the » New and cheaper models of online content
video industry (FTA and Subscription TV value creation that are driving large audiences
chains) has been evolutionary as opposed to dis- assisted by a new breed of industry player, the
continuous; with every new development, most multichannel network; the most successful
players were able to gradually modify their strate- YouTube series, for example, have a given
gies and business models in order to continue to be “episode” reach several million viewers for a
successful. cost well under $50,000
The emergence of a new online-content value These forces have led to significant change
chain is threatening that history of incremental in consumers’ viewing behaviors, in particular the
change, and is changing roles, relationships, and following:
value capture. » Whilst overall viewing time still grows, consu-
mers’ content viewing habits are shifting to
These changes might, over time, be as dis- the online value chain increasingly at the
ruptive as those experienced by the music, news- expense of FTA and Subscription TV viewer
paper, and magazine industries. ship (by 2020, the average global viewer is
expected to watch 24 hours of online content
$530 billion (U.S. dollars) are at stake for per week)
the incumbent actors across the content, broad- » Driven by serialized entertainment, consu-
cast networks, and distribution and aggregation mers are increasingly viewing time-shifted,
segments of the value chain. non-linear content (by 2020, half of all enter-
tainment viewing in the U.S. is expected to
Content – its ownership, aggregation, and be non-linear, with the Europe Union trailing
monetization – is at the center of these changes, closely behind)
and $530 billion will be redistributed in large part
on the basis of which players are able to retain
content as a key control point.
Key Messages
S
These forces are also showing early impacts » Players across the value chain are diversifying
on the traditional FTA and Subscription TV value their portfolios to position themselves around
chains: key content assets to drive future value,
» An increasing share of TV ad money and manage content cost, or both
consumer spending is moving into the online
value chain Disaggregation of value from the traditional
» Content value is shifting away from commo- ecosystem driven by the emergence of the online
ditized, second-run content to compelling value chain has created a specific set of risks for
mass entertainment and sports and high- incumbent actors:
engagement niche programming entertainment » Distributors and aggregators, to prevent a
and sports and high engagement niche pro- decrease in the value of their physical video
gramming infrastructure and protect video content
» Content creators are capturing a slightly larger revenues, are being forced to adjust and
percentage of industry value with enhanced diversify their video offerings and make up
bargaining power for revenue losses over multiple platforms
Exhibit 1.0
ONLINE/MOBILE DRIVING VIDEO CONSUMPTION GROWTH GLOBALLY Nr. of hours
per week spent
Mobile video Online video TV per media type
75
60
6
45 18
1
1
30
38 37
15
0
1940 1960 1980 2000 2020
Source: Carat insight media survey; European Technographics Benchmark Survey; emarketer; Gallup TV meter; SKO; MMS; BARB AdvantEdge; Mediametrie;
CIM TV; Eurodata TV, The Nielsen Company; BCG Analysis
8 | 9
KEY MESSAGES
» Broadcast networks will face more pressure » Exclusive content, where platform-exclusive
in passing along their increasing content costs high-profile content (for example, sports or
to distributors and will see TV advertising original entertainment content) are the key con
revenues erode as monies move online and tent assets acquired exclusively by distributors
non-linear; potential unbundling, as consu- to differentiate in a multiplatform world and
mers buy content from a variety of available drive customer acquisition
à la carte offerings, will necessitate a greater » Direct-to-consumer service, which bypasses
emphasis on direct consumer relationships infrastructure-based distributors, content, and
and content that appeals strongly to a mass or broadcast networks with high-quality content
very niche audience and strong channel brands
» Content creators and rights holders, which » Linear streaming aggregation, which is online
have relied on strong TV buyers to grow content aggregators’ ability to obtain streaming
revenues and promote their content assets, content licenses from key FTA and Subscription
will gain new buyers and new business TV channels, is the key asset-disrupting facili-
models to monetize their content over an ties-based aggregation and distribution
increasing number of platforms and forms
of content usage The implications of each scenario lead to
distinct actions across incumbent and new players:
There are a number of future industry sce- » Content creators continue to be advantaged
narios, centered on content ownership and aggre- across all scenarios, particularly those that own
gation, that together bound the range of outcomes must-have content that drives significant audi-
from gradual, evolutionary change to one of the ences or small, loyal fan bases
following potential disruptive changes: » FTA channels with mass content will also be
» Multiplatform navigation with cross-platform well positioned if they can manage the shift
content-navigation capability as the entry point from traditional, live TV viewing to multiplat-
to all video and the key asset to acquire form, time-shifted viewing
customers
Key Messages
10 | 11
E
ES
executive summary
XECUTIVE SUMM
EXECUTIVE SUM
EXECUTIVE SUMMARY
The television industry has a long history of roles, shifting control points, and effecting enter-
change – from the way content is captured (first prise value?
on film, then videotape, and later, digital media)
to the way it is delivered (via live broadcasts, then As there is and will continue to be
cable, satellite, and online platforms) to the way a lot of uncertainty, another key question
it is consumed (via television sets, computers, becomes crucial: What actions should
tablets, and mobile phones). These changes have current players contemplate taking to
brought new players with new business models chart a successful path into the future?
to the landscape. But through all of these chang
es, the fundamental structure of the industry has These questions lie at the heart of this report.
remained relatively constant.
To address them, we look back at the evolution
Until recently, the most fundamental change of the industry to date, identify and evalu
ate
in the history of the television industry was the the key trends that are affecting the industry
evolution from one value chain, free to air (FTA), to
day, suggest several alternative scenarios for
to two value chains, FTA and Subscription TV. But how the industry might evolve, and finally, discuss
despite these changes, the fundamental struc- high-level implications for different types of players
ture of the industry remained relatively constant. as they look forward across these potential scena-
Content rights and content creation has remained rios. Understanding this is crucial for every player
core to value creation, as have the relative roles of at every stage along the value chain, for it is a pre-
creators (such as studios), broadcast networks, requisite to knowing how best to act and how to
and distributors. Content creators and rights move forward as the industry moves forward in
holders provide programming to broadcast net- new and perhaps disruptive ways.
works; the broadcast networks, in turn, program
and package content into channels for linear
consumer viewing; and distributors then deliver it
to television sets and other viewing devices. Each PART 1: THE ROLE OF CONTENT IN
of these roles within the value chain has, for the THE CURRENT TELEVISION INDUSTRY
most part, retained its key relationship to others
and has thrived in the face of all of this change. Two traditional ecosystems
The television industry began with just a single
But now, there are a number of new changes business model: free to air, or FTA. Content was
affecting the industry – changes introduced by the broadcast over the airwaves in unencrypted form
development of an online television value chain. and revenue was derived from either advertising
The question is whether this and a number of related (in the U.S.) or public tax levies (in many European
changes – discussed in more detail below – will markets). However, by the 1980s (in the U.S.)
continue to be evolutionary. Will industry players and the 1990s (in the European Union), another
continue to adapt to them successfully, or will they, ecosystem, Subscription TV, emerged. The Sub-
for the first time in the industry’s history, create scription TV value chain – including cable, direct-
significant disruption, changing the nature of these to-home satellite, terrestrial, and the IPTV networks
MARY
MMARY
Executive Summary
of telecom companies – enabled the delivery of accounts for some 65 percent of the direct revenues
dozens to hundreds of channels through a single earned by content creators.
infrastructure. Under the Subscription TV model,
new commercial broadcast networks developed News has more strategic than economic value
that generated revenue not only from advertising for broadcast networks and content creators. In fact,
and public tax levies but also from consumer sub- it accounts for only about 2 percent of direct pay-
scriptions. ments to creators (and rarely creates sustainable
profits for networks). But it can help channels offer
Both the FTA and the Subscription TV models a full range of programming and, while it can take
relied on the same overall structure for creating, varying forms, some more premium (for example,
aggregating, and delivering content, with players investigative journalism) than others, it is generally
at each stage along the chain assuming a well- not as expensive as sports and entertainment.
defined and well-understood role. Significantly, the
emergence of the Subscription TV ecosystem did Entertainment programming drives the lion’s
not harm the FTA model. Competition did increase, share of network profitability; broadcast networks
but with more viewing pathways available, viewing rely heavily on it (in the UK, for example, entertain-
time – and revenues – increased, too, and every ment content accounts for 74 percent of all broad-
element of both ecosystems thrived and grew. cast hours). And within the Subscription TV ecosys-
tem, entertainment content accounts for the bulk of
Content was at the center of these ecosystems. overall carriage fees distributors pay networks. But
In 2014, 36 percent of total industry value went to entertainment content also has a unique risk com-
content creators and rights holders, and 34 percent ponent: from idea to development to production,
went to broadcast networks. Content creation and more shows fail than succeed, and even those that
curation drives two-thirds of the industry’s revenue. get on a network’s schedule have just a 41 percent
chance of making it to a second season. However,
The strategic role of content hits – the shows that run for multiple seasons – can
While all content has been, and will continue to be highly lucrative for a network and studio. The
be, critical to the evolution of the television indus- risk profile of entertainment content is also reflected
try, different types of content play different roles. in the level of the licensing fees of that content.
Each of the three main genres of content – sports,
news, and entertainment – triggers a unique set of Changes, not disruptions – until now?
roles, relationships, and economics. Clearly, the video content industry has seen great
changes over the past half century. Yet the nature
Sports, particularly must-see events, in many of these changes – in most markets, at least – has
markets is a significant differentiator among been evolutionary as opposed to disruptive. Players
broadcast networks and distributors, and vis-à-vis have adapted. With every new development, most
the new online value chain. Not surprisingly, those players were able to gradually modify their strategies
that control the rights to top sports events can typi- and business models in order to continue to be
cally sell them at premium prices. Although sports successful.
accounts for only 15 percent of all viewing, it
14 | 15
EXECUTIVE SUMMARY
However, the last few years have seen the The question is: Will this scale ad-
emergence of several new trends that may lead to a vantage remain in place as mechanisms
greater degree of disruption. One of the most critical are developed by online video players to
of these is the emergence of a third value chain: replicate that impact in the online video
the online content ecosystem. Its appearance – and value chain?
increasing embrace by consumers – has started to
raise questions about whether the industry’s his-
tory of incremental change is likely to continue, or
whether this time, the changes will be as disruptive PART 2: THE ELEMENTS OF CHANGE
as those experienced by the music, newspaper, WITHIN THE TELEVISION INDUSTRY
and magazine industries.
Through all the changes the industry has expe-
There are key reasons to believe that this new rienced, the relationships among the different types
value chain might create disruptive change. The of players were well defined.
online and mobile ecosystem supports new view
ership patterns – particularly non-linear viewing, Today, significant new trends – triggered by the
where content is watched “on demand,” and not ac- emergence of the online ecosystem – raise the
cording to a schedule fixed by a broadcast network. prospect that perhaps the industry’s history
Moreover, online video does not require channels of incremental change will, in fact, be history. The
or other content aggregators (such as the emer- music, newspaper, and magazine industries have
ging wave of online video aggregators, including already been disrupted by online pathways. Is
YouTube and Netflix) to own or operate physical television next?
infrastructure – the cable networks, broadcast
towers, or satellite fleets that have traditionally Three key forces – all emerging and acting in
delivered content to consumers. Instead, video can unison – are driving the changes now being
travel over any broadband Internet connection. seen in the television industry:
2. The increased availability of high-quality These forces, in turn, are spurring the trends
online content, including professionally pro- that are reshaping the industry today. Speci-
duced television entertainment. fically, they have led to six key developments
While user-created videos may have once been that, together, are leading to significant change
the mainstay of Internet-delivered content, today’s in the structure and relationships that have long
lineup is largely professionally produced and inclu- defined the video content business:
des new-release television shows as well as cata-
logs of past seasons. Even live TV is being made Online viewership is becoming significant –
available over the Internet via services such as increasingly at the expense of FTA and Subscrip
Sling TV and PlayStation Vue in the U.S. and Sky tion TV viewership in several markets. While over-
Go in the UK. all viewership is increasing, the growth in several
markets is coming from online viewing – a pattern
3. New models of original content creation that is more pronounced among younger viewers.
Emerging, too, are new low-cost production By 2020, the average global viewer is expected
models for creating professional – and in the most to watch 37 hours of “traditional” TV each week,
successful cases, profitable – content for online essentially the same as the 38 hours watched
channels. Assisted by a new breed of industry player, in the early 2000s. But online viewing will have
the Multichannel Network (MCN), content creators increased from a couple of hours a week to approx
are challenging the long-held assumption that imately 24 hours.
quality content is expensive to produce. While an
episode of a top broadcast network series might Viewing is undergoing a major shift to non-
attract 14 million or more viewers and cost linear consumption. On-demand viewing – where
up to $5 million to produce, a top YouTube viewers choose when to watch programming in-
series might see an episode reach several million stead of being locked into a schedule set by a
viewers yet cost well under $50,000. And with the broadcast network – isn’t a new concept. But the
MCNs (whose ranks include the likes of Collective new online aggregators and VOD providers are
Digital Studios and Vevo) providing production and making this a particularly compelling experience.
promotion support, the path to content creation By 2018, nearly half of all entertainment viewing
has been simplified as well. in the U.S. is expected to be non-linear, and many
European countries are quickly following.
At the same time, the lines are blurring between
content creators and aggregators. Companies such Online value capture is beginning to follow
as Netflix and Amazon, both of which initially viewers. Three primary business models have
licensed the rights to distribute content, are com- emerged within the online ecosystem: advertising-
missioning their own high-quality, mass-market supported video on demand (viewers watch for free),
programming: TV series that in every way resemble transaction-based video on demand (viewers pay
the programming found on traditional broadcast for individual units of content), and subscription-
networks. based video on demand (viewers pay a monthly fee
16 | 17
EXECUTIVE SUMMARY
to access a content library). While value capture is gators and infrastructure-based distributors are
still in its early stages, all three of these models are expanding into content creation, whether by com-
expected to experience significant growth. missioning original programming or acquiring their
own production capabilities. Meanwhile, content
The profile of valuable content is changing. creators, FTA and Subscription TV channels, and
With online pathways, there are now more ways distributors are expanding into online via internal
than ever to access content. With nonlinear vie- development or external acquisitions. For many
wing, there is now more flexibility in when that of these players, the rationale for these moves is
content is viewed. Together, these factors are simple: to improve the access to content (and
having an impact on what content is considered improve the terms of its acquisition) and to stay
valuable. Top-tier entertainment – for example, live relevant in an increasingly online-centric world.
events and original scripted and unscripted pro-
grams – and compelling niche content have gained These trends are already having some
an audience; second-tier “filler” content – for initial implications. But this is just the be-
example, entertainment reruns that fill time slots in ginning. The current trends are not static
a linear world – is seeing its audience erode. and they will continue to develop. And
if the changes they spark do prove in-
The distribution of value across the supply creasingly disruptive to the structure and
chain is relatively stable, but it is slowly shifting business models of the industry, what will
to content creators. While the industry’s value – that mean?
the sum of the subscription fees, advertising re-
venues, and so on – continues to grow, we are
starting to see a shift in how it is being divided.
Content creators and rights holders are the benefi- PART 3: SCENARIOS FOR INDUSTRY
ciaries here at the expense of broadcast networks EVOLUTION
and distributors. This is not surprising, perhaps,
given the many new players on the scene com- With so many significant and simultaneous
peting with traditional players for the most in- changes taking place, it is impossible to predict
demand content. their ultimate impact, but we believe that no single
industry structure will emerge across markets. In
Key industry players are diversifying their stead, in looking at the current trends and the spec-
business portfolios as they seek to get ahead of trum of outcomes, we believe that five scenarios in
shifting control points. Already, there are signs particular are possible and that most markets will
that in the emerging content landscape, some in fact be a blend of two or three of them (depen-
players may be able to structure profitable busi- ding on factors specific to each market). Each of
nesses without relying on their traditional partners. these scenarios will have its own implications for
As a result, we are seeing the beginning of a battle players along the content value chain – and for the
for key content assets along the value chain – a strategic value of content itself.
battle reflecting a “make or buy” dilemma in view of
spiraling content-licensing costs. Online aggre-
Executive Summary
18 | 19
EXECUTIVE SUMMARY
Scenario 3: disruption driven by exclusive these players will no longer have certainty about
entertainment content. revenues, and viewer acquisition efforts will add
In this scenario, both traditional distributors and to their costs. Then there is the matter of investing
online aggregators invest in exclusive sports and in Internet connectivity for reliably delivering video
entertainment content. Under this strategy, they content – critical since that content will no longer
utilize high-profile content available only via their be delivered by traditional distributors. Yet for those
service to differentiate themselves and drive custo- who do take this route, there may be an oppor-
mer acquisition. Already, infrastructure-based dis- tunity to capture more value from their viewers, as
tributors, such as British Telecom and DirecTV, content-related revenues will not need to be shared
have made high-profile deals with sports leagues with distributors.
to carry exclusive content. And online aggregators,
such as Amazon and Netflix, are increasingly If this scenario succeeds and enough con
-
creating their own original programming. tent creators and broadcast networks can deliver
their own content, the impact could be severe for
Clearly, this scenario will have a positive im- traditional distributors. They would likely see cord
pact on the owners of sports and entertainment cutting accelerate and their importance in the value
content. With distributors and online aggregators chain diminish. Online aggregators will likely lose
battling for exclusive content – and competing, subscribers, as well, since users may be able to
too, with other players who want it – the prices for cherry-pick enough direct-to-consumer offerings
top content will rise. For smaller distributors and to make their services unnecessary. Yet even for
aggregators, this doesn’t bode well: if they can’t content creators and networks, the impact of this
afford enough exclusive content, they risk losing scenario will vary. Those that have enough strong
market share. But for larger players, the benefits – content and a strong brand – the HBOs – will have
if they invest in content wisely – can greatly out- the best chance for success. Those that don’t will
weigh the costs, increasing their subscribers, and struggle with this model, having to invest too much
with them, their importance in the value chain and to attract viewers or having insufficient content
their bargaining power with networks. with which to woo and retain them.
that advantage by licensing network content from PART 4: IMPLICATIONS FOR KEY
key FTA and Subscription TV channels and com- INDUSTRY PARTICIPANTS
bining it with their own nonlinear offerings to offer
the best of both worlds. For industry participants, the crucial task is to
consider what these potential scenarios mean for
If online aggregators succeed in this endeavor, their path forward. What steps can they take to
they could potentially replace traditional distribu- help spur the most favorable scenarios? What ac-
tors in the content value chain (hence, this is the tions should they be taking to prepare for possible
worst case scenario for infrastructure-based play- future outcomes? While the answers will vary, we
ers, especially those without strong broadband or see a specific set of implications – and responses –
nonvideo businesses). Smaller online aggregators, relevant for each type of content player.
however, will be less likely to play this game, and
they run the risk of disintermediation, too. Sports rights holders that own “must have”
content of high strategic importance across all
Market-specific factors will play a key role scenarios will continue to be in an advantaged
in the likelihood of these scenarios. The more position. The value of their rights will almost cer-
mature video markets, such as Germany and the tainly increase, even dramatically. That same con-
UK, where broadband is readily available and tent, moreover, may enable them to create their
non-linear viewing already has become popular, own compelling direct-to-consumer offerings. They
are much more likely to see direct-to-consumer should continue to put their increased bargaining
offerings and disruption from online aggregators. position to work, mining incremental value from
Yet markets where online video capabilities are their rights negotiations and splitting these rights
less developed and consumers are still largely across formats and pathways.
watching linear TV are a quite different story. They
provide traditional players with an opportunity to Entertainment content creators and rights
proactively shape the market, and solidify their holders will also be in a strong position, and those
own standing, by pursuing a navigation or exclu- with a critical mass of in-demand content – and
sive content advantage. strong brands – have the potential for generating
added value through direct-to-consumer offerings.
Even without taking that path, however, the grow
ing array of distribution pathways will increase
“windowing” opportunities, where rights are split
across platforms, geographies, and time periods,
maximizing the value generated by a single unit
of content.
20 | 21
EXECUTIVE SUMMARY
FTA broadcast networks are already compe- Infrastructure-based distributors that have
ting on the basis of hit content – a dynamic that well-developed video and broadband infrastructure
will serve them well in all scenarios. Yet in a non- will be well positioned going forward. They have
linear world, a key advantage that these players the customer relationships and navigation experi-
have – the ability to use a highly rated series or ence that can help them develop – and differentiate
sports event to generate awareness and viewer – via multipathway content curating (creating the
ship of other programming – will decrease. This entire video experience through their “front door”).
makes it important to embrace that nonlinear Larger players – with their larger budgets – will also
world and develop online products and services be in the best position to differentiate via exclusi-
that maximize the reach of their content (as many ve content. Smaller providers that lack the scale
FTA networks have already done, for example, by to build integrated navigation layers and the bud-
making content available on iTunes, Hulu, and TV gets to buy sufficient exclusive content will need to
Everywhere apps). expand their capabilities. That won’t be easy, but
smartly crafted partnerships, mergers, and invest-
Subscription TV broadcast networks tend to ments can help.
be much more content- and genre-focused than
FTA networks, and among them, brand and con- Online content aggregators, some of whom
tent strength vary widely. Those with strong con- are already thriving, face a strategic choice: protect
tent and brands are well positioned for pursuing their position in nonlinear viewing or directly attack
direct-to-consumer offerings. A savvy approach is traditional distributors by licensing linear content.
to develop these in parallel with more traditional The optimal path will depend on several factors:
partnerships with infrastructure-based distributors their competitive position and financial strength,
and online-only aggregators. All of the scenarios, the status of the infrastructure-based providers in
however, present a less promising outlook for chan- their market (household penetration, network qua-
nels that provide “second tier” content – the pro- lity, level of customer satisfaction, and market po-
gramming that either does not have mass appeal wer), and regulatory frameworks. Online aggrega-
yet or does not draw a dedicated niche audience. tors face tactical choices, as well: Do they pursue
Unless these players can tweak their programming subscription-based or advertising-based models
mix, they almost certainly face declines in viewer – or a combination of the two? There is still much
ship, advertising revenues, and carriage fees. debate – and much to be resolved – about which
is the best approach. In the meantime, aggregators
should keep a close eye on how the various models
perform. They should think, too, about whether –
and how – to expand internationally.
Executive Summary
22 | 23
P
P1
part 1
THE ROLE OF CONTENT
IN THE CURRENT
TELEVISION INDUSTRY
IN THE CURREN
TELEVISION I
THE ROLE OF CONTENT
Almost since its inception, the television indus- and types of value chains have grown. So, too, has
try has seen continuous technology-driven change. another key characteristic of the industry: content
Content that was primarily distributed live and over rights and related production have been at the core
the airwaves would, in a steady stream of develop- of value creation – and the center of a complex
ments, be captured on film, videotape, and digital series of relationships among the different elements
media and be delivered via a growing number of the value chains.
of platforms: cable, satellite, the IPTV services
of telecom operators, and more recently, online. Each of those elements – content creators and
Content came to look differently, too. Initially, rights holders, broadcast networks, and the aggre-
shows were in black and white, then in color, then gators and distributors that deliver content to
in high definition and even 3-D, and now, with the consumers – has remained more or less focused
emergence of new standards such as 4K, in ultra on its key role in the chain. Indeed, outside of
high definition. publicly funded broadcasters, examples of integra-
tion across roles have traditionally been rare. And
Along the way, new players came on the scene, each type of player has, in general, thrived as the
as did new content value chains – ecosystems industry has evolved, driving growth in revenue,
for getting programming to viewers. The original earnings, and value.
public and commercial free to air (FTA) model was
joined by Subscription TV and now is being joined The question is this: Will this still be
by online video. The new pathways brought more the case in the future?
content to more viewers. They spurred innovation.
And they brought increased competition to every It is a question many in the industry are – or
stage of the business. should be – asking. The emergence of the online
value chain, of nonlinear (or “on demand”) viewing
Yet even with all of these changes, the core patterns across large segments of consumers, and
structure and nature of the industry hasn’t changed of new approaches to content creation with new
all that much. Content creators and rights holders players and business models holds the potential for
provide content to broadcast networks that, in turn, triggering significant changes. This time, the scale
get it to consumers through distributors (tradition of the changes may be such that they do prove
ally, infrastructure-based providers such as cable disruptive to the historical evolution of the industry.
and satellite providers). Although the relationships
among content producers, rights holders, and
broadcast networks are changing, the general
dynamic has held constant even as the number
NT
INDUSTRY Part 1
Already, some broadcast networks are starting The FTA model operated under a structure that
to break free of downstream distribution partners is still in place in today’s television industry – a
and deliver their programming directly to consum structure defined by the roles the different players
ers. Some content creators and rights holders, at the different stages of the value chain played.
meanwhile, are starting to bypass their network In the U.S., content was created primarily by
partners and also go direct to consumers – or even independent studios – postfinancial interest and
create their own channels. Aggregators and distrib syndication rules – that licensed their content to
utors – companies that traditionally relied on other broadcast networks that, in turn, distributed their
elements of the chain for their content offerings – analog video stream through local TV stations. All
are increasingly investing in content creation. And three key elements of this value chain ran as inde-
then there are the big-footed players from outside pendent businesses, with successful value capture
the television ecosystem: companies such as at each stage.
Apple, Amazon, and Google are starting to enter
this business with objectives that may not be In the European Union, the model was similar,
aligned with the traditional flow of value. but it had a few differences driven by the regulatory
environment and the role of governments. In these
These trends and their potential implications markets, funding for much content stemmed from
will be explored in detail in this report. In this first government tax levies, which supported quasi-
part, our objective is to establish the context for public content production entities that were inte
examining the current trends and what their future grated into broadcast networks – such as the BBC
(and indeed, in some cases, very near future) impact and ITV in the UK, ARD and ZDF in Germany, and
may be. We do this by describing the industry as TF1 in France. Unlike their U.S.-based counter-
it evolved into its current state, how it has been parts, FTA channels in the European Union were
defined by roles and relationships that have taken distributed by third-party infrastructure providers,
form over the past half century, and how the role of whose broadcast repeaters operated on a pure
content in shaping industry structure and value has services basis, with revenue coming from fees paid
developed along the way. by the FTA channels.
26 | 27
THE ROLE OF CONTENT
Exhibit 1.1
FTA VALUE CHAIN
Within the Subscription TV ecosystem, the roles revenue, the distributors sold subscriptions to
of the players largely mirrored the FTA model. consumers, earning monthly fees in return for
Creators and rights holders licensed their content to access to the channels they bundled and delivered.
broadcast networks that, in turn, programmed and
delivered the content to cable-, satellite-, or IPTV- Yet even if the basic structures of the value
based distributors such as Comcast and DirecTV in chains were similar, changes were afoot. The
the U.S.; CLTUFA in multiple European countries; development of a richer multichannel environment
Kabel Deutschland, Unitymedia, KabelBW, and spurred both competition and innovation. New
other regional cable providers in Germany; and content creators emerged to serve the larger number
Ziggo in the Netherlands. As in the FTA model, of channels that could be distributed over these
revenue for content creators came from either tax new platforms. New broadcast networks emerged
levies (when the content was carried by public with new business models. In the European Union,
broadcasters) or commercial broadcast networks. Subscription TV accelerated the development of
The broadcast networks, in turn, derived revenue commercial, advertising-supported channels –
from advertising and from carriage fees they independent entities that weren’t owned or funded
received from distributors. To generate their own by the government. New premium subscription
Part 1
Exhibit 1.2
THE FULL VIEW OF THE TWO VALUE CHAINS: FTA AND SUBSCRIPTION TV
Premium channel
Subscripton TV
media a
RECREATED LOGO
channels, such as HBO in the U.S., Premiere in and Subscription TV alike – thrived and grew. To
Germany, Canal+ in France, and BSkyB in the UK, be sure, new Subscription TV services did capture
emerged as direct consumer-pay services on top a large share of viewing and advertising revenue.
of government-funded and commercial broadcast Whereas once – when FTA was the only player in
networks. town – 100 percent of households with televisions
watched FTA channels, over time, most markets
As the Subscription TV ecosystem innovated saw Subscription TV take between a 20 and 70
and grew, one might think its rise would mean a percent share of viewing and advertising revenue.
fall for the FTA value chain. But as competition
increased and new business models gained trac-
tion, every element of both value chains – FTA
28 | 29
THE ROLE OF CONTENT
Exhibit 1.3
SUBSCRIPTION TV WAS FORMERLY A NEW ECOSYSTEM, THAT EVOLVED
TO CREATE INCREMENTAL VALUE AND STEAL SHARE FROM INCUMBENTS
100
Viewing share 75
of FTA and Sub TV
Subscription TV
in the U.S. 50
FTA TV
25
0
1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
% Sub TV FTA TV
100
Advertising 80
share of FTA and
Subscription 76 75
60 81 81 81 80 80 80 79 77 78 78 77 77
TV in the UK 89 87 85
40
20
21 23 22 22 23 23 24 25
19 19 19 20 20 20
11 13 15
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
However, with so many channels now available, revenue in both value chains – with subscription
presenting so many more “viewing opportunities,” dollars burgeoning – translating to expanding
the time individuals spent watching TV increased. revenue, profit, and enterprise value for players at
Combined with a growing consumer economy in each stage of each chain.
the U.S. and European Union, this spurred rising
Part 1
Exhibit 1.4
MATURITY OF AD AND SUBSCRIPTION REVENUES OVER TIME
IN THE U.S. AND EUROPE
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
30 | 31
THE ROLE OF CONTENT
Different markets, different rates of fee-based premium channels – varies widely across
evolution the world. In Switzerland, for example, more than 97
percent of households with televisions held TV sub-
Within these overall trends, the tele- scriptions in 2014. Yet in Spain, just over 19 percent
vision industry developed differently in did. Subscription TV spending can differ greatly from
different markets and is still at various region to region as well. While it accounted for 7.2
stages of development today. percent of median household disposable income in
Australia in 2014, the figure was just 1.3 percent in
Subscription TV penetration – the percentage of the Netherlands.
households that have any kind of TV subscription,
from basic cable with hundreds of FTA channels to
Exhibit 1.5
SUBSCRIPTION TV SPEND VARIES IN A LARGE SPECTRUM ACROSS
THE WORLD
7,2 %
3,8 %
3,3 %
2,8 % 2,9 % 2,9 %
2,3 %
1,5 %
1,3 % 1,3 % 1,3 %
Sub TV
98,8 % 63,7 % 91,8 % 97,3 % 69,7 % 30,8 % 19,4 % 54,3 % 69,4 % 85,8 % 28,7 %
penetration1
Sub TV
21 22 21 31 34 34 38 53 48 85 107
ARPU ($)2
Note: 2014 figures; Household income adjusted for purchasing power parity; PayTV refers to basic access and premium payTV subscriptions
1. Penetration ofpPayTV HH in total TV HH per country; 2. Among payTV subscribers in the country; nominal USD
Source: iDate, 2014, OECD, Luxembourg Income Study
Part 1
Exhibit 1.6
LINEAR TV VIEWING VARIES ACROSS THE GLOBE
Minutes/person
per day
300
283
Ø 221
200 257
241 246
222 226
206 214
191 196
100 152
32 | 33
THE ROLE OF CONTENT
Exhibit 1.7
70 % OF INDUSTRY VALUE FALLS IN CONTENT
Σ = 70 % $ 530B
30 %
34 % 100 %
36 %
The strategic role of content in the This might seem like a formidable task; after
value chain all, video programming comes in many forms,
from the police procedural to the reality TV show
In all markets, content has played a crucial role in to the championship tennis match. But in fact, all
defining industry structure and creating value. Over of these forms fit broadly into one of three content
time, this has led to a complex set of interdependent archetypes: sports, news, and entertainment. The
and complementary approaches to monetizing characteristics of these genres – and more im-
content across the value chain. To understand this portant, their strategic impact – differ and in quite
fully, however, we need to go a level deeper and significant ways.
look at the different genres of content, as each trig-
gers a unique set of roles within the industry and
different underlying economics.
Exhibit 1.8
WITHIN ECOSYSTEM, WIDE VARIETY OF CONTENT FITS THREE MAIN GENRES
Scripted entertainment L
everage/control with rights
holders
Film Sports
Serialized drama
Procedurals
Comedy L
argest share of viewing 37 % 74 %
... and value
Reality E
mergence of new buyers and
Shows time-shifted viewing moving
Events power upstream to content
... Entertainment producers
% of viewing
% of cost
1. Representative of the UK
Source: Ofcom, SNL Kagan, BCG Analysis
34 | 35
THE ROLE OF CONTENT
36 | 37
THE ROLE OF CONTENT
Exhibit 1.9
ENTERTAINMENT PRODUCTION: A LONG AND COSTLY JOURNEY LEADS
TO A SUCCESSFUL SHOW
“Success”:
Idea sourcing Concept Pilot process Production three-plus
development years
180 48 12 3 1
success
pitches scripts pilots shows
Studios continuously Scripts will be Pilot will be shot for best/ Top pilot will make it to actual
approaching networks with developed for the best/ preferred scripts production
ideas for new shows preferred ideas Many pilots rejected Once shows are on air, failure
before airing rates are still high
Only 41% make
it to a second season
Source:BCG Analysis
» Role Within the Value Chain. Entertainment significant premiums – particularly once a
is the key driver of profitability for broadcast show is successful – from broadcast networks
networks, typically accounting for the lion’s that need top-rated programming to attract
share of earnings. Not surprisingly, networks large audiences. In the Subscription TV model,
have come to rely heavily on the genre. In the networks then pass these costs on to
the UK, for example, entertainment program- distributors in the form of increased carriage
ming accounts for 74 percent of all broad- fees. This is a key reason why in most markets
cast hours. As a result, it is the key source of around the world, the content creation indus
negotiations along the value chain. Successful try is both independent and highly fragmented,
studios, actors, and producers command with intermediaries – such as Creative Artists
Agency, ICM Partners, and William Morris En-
deavor – auctioning access to key content-
creation talent and organizations.
Part 1
38 | 39
Exhibit 1.10
THERE ARE NOW THREE INDUSTRY VALUE CHAINS: FTA, SUBSCRIPTION
AND THE EMERGING ONLINE VALUE CHAIN
Premium channel
Subscripton TV
media a
RECREATED LOGO
On the surface, the online value chain has much Yet there are key reasons to believe that this
in common with key aspects of the traditional FTA new value chain might create disruptive change.
and Subscription TV value chains. It is comprised The online ecosystem supports new viewership
of the same major elements: content creators and patterns – particularly nonlinear viewing, where
rights holders, broadcast networks, and distributors. content is watched on demand, and not according
And it is supported by both advertising revenue to a schedule fixed by a broad
cast network
and consumer subscriptions. or distributor. Moreover, online video does not
require networks or distributors to own or
Part 1
40 | 41
P
P2
part 2
THE ELEMENTS OF
CHANGE WITHIN
THE TELEVISION
INDUSTRY
WITHIN THE TE
INDUSTRY
THE ELEMENTS OF CHANGE
Several key forces are beginning to change the The major forces at work
nature of the television industry. These include the
emergence of new high-speed digital pathways Like a perfect storm, three key forces are simul-
and related video-enabled devices, the increasing taneously driving change in the TV industry.
availability of traditional television programming
through these pathways, and the development of Advances in technology. The emergence of
new lower-cost models for the creation of profes broadly available high-speed fixed and mobile
sionally produced content – content that in the broadband is enabling large numbers of consum
most successful cases is drawing mass audiences. ers to access video independent of traditional
infrastructure-based pathways – on mobile devices,
In turn, these changes have led to PCs, and potentially most important, TV sets.
several significant trends that are chang
ing industry dynamics and beginning IP networks – the backbone of the Internet –
to have an impact on traditional players have long had the technical capability to deliver
and roles – as well as leading to new video content to consumers. What they lacked was
“attacker models.” the ability to do so well, without the delays and
fuzzy images that frustrated viewers. The emer-
In this part, we discuss these three key forces, gence of a streaming-ready IP infrastructure along
the trends they are spurring and the impact they with advancements in video compression tech
are having on traditional players, and the initial re- nology – capable of reliably delivering high-quality
sponses we are seeing. video – has changed that. By 2017, 74 percent
of TV households in the European Union will have
access to highenough-quality fixed broadband (in
the U.S., almost all households – some 96 percent –
will). At the same time, Wi-Fi hotspots and high-
speed LTE mobile networks are proliferating, with
deployments increasing at a rapid rate.
ELEVISION Part 2
Exhibit 2.1
STREAMING-READY FIXED BROADBAND INFRASTRUCTURE IS IN PLACE TO
SUPPORT ONLINE VIDEO DEMAND
North America is almost fully OTT ... and the European Union is
enabled ... following quickly
60 50
2013 2014E 2015E 2016E 2017E 2013 2014E 2015E 2016E 2017E
Meanwhile, devices are doing a better job of directly to televisions (so-called Smart TVs, which
rendering video content – even in high definition – have the necessary software built in and therefore
thanks to advances in microprocessors and dis- can stream without any additional hardware).
plays. And a growing array of hardware – gaming These aren’t niche products, either. By 2017, an
consoles such as Sony’s PS4 and Microsoft’s estimated 160 million streaming devices and 250
Xbox One, along with a new generation of set-top million connected consoles will be installed across
devices from the likes of Amazon, Apple, Nvidia, the globe – on top of the 900 million tablets and
and Roku – are able to stream online content 850 million Smart TVs that are expected.
44 | 45
THE ELEMENTS OF CHANGE
Exhibit 2.2
GLOBAL NUMBER OF TABLETS AND CONNECTED/SMART TV’S IS
EXPECTED TO APPROACH ONE BILLION DEVICES IN 2017
Note: Forecasts do not take into account the launch of $35 streaming sticks such as Chromecast
Sources: 1. Informa 2012, 2. IDC 2013, 3. Forrester Research 2012
The emergence of these connected devices, Online pathways have achieved critical
combined with wireless distribution of data in mass. They have the technical ability to
the home, is enabling online content delivery to effectively deliver video content, and they
the existing installed base of flat panel and HDTV are widespread enough to do so for a vast
sets to compete directly with traditional infrastruc- audience.
ture-based TV delivery. And growth has exploded
over the past few years. In the U.S., for example, The increased availability of high-quality,
the aggregate number of households with a TV professionally produced television entertain-
connected to the Internet is now more than 50 ment. The development of these new pathways
percent of total homes. In the UK, the figure is would have no impact without the availability of
north of 25 percent. content that consumers want to watch. Over the
past several years, the quantity and quality of
professionally produced new-release television
shows, along with catalogues of past season high-
value content, have increased tremendously. This
Part 2
change has created the opportunity for seamless, time to market for launching online products and
on-demand time shifting of recent TV shows, as services. The numbers are reflective of the trend:
well as the ability to go back and pick up prior- according to recent estimates, as many as 460
season episodes of favorite shows. unique OTT services were available globally by
mid-2015.
Regional and global online aggregators, such
as Hulu and Netflix, offer thousands of hours of New models of original content creation.
original content. Hulu has carved out a niche Finally, these new pathways are leading to new
in offering content between one and seven days approaches to creating professionally produced
after a program’s “live” television airing; Netflix has television content – content created specifically for
exploded in part due to its unique “content online distribution. Particularly significant is the
stacking” of multiple seasons of high-value content development of lower-cost models for producing
from FTA and Subscription TV channels, often content that is, in the most successful cases, both
offering every season of a given series. profitable and attracting mass audiences.
Increasingly, live linear content is also being New digital studios are challenging the indus-
made available over the Internet. The recent try’s long-held belief that producing quality content
launches of Sling TV and PlayStation Vue in the must be expensive. An episode of a top series on a
U.S. have joined existing players such as Sky broadcast network might attract 14 million or more
NowTV in the UK. And third-party players have viewers but cost up to $5 million to produce. Yet
emerged to lower the barriers to entry for tradi- a top series on YouTube can reach several million
tional players. Zattoo, a Swiss company whose viewers at a per-episode cost often well under
technology can transmit live TV programming over $50,000. Content from PewDiePie, the Swedish
the Internet, is one such vendor, offering mobile producer and host of YouTube’s “Let’s Play” videos,
telecom companies, smaller cable operators, and is estimated to have gained some 9 billion total
other providers a white-label solution for deliver- views by June 2015 – and to have generated for
ing TV channels over their broadband networks – his company, PewDiePie Productions, $7.4 million
without having to build a platform from scratch. in revenue in 2014, according to the Swedish
Such products reduce the complexities, costs, and newspaper Expressen.
46 | 47
THE ELEMENTS OF CHANGE
Exhibit 2.3
NEW AND CHEAPER CONTENT PRODUCTION MODELS ARE EMERGING
AND WINNING AUDIENCES
FTA channels have huge reach Subscription TV channels have Online content is driving mean
and subsidize costly top-tier series dedicated audiences and sub- ingful viewership at a fraction of
with high advertising dollars sidize costly content via subscrip- the production cost
tion fees
Viewers in M Cost / Episode in $M
Digital studios are challenging a long-held belief that quality content must be expensive
1. Blended average over all seasons; 2. Estimated cost in the first season; 3. First season: approx. 3M per episode, last season: approx. 3,5M per episode;
4. Average number of viewers of the last 10 episodes – on January 13, 2015, the 10 episodes in question were published between January 6 and
January 13 2015; MCN = Multichannel Network
Source: Press search, BCG Analysis
This “YouTube model” has spurred the emer- In return for this assistance, some measure of
gence of yet another type of content player: the revenue – and sometimes even intellectual property
Multichannel Network, or MCN. These firms – rights in the content – go to the MCNs. The contract
which include Vevo, Machinima, and Collective terms will vary. The creator and MCN might jointly
Digital Studios – provide production and promotion own the content, the MCN might own it 100 percent,
support to content creators. Often this includes or the MCN might offer only a licensing agreement,
funding, digital rights management, music cle- keeping 100 percent of the ad revenue. There are
arances, studio and editing facilities, and most many permutations.
im
portant, support for content monetization (via
advertising, merchandising, and other revenue
streams).
Part 2
What sometimes gets lost in the discussion of They are able to do this because they value
these new production models is that they create the investment in the context of its impact on
opportunities for established players as well as new customer acquisition and retention – not unlike the
entrants. Many of the key investors in MCNs, for approach pioneered by HBO in the 1990s. Netflix,
example, come from the ranks of traditional content for example, spent more than $100 million to
companies, including Comcast, DreamWorks, Pro- produce the first two seasons of House of Cards.
Sieben, FreeMantle Media, and RTL Group. But it only needed to increase its subscriber base
in the U.S. by some 1.5 percent to break even on
New approaches to producing content are now that investment. In the process, House of Cards
being applied to traditional TV formats, too. A very became the first original online series to be
visible example of this is the way online content nominated for a Primetime Emmy Award in a
aggregators – companies such as Netflix and major category (its first season received a total of
Amazon – are increasingly commissioning and nine nominations in 2013, and it ultimately won
producing high-impact, mass-market programming three awards). The series’ critical and commer-
comparable to what consumers would view on a cial success not only propelled Netflix’s subscriber
FTA or Subscription TV channel. numbers but also helped establish it as a key player
in the video content industry.
Exhibit 2.4
ONLINE/MOBILE PLAYERS INCREASINGLY INVOLVED IN ORIGINAL
CONTENT PRODUCTION
100
Amazon 24 9
4
Netflix 18
80
Hulu 9
BBC 9
Microsoft 5 60
YouTube 3 100
Vevo 87
1 40
NBC Universal 1
Fox Sport 1 20
Full commissions
Dailymotion 1
Pilots
Apple 1
0
0 10 20 30 TV series, Movie Other Total
pilot
# of commissions # of commissions
48 | 49
THE ELEMENTS OF CHANGE
Exhibit 2.5
ONLINE VIDEO TRAFFIC IS INCREASING – BOTH ON FIXED AND
MOBILE NETWORKS
80 15
70,1 13,2
0 %
+2
60
58,7 21 % 2 %
+6
31 %
48,9 10 9,0
25 %
40,6
40 29 %
33,8 35 %
32 % 5,8
27,9
36 % 79 % 5 3,6 38 % 69 %
39 % 75 %
20 71 % 2,1 41 % 65 %
68 %
64 % 1,2 62 %
61 % 44 %
47 % 59 %
53 % 56 %
0 0
2013 2014E 2015E 2016E 2017E 2018E 2013 2014E 2015E 2016E 2017E 2018E
Viewers are embracing the new video- flat to declining viewing levels for traditional
distribution pathways at the expense of the FTA and Subscription TV pathways. Indeed,
traditional value chains. Overall video viewing by 2020, online viewing will account for nearly
has grown on a global basis for decades. And 40 percent of all video consumption – some 24
while there are specific differences across ge- hours per week for the average viewer, up from
ographies, in general, this growth is continuing. just a couple of hours per week in the early 2000s.
But its composition is shifting. Almost all of the
increased viewing is in online and mobile with
50 | 51
THE ELEMENTS OF CHANGE
Exhibit 2.6
VIDEO CONSUMPTION IS SHIFTING, WITH ALL GROWTH ATTRIBUTABLE
TO ONLINE AND MOBILE
V
ideo consumption growth globally U.S. / DE online video-growth examples
Nr. of hours per week spent per media type Avg. time per week with with video in hours
75 50
+4 %
40
30 CAGR '11-'14
60 +122 %
20
6 +22 %
10
-1%
0
45 18
2011 2012 2013 2014
1
1
Avg. time per week with video in hours
30
50
40
38 37
30 CAGR '09-'12
15
+22 %
20
+2%
10
0 0
1960 1980 2000 2020 2009 2010 2011 2012
1940
Source: ICarat insight media survey; European Technographics Benchmark Survey; emarketer; Gallup TV meter; SKO; MMS; BARB AdvantEdge; Mediametrie;
CIM TV; Eurodata TV, The Nielsen Company; BCG Analysis
This shift in viewership highlights the begin- ing, frequently opting for less breadth of video
ning of economic stress in the traditional Subscrip- offerings for less cost.
tion TV business. “Cord cutting,” “cord thinning,”
and “nevers” – where consumers decide either to In a 2014 survey of German-speaking online-
eliminate, reduce, or never subscribe in the first video users, only 3 percent said they had signed up
place to traditional cable-, satellite-, or telecom- for an online video service expressly so they could
based TV – is becoming a reality in mature markets cut the cord on their existing TV provider. But 58
and will likely follow suit in currently emerging percent said they could imagine doing so now that
markets once they mature. For many consumers, they’ve started to use the service. Indeed, looking
there is no “master plan” to do this; instead, as out to 2018, we expect TV subscriptions to decline
they get exposed to new online services, and as in some markets, such as the U.S. market, and
the prices of traditional TV bundles continue to experience slower growth in others, particularly in
increase, they begin to shift their time and spend Western Europe.
Part 2
Exhibit 2.7
GROWTH IN TV SUBSCRIPTIONS EXPECTED TO SLOW OR DECLINE IN
MATURE VIDEO MARKETS AROUND THE WORLD
Net additions in TV subscriptions (’000s) Western Europe – Net additions in TV subscriptions (’000s)
2 000 6 000
4 000
1 500 2 000
0
-2 000
1 000 2008 2010 2012 2014E 2016E 2018E
500
Eastern Europe – Net additions in TV subscriptions (’000s)
12 000
0
10 000
8 000
6 000
-500
4 000
2 000
-1 000 0
2008 2010 2012 2014E 2016E 2018E 2008 2010 2012 2014E 2016E 2018E
52 | 53
THE ELEMENTS OF CHANGE
Exhibit 2.8
SHIFT TO ONLINE AND MOBILE VIEWING IS ACCOMPANIED BY AN
ACCELERATION OF NONLINEAR VIEWING
%
49 %
50
41 %
%
40 +31
33 %
35 %
30
24 % 29 %
22 %
20 17 %
14 %
13 %
8 %
10 5 %
13 % 14 %
9 % 10 % 11 %
8 %
0
2013 2014E 2015E 2016E 2017E 2018E
U.S. is leading the way but the EU is quickly following in terms of nonlinear growth
1. Includes watching using multimedia devices, the Internet on a computer, and a smartphone/tablet
Source: Nielsen 2014
It’s important to note that nonlinear viewing appreciated when viewed “in bulk” since it is easier
works better for some content types than others. to follow the plot lines (and also to get to the payoff
Sports and news, for example, remain time- that might otherwise be stretched out for months).
sensitive events that most users continue to watch In the UK, for example, drama series are regularly
live. Entertainment content, on the other hand, is time-shifted: about 40 percent of all viewing is now
a more evergreen experience, in some cases better nonlinear.
Part 2
Exhibit 2.9
DRIVER OF NONLINEAR GROWTH IS SERIALIZED ENTERTAINMENT
Soaps 29 %
Documentaries 21 %
Movies 20 %
Children’s 11 %
Sports Sports 10 %
0 10 20 30 40
54 | 55
THE ELEMENTS OF CHANGE
Exhibit 2.10
THREE PRIMARY BUSINESS MODELS EXIST IN THE ONLINE ECOSYSTEM
For each of these business models, the future between 2010 and 2015 and will then more than
holds a great deal of potential. In the U.S., the double by the end of 2018. Meanwhile, we expect
lead market for online and mobile video services, transaction-based and subscription revenue to
advertising revenue has increased seven-fold nearly double over the next four years.
Part 2
Exhibit 2.11
ONLINE ECONOMICS ARE SCALING QUICKLY
O
nline and mobile revenues to grow Advertising revenues to follow viewers to
rapidly, dominated by SVoD online/mobile video
EST TVoD SVoD Desktop Mobile Share of total online
advertising spending
34.5
23
16 2.1 35
+
(10 %)
14.2
14 30
3.4
12 (24 %) 25
%
19.1
36
+
10 1.4 (10 %)
20
8 14.8 15.3
6.3 (68 %) 15
6 1.7
(27 %) 9.4 10
0.7 (11 %) (66 %) 11.1
4
5.5 15.4
2 3.9 5
(62 %) 5.1 4.3
0 0
2012 2015 2018E 2012 2015 2018E
The profile of valuable content is changing. Meanwhile, audiences are shifting very large
The shift of viewing and economics to online and event content, or content that appeals strongly to
nonlinear formats is beginning to have a profound a small but avid fan base. This type of content
impact on what content is considered valuable. In sits at the bookends of our spectrum: compelling
particular, commoditized second-run entertainment mass entertainment and compelling niche enter-
programming – once the darling of the video content tainment. As a result, there has been significant
world – is becoming somewhat less valuable. There erosion in viewing for the commodity programming
are two key reasons for this: the volume of new in the middle.
original content has grown significantly and con
sumers have more opportunities to catch up on
programs before they reach syndication.
56 | 57
THE ELEMENTS OF CHANGE
Exhibit 2.12
TOP-RATED AND UNIQUE / NICHE CONTENT IS BECOMING MORE
VALUABLE, MID-TIER LESS ATTRACTIVE
# of viewers
The distribution of value across the supply annual growth rate of nearly 10 percent between
chain is relatively stable but slowly shifting to 2006 and 2012. Indeed, for many distributors,
content creators and rights holders. For some content investments will grow faster than sales
industry players, the changing value of content revenue over the next several years, putting pressure
is also coming at a cost. In the UK, for example, on their margins.
FTA channels have seen their sports content costs
nearly double between 2008 and 2013. In the It is perhaps not surprising, then, that the
U.S., cable operators and other distributors have distribution of industry value – while still split roughly
seen their content spending increase at a compound equally between the different player types – is
Part 2
showing signs of a shift. While the overall pie con- » Rationale for the Move. Expansion into content
tinues to get larger, content creators and rights ensures access – and in most cases, exclusivity –
holders are seeing their relative share grow, from to high-quality content, especially in entertain-
33 percent of the total in 2010 to 36 percent in ment. This helps players not only to differentiate
2014. These changes might not be dramatic, but themselves but also to mitigate, at least to some
they do signal a potential rebalancing of power – degree, the spiraling costs of content.
one that will enhance the bargaining position of » Examples of Which Companies Are Doing It.
content creators. Sky entered into a partnership with Znak &
Jones, an international TV production company,
Key industry players are changing their busi- in 2014; Amazon launched Amazon Studios in
ness portfolio as they seek to get ahead of shift 2010.
ing control points. In the FTA and Subscription
TV value chains, the three key groups of players – EXPANSION INTO ONLINE
creators, broadcast networks, and distributors – » How It Is Happening. Content creators, FTA
had aligned incentives and were mutually depen- and Subscription TV channels, and distributors
dent upon one another to deliver content to the alike are developing or acquiring capabilities to
consumer. The creators cofunded and developed gain traction in the new online value chain. For
content; the networks aggregated that content (and traditional players, the acquisition of a digital
audiences) and provided the programming that content company can enable a relatively quick –
distributors bundled into packages and delivered if often costly – entry into the new content eco-
to subscribers over their cable, satellite, or telecom system.
networks. But in the online ecosystem, traditional » Rationale for the Move. Expansion into online
relationships are not necessary for the delivery of enables traditional players to improve viewers’
video content. access to content via increasingly popular path-
ways, provides additional opportunities to
As a result, we are seeing the beginning of a promote and monetize content, and helps players
serious battle for key assets along the value chain – keep pace with competitors. Most important,
with content and online distribution becoming the this strategy hedges against the risk of
focal points. becoming irrelevant in an online-centric world.
» Examples of Which Companies Are Doing It.
UPSTREAM EXPANSION INTO CONTENT Virtually all. RTL Group acquired StyleHaul,
» How It Is Happening. Online content aggregators an MCN for fashion, beauty, and lifestyle; CBS
and infrastructure-based distributors are acquir launched CBS All Access, a subscription-based
ing or creating their own production capabilities video-ondemand service offering more than
and developing original television shows and 6,500 episodes of the network’s shows; The
movies. This content is then made available Walt Disney Company acquired Maker Studios,
to subscribers via the company service infra- which produces videos for YouTube channels.
structure. The list goes on.
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THE ELEMENTS OF CHANGE
Exhibit 2.13
TRADITIONAL OWNERSHIP STRUCTURE SHIFTING HIGHLIGHTED BY
VERTICAL AND HORIZONTAL EXPANSION
network
First-order implications for key Within the traditional FTA and Subscription TV
players value chains, one of the first-order implications
may be the misalignment of economic incentives.
Together these trends may change the television Content creators and rights holders, broadcast net-
industry, and already, we are starting to see their works, and distributors have all historically relied
combined pressures affect many of the business’ on each other – their businesses wouldn’t work
traditional players. We are also beginning to see otherwise. And while the relationships could get
how the trends can benefit and create opportunities complex, their incentives were largely aligned in
for the industry’s new “attackers.” ways that benefited everyone.
Part 2
Selected examples
Upstream expansion
into content
media a
RECREATED LOGO
Consolidation
(rumoured)
Expansion into
online / mobile
In the Subscription TV value chain, for instance, But we are starting to see signs that this inter-
content creators licensed their content on an dependence may not necessarily hold true in the
exclusive basis to broadcast networks that, in turn, future. Some players may be able to make their
charged carriage fees to distributors that received businesses work without relying on their traditional
fees directly from consumers. When content costs partners – and perhaps work even better.
rose, the increased costs were passed along the
chain to consumers. And conversely, when consumer
prices were raised, some of the increase was passed
along the chain back to the studios.
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THE ELEMENTS OF CHANGE
Some of the initial implications that are starting » Content creators and rights holders are not
to emerge in some markets include the following: unaffected, either. While the online value chain
presents new sources of revenue, the ripple
» Traditional FTA and Subscription TV distributors effect of pressures in the FTA and Subscription
are starting to see a reduction in the strategic TV ecosystems may reduce revenue from these
importance of their physical video infrastructure. traditional sources. This group of players has
This infrastructure has always been a key source always relied on strong TV buyers to grow their
of competitive value. The capital required to revenue and promote their content assets. If
build these pathways for delivering video – and broadcast networks are weakened, the creators
the regulatory burden that invariably had to be will need to find new buyers that not only can
tackled – ensured Subscription TV that distribu- write them a check but help them find a large
tion was a scarcity that only a few players could audience as well. Some players, of course, will
provide. But this is not as true now – and will have an easier time of this than others, depend
be less true in the future – as the new wave of ing on the type of content they control.
online content aggregators can take advantage
of the broadband connectivity that consumers Yet these are still the early days of the new content
are already paying for. landscape, and historically, predictions of tectonic
shifts in the television industry have turned out to
» Broadcast networks are also feeling pressure be wrong. Whether the potential for misaligned
from these trends. Distributors are pushing interests will create fundamental changes in
back more vigorously on proposed carriage-fee industry structure – or not – will depend on a variety
increases as their own ability to raise prices is of factors, including the actions that individual
challenged. Meanwhile, the strategic value of companies choose to take, as well as the steps that
the linear network – the programmed structure regulators in different markets take not only with
of TV shows that determines what a consumer respect to the television industry but also more
can watch at any point in time – is declining broadly.
in the face of the increasing ease by which
consumers can decide what they want to watch
In Part 3, we explore the alternative ways in
and when they want to watch it.
which the industry could evolve and the im-
plications for the different types of players. »
Part 2
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part 3
SCENARIOS FOR
INDUSTRY EVOLUTION
SCENARIOS FO
INDUSTRY EV
SCENARIOS FOR INDUSTRY
Given the forces at work in the television ends up will depend on a number of factors: the
industry and the trends emerging from them, specific nature of the trends in that market, the
we believe it is critical to stimulate thoughtful starting point of the industry, and the actions that
discussion about the nature of change the in- leading companies and regulators take to shape
dustry is facing: the evolution of the industry. We believe, however,
that the following five scenarios bound the range
While industry shifts for the last several of potential outcomes – and provide a good star-
decades have been evolutionary, will they continue ting point for framing the discussion in any given
to be so in light of these changes? market.
Consumers will continue their migration to We expect this scenario to have the fol-
non-linear content and streaming-capable devices. lowing impact on value chain players and their
Some cord cutting, shaving, and slicing will con- content-related assets:
tinue to occur, but most consumers will use online
services in addition to – and not instead of – their Content Creators and Rights Holders; FTA
existing TV service. Online channels and content and Pay TV Channels. Leading content creators
aggregators adopting every business model – and the broadcast networks that package their
AVoD, SVoD, and TVoD – will carve out a healthy content into channels will continue to grow in
and growing share of value. Meanwhile, traditional importance and value.
players will continue to enter the online space,
but they will do so largely under existing rules and Content creators that make compelling TV shows –
relationships, through TV Everywhere services whether for niche or mass audiences – will become
(such as Sky Go and WatchESPN) and through more important as the increasing set of viewing
small, modest investments in online diversification opportunities will increase the downstream value
(such as Disney‘s investment in Maker Studios). of desirable content. Meanwhile, increased viewing
opportunities will also lead to a demand for more
All three content ecosystems – FTA, Subscription original content, boosting the importance and value
TV, and online – will remain intact and healthy. of successful studios. Those that produce or control
Most players at each content stage – creation, the rights to serialized dramas will be especially
aggregation, and distribution – will adjust, find well positioned, as this format works particularly
opportunities to grow, and maintain their relevance well in a nonlinear world. As discussed in Part 2, in
and importance within the chain. And the relation- some markets such as the UK, dramatic series are
ships among players will remain largely in place, already time-shifted 40 percent of the time.
without significant disintermediation.
Broadcast networks that can provide exclusive,
Traditional players will, of course, need to top-rated, or unique content will enhance their
make adjustments in order to thrive in the new brands with consumers and become increasingly
environment, and those that do not will suffer. But valuable to both infrastructure-based distributors
the majority of the incumbents will find ways to and the new breed of online content aggregators.
take advantage of the new distribution pathways, ESPN, for example, has substantially increased
access devices, and consumer behaviors on the viewing by making its content available across
basis of their strengths in packaging and deliver- platforms, primarily through its authenticated TV
ing content. The easier and more convenient they Everywhere application, WatchESPN. On average,
make access to their content, the better they will viewers who access ESPN via four or more
create value from the new viewing experiences. We platforms spend nearly six times more time
are already seeing evidence of some players taking watching its content than viewers who use a single
this approach and benefiting from it. platform.
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SCENARIOS FOR INDUSTRY
Exhibit 3.1
MULTI-PLATFORM CORRELATED TO HIGHER LEVELS OF CONSUMPTION
U.S. multiplatform viewers have ESPN usage is three to six times higher
disproportionate share of usage for multiplatform
ESPN monthly usage in Sept 2013 (hours.minutes)
4+ platforms 40.00
4 %
9 %
3 platforms 17 % 4,3x 5,2x 5,9x
2 platforms 30 %
84 %
20.00
42 % 30.57
27.26
16 %
4.43
0
Users Usage 1 platform 2 platforms 3 platforms 4+ platforms
Source: ComScore, Arbitron, Goldman Sachs Global Investment Research 2014, ESPN
Indeed, recent consolidation moves – and attemp- gram guides that today are the key mechanism for
ted moves – in the European Union (involving, program discovery and choice and that are now
for example, Vodafone and Kabel Deutschland in supplemented by social media referrals and recom-
Germany, Zon and Optimus in Portugal, Unitymedia mendations.
and Kabel BW in Germany, Ziggo and UPC in the
Netherlands, and the merger of Sky UK, Germany, Yet currently, none of these navigation layers
and Italy) clearly signal the importance of a scale provide a single source of navigation and curation.
game in this context. Social referrals are incomplete and electronic
program guides are pathway dependent. Within
New Online Networks and Content Aggrega- the Subscription TV value chain, for example, they
tors. As online content continues to drive meaning- will typically provide information about, and access
ful viewership numbers, the players that make it to, FTA and pay networks – and only in very select
available – from the MCNs that support creators cases, online services. Those will require external
to the online aggregators that provide an easy navigation and access. Consumers who want to
path to viewers – will assume an increasingly watch both Subscription TV content (via their cable,
important role in the industry. And they are likely telecom, or satellite provider) and online content
to generate increasing revenues. Clearly, some (via Internet-based services) are required to switch
traditional content players have already come to between different input ports on their TV sets and
that conclusion: Comcast, Dreamworks, ProSieben- search through a different program guide for each
Sat.1, and Time Warner have all made recent service. This is a less-than-optimal consumer
investments in MCNs. experience.
But for the overall structure of the industry, the This second scenario is centered on the chal-
primary theme in this scenario is peaceful coexis- lenge – and the opportunity – navigation presents.
tence. The picture is similar to that seen in the In it, infrastructure-based distributors succeed
development of the Subscription TV value chain: by extending their navigation into the emerging
new content creators, channels, and distributors online ecosystem, so that it curates all of the video a
came on the scene and found success, yet players consumer has access to – independent of whether
in the FTA chain also increased revenue, margins, that content is part of the services the distributor
and in many cases, value. provides. For instance, in Germany, a consumer
who subscribes to Unitymedia’s “Horizon” service
Scenario 2: has seamless access not only to Horizon’s own
Disruption driven by the rise of video library but also to the content offerings of Sky,
multiplatform navigation YouTube, Maxdome, and others. And they have
that access across different devices: television sets,
Through the different stages of the TV industry, tablets, and smartphones alike. In these instances,
navigation has evolved – from the printed guides a consumer would be able to search for program-
that once were dominant (daily newspapers, TV ming across a full spectrum of providers – their
Guide in the U.S., and TV-Digital, TV Magazine, cable, satellite, or telecom provider, as well as Netflix,
and TV Choice in Europe) to the electronic pro- Hulu, iTunes, YouTube, and other online services –
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SCENARIOS FOR INDUSTRY
through a single interface and without changing For many viewers, this kind of comprehensive,
the settings on their TV. multiplatform navigation would be very compel-
ling. And traditional distributors, with their signifi-
By offering this single point of navigation across cant customer relationships and available budget,
pathways and devices, infrastructure-based distri- are well positioned to deliver it, becoming new-era
butors would retain their standing as the “front curators of video content and differentiating them-
door” to the world of video content and continue to selves in the process. Infrastructure-based distribu-
“own” the customer relationship. However, opening tors would not only remain relevant in the content
up their navigation interface, and providing access value chains but also actually improve their impor-
to content regardless of whether it is part of a distri- tance and power.
butor’s paid service, means a fundamental shift in
strategy for most incumbents – a move away from Liberty Global and Comcast have already started
their current focus on defending and growing their down this path, making first attempts in deploying
own video service. a broader video-content navigation layer.
Exhibit 3.2
MVPDS HAVE MADE FIRST ATTEMPTS TO DEPLOY A BROADER VIDEO
CONTENT NAVIGATION LAYER
LGI‘s latest set-top box with interactive Interactive content navigation layer covering
features from live TV to catch up and VOD linear TV channels, catch-up, and VOD
(own TVOD service and third-party services) L
atest episodes of U.S. top-100 shows always saved for
catch-up viewing
Automated, catch up with multiple recordings in parallel
S
mart search across the whole content offering, with
Smart search engine facilitating discovery
voice search
Downloadable applications
Downloadable applications
EVOLUTION
Part 3
We expect this scenario to have the following FTA and Subscription TV Channels. The
impact on value chain players and their content- increased (or retained) importance of distributors
related assets: as the primary gateway to video content will change
their relationship with broadcast networks and po-
Infrastructure-Based Distributors. Robust all- tentially impact, perhaps significantly, the fees that
inclusive navigation coupled with the ability to stream these networks receive.
all video content, independent of its source,
on every device – especially TV sets – is a “killer- To date, FTA and Subscription TV channels have
app” in the new multipathway world we are enter- been able to raise carriage fees on a year-in and
ing. Distributors that make this significant transition yearout basis, with distributors passing along the
will be well positioned to enhance their increases to consumers. Yet with their relationship
relationship with consumers and serve as the first with viewers extending across all content, inde-
and only place consumers go to view content. In pendent of pathway, distributors will be in a better
addition to preserving their role as the primary negotiating position with respect to these fees.
gateway to viewing, they will be better able to serve They will also become increasingly indifferent to
their customers, as the information they collect what video services consumers chose, as they will
on individual viewing behavior – stewarded be able to create similar financial value by provi-
effectively from a privacy and consumer-protection ding highspeed data services and video navigation
perspective – will allow them to make relevant and to cord-cutting consumers who only want to watch
compelling program recommendations. That same online programming.
information will also enable them to provide
next-generation targeting for video advertising, These dynamics will affect different broadcast
benefiting both consumers and advertisers alike by networks differently. Those networks that source
increasing the relevance of the advertisements compelling original content – either must-see mass
consumers are exposed to. entertainment or high-engagement niche content –
will continue to command premium licensing
Successful pursuit of this approach will significantly fees and to increase their viewership and related
increase the relative position of distributors – not advertising revenues. Those that either do not source
only within their traditional Subscription TV value compelling original content or rely on previously
chain but also across value chains, including the aired, second- or third-run content will suffer.
emerging online ecosystem. With that greater stan-
ding and stronger negotiating position will come Meanwhile, all broadcast networks will need to
the corresponding financial rewards. find new ways to promote and create awareness
for their new programs. In a shift to a single point
However, not every infrastructure-based distributor of navigation and significant nonlinear viewing, the
will be able to pursue this approach. The required importance of data-driven recommendation engines,
investments are significant, and this approach social recommendations, and search will increase –
favors large players in strong financial positions. and the power of the network brand will diminish.
One likely outcome of this scenario, then, is further
industry consolidation.
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SCENARIOS FOR INDUSTRY
Exhibit 3.3
DIRECTV USES IT‘S EXCLUSIVE OUT-OF-MARKET NFL GAME RIGHTS TO
DRIVE SUBSCRIBER ACQUISITION AND RETENTION
DirecTV offers access to all NFL games… …which have enormous value as a subscriber
acquisition and retention tool
M USD Estimated economics
300
290
0 620
-330
-300
-600 -1 140
-810
-900
-1 200
Cost Direct Total Acquisition Total
revenue (gross) & Retention (net)
benefit
Need to take customer acquisition and retention into account to make it profitable
expected to increase from $5 million in 2012 to becomes even more important. Content creators
$543 million in 2017, representing 12 percent of that can scale their businesses to feed the growing
its annual content expenditures. appetite for original programming will be particu-
larly well positioned – and examples of this are
We expect this scenario to have the following already appearing in certain markets. Lions Gate
impact on value chain players and their content- Entertainment has scaled its production capability
related assets: to meet the demand of new buyers across the value
chain – delivering, among other shows, Orange Is
Content Creators and Rights Holders. This the New Black for Netflix, Mad Men for AMC, and
scenario increases the value of sports rights and Deadbeat for Hulu. In the process, EBITDA more
entertainment content as their role in determining than tripled between 2010 and 2014 before some
success in the downstream distribution battles recent volatility.
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SCENARIOS FOR INDUSTRY
Still, for all the potential downside, there is one and original entertainment libraries. Similarly, one
big, compelling advantage to taking the direct-to- would expect companies such as ESPN (for sports)
consumer route: by working without the middleman, and Disney (for kids) to have a high chance for
certain content creators and broadcast networks success should they pursue a direct-to-consumer
have the opportunity to capture more value from model.
core viewers than in today’s bundled world. Overall,
the likelihood of this scenario depends on the On the other hand, content players without both
degree to which content creators and broadcast of these attributes – the have nots – will likely fail
networks pursue this path (how many of them in this model. Lacking strong brands that stand for
try it, how extensive their efforts are, and how a specific content genre, they will have to invest
successfully they tackle the challenges). heavily to attract viewers. Lacking enough content
for any specific genre, they may disappoint the
We have started to see the beginnings of this viewers they attract.
direct-to-consumer approach in several markets
(albeit currently, many players are only testing the Infrastructure-Based Distributors and Online
waters). Sky Online offers a standalone streaming Content Aggregators. If content creators and broad-
service in the UK and elsewhere. In the U.S., HBO cast networks can “go it alone,” distributors and
and Showtime have introduced standalone SVoD aggregators will be disintermediated and likely
services (with HBO Now and Showtime Anytime), decline in importance and value. Traditional distri-
as has the FTA network CBS, whose for-pay di- butors will suffer a loss of subscribers, and declines
rect-to-consumer service, CBS All Access, offers in average revenue per user, due to cord cutting
subscribers more than 6,500 on-demand episodes and cord thinning. In the online ecosystem,
of the network’s shows, as well as live TV. Sports subscription-based aggregators will lose subscri-
leagues, such as Major League Baseball and the bers, and advertising-based aggregators will lose
National Football League, have also begun to offer viewers. All will suffer financially, although players
direct-to-consumer streaming and content services that operate broadband infrastructure have a key
as well. asset they can utilize to try to maintain value via
different leverage points.
We expect this scenario to have the
following impact on value chain players and
their content-related assets:
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SCENARIOS FOR INDUSTRY
Infrastructure-Based Distributors. This scenario aggregators – will also enhance content creation
represents the most negative outcome for economics.
traditional distributors. In it, online aggregators
largely replace them in their core video business
and significant value shifts away from them – There is no single answer. Most markets
at least in the context of video. However, many will evidence a blend of these scenarios, but
traditional players – those with robust broad- with one or two as the dominant driver of the
band, communications, and nonvideo services industry structure. And the market structure
businesses – are well positioned to shift the will also vary significantly across markets.
focus of their financial base, emphasizing For example, relatively mature video markets,
these other services as the transition to a new such as the U.S. and UK, are much more
distribution landscape, centered around online likely to see disruption from online aggregators
aggregators, unfolds. and from direct-to-consumer plays by content
owners due to the relatively developed state
Traditional
players without other, growing of their broadband connectivity infrastructure
business, will be more negatively affected. and consumers’ corresponding adoption of
Having a primary reliance on their video online pathways and nonlinear viewing.
offerings, and not being able to compensate for the
shift of value to the digital aggregators, they stand By contrast, markets such as Brazil, Turkey,
to lose market share – a sizeable amount of it and and Croatia have significantly less developed
potentially much more. online video capabilities and have seen, so
far, less change in consumer behavior. This
FTA and Subscription TV Channels. With both gives thoughtful and proactive traditional
online aggregators and traditional distributors licen- players a greater opportunity to shape the
sing their programming, leading channels that curate market ahead of its development. In this
original mass-market entertainment or sports context, the navigation and exclusive content
content – or engaging niche programming – will scenarios look more likely – or potentially,
realize attractive growth and increasing influence. traditional players could even leapfrog all of
Yet as the prominence of online aggregators increases, the scenarios by forestalling the emergence
the shift to nonlinear viewing will accelerate – of an independent online value chain.
meaning greater pressure on those channels that
do not offer compelling mass or niche content. In our final section, Part 4, we turn from sce-
narios for how the industry could evolve to
Content Creators and Rights Holders. Under the imperatives these alternative industry
this scenario, creators and right holders will see in- structures create for different types of players.
creased value as the incremental economics that We also suggest some of the actions compa-
online aggregators bring into the FTA and Subscrip- nies along the value chain might consider –
tion TV ecosystems flows to them through the value either to shape the outcome or to position
chain. At the same time, the accelerated transition themselves to adapt to it as it evolves. »
to nonlinear viewing – the heritage of the online
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part 4
IMPLICATIONS FOR KEY
INDUSTRY PARTICIPANTS
Part 4
IMPLICATIONS
PARTICIPANTS
KEY INDUSTRY
The scenarios in Part 3 described how the Implications for content creators
television industry might evolve. While there is still and rights holders
legitimate room for debate around which scenarios
will play out in which geographies, it is hard to Content creators and rights holders are facing,
argue that a prudent path is to assume that the in general, the best range of outcomes across the
first scenario – gradual evolution within the current different scenarios. In almost all cases, the related
industry structure – will define competition, control value of their content increases. And in some
points, and value in the future as it has in the past. cases, their relative importance and ability to serve
as a control point increases as well.
It is from this starting point that this section
suggests some implications and related potential Sports rights holders. Across all scenarios,
actions for industry participants at the different the holders of sports rights will continue to be
stages of the value chain. Depending on where a in an advantaged position. They own must-have
participant starts, there are either “shaping” actions content that is of key strategic value across all of
that should be taken to influence the evolution of the different scenarios. As a consequence, the
the industry in its market or “positioning” actions value of these rights will increase.
that should be taken to prepare for some of the
scenarios. The high value of sport content may also
enable those that control it to create their own
Specifically, we will discuss our views on these networks and content offerings and offer them
implications and actions for each of the key direct to consumers. Increasingly, the seeds of this
groups of players: approach can be seen in different geographies.
In the U.S., for instance, the National Football
» Content creators and rights holders League, National Basketball Association, National
» Broadcast networks Hockey League, and Major League Baseball are
» Infrastructure-based Subscription TV distributors all developing direct-to-consumer subscription
» Online content aggregators and advertising supported offerings. While such
efforts have been slower to evolve in sports leagues
outside the U.S., examples such as Basketball
Bundesliga Live (BBL) – a partnership between
Basketball Bundesliga and Deutsche Telekom –
have made an appearance.
rights negotiations, to split rights across formats One interesting windowing issue that is likely
and pathways, and to pursue opportunities to build to arise raises unique challenges. This is the in-
their brands and enhance their direct-to-consumer creasing array of opportunities to provide exclusive
offerings. content to a single player in one of the value
chains. For content creators, the challenge is to
Entertainment content creators and rights effectively value exclusive entertainment content
holders. Similar to sports rights holders, the enter- in advance of knowing whether, and to what
tainment content community is, in general, in an degree, it is compelling and with which audiences.
advantaged position and should see the value of It may represent a shift from a hit-driven business
their content increase across all of the scenarios. model to a more stable – albeit with less upside –
Certain formats in particular, such as serialized approach to content creation.
dramas, are increasingly well positioned to take
advantage of consumers’ adoption of time-shifted Hit shows achieve their extraordinary value
viewing. because of their broad distribution across the
widest possible range of windows. While it is
Of course, to maximize this value, entertain- conceivable that a broadcast network or online
ment players will need to think strategically about aggregator might be willing to pay a premium for
how to manage the increasing number and types exclusive access to a hit show, the paradox is that it
of windows for their content – not only across time is the broad distribution that proves the show’s hit
and geography but also across pathways and roles value. Given the very high failure rates of new enter-
in the value chain. tainment content, as described in Part 2, finding
a fair price in advance is almost impossible.
For players with strong brands and a critical
mass of genre-specific content, the opportunity to Implications for broadcast networks
pursue direct-to-consumer services should also be
actively considered. In pursuing this path, they will FTA and Subscription TV broadcast networks
need to address the trade-offs between near-term will face more pressure as consumers shift to
monetization opportunities and the longer-term the online ecosystem and as the risk of disinter
potential of building an independent path to con mediation from content creators and rights holders,
sumers. traditional distributors, and online aggregators
becomes more palpable. The key factor that will
Those without the necessary brand strength or differentiate performance among FTA and Sub-
critical mass of content will have the imperative scription TV networks will be the degree to which
to focus on developing more refined windowing individual players build hit-driven or niche port
approaches. The increasing number of distribution folios that distinguish their brands. Networks such
pathways, consumption formats, and business as AMC and the Food Network in the U.S. are
models increases the opportunity for windowing effectively pursuing this strategy and consequently
the inherent value of their content. are improving their position for the future, as that
future evolves.
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KEY INDUSTRY PARTICIPANTS
FTA channels. Leading FTA networks are This move to embrace new modes of consumer
primarily competing on hit content today and have engagement should also enable these players to
a strong starting point across scenarios. However, access additional pools of value. ABC’s initiatives
there are some key considerations for them to take are occurring under a variety of business models
into account. For one thing, the traditional sources (SVoD, AVoD, and apps authenticated as part of
of “lead in or lead out” advantage – in which a a pay-TV bundle) and with a variety of partners –
highly rated show or sports event “anchor” creates traditional distributors, online aggregators, and
greater awareness, sampling, and viewership of other broadcast networks, among others.
ancillary programming – will decrease over time in
most scenarios. Few FTA networks should attempt to create
direct-to-consumer services on their own. Most of
Then there is nonlinear viewing. It should be these players provide a mix of general entertain-
a strategic imperative for FTA channels, across all ment, news, and sports programming, and while
scenarios, to embrace this new style of viewing, their individual shows and live events may be com-
and to create online products and services to max- pelling and their brands strong and well known,
imize the reach of their content, getting it to as few have sufficient critical mass of any single type
many consumers as possible. By developing the of content – a prerequisite for becoming a direct
right approach to these platforms, they can create consumer destination in a world of comprehen
greater awareness and sampling for their must- sively aggregated television content. Instead, their
have content. And through effective management focus should be the ubiquity of their content,
of nonlinear experiences, FTA channels potentially available on a network-branded basis across all of
gain the flexibility to incubate new generations of the different pathways and business models.
leading entertainment programming.
Subscription TV channels. Compared with their
Indeed, in the U.S., FTA players such as ABC FTA counterparts, Subscription TV networks will
were among the first FTA channels to embrace need to adopt very different strategic approaches
new platforms; even a decade ago, ABC content to positioning themselves relative to the various
was available on iTunes. Today the network has scenarios. In general, Subscription TV channels
a myriad of strategic time-shifted and online are much more content and genre-focused than
content plays, including Hulu, ABC.com, and FTA channels. But even among the Subscription
WATCH ABC TV Everywhere app. ProSieben, TV players themselves, strategies will differ, as their
a German TV network group, has explored a similar starting positions, in terms of brand and content
strategy with the launch of MaxDome, an SVoD strength, vary widely.
service, and MyVideo, an AVoD service.
Those Subscription TV channels with com
pelling entertainment or sports content, as well
as strong brands, are in a pole position relative to
the changes that are coming. Whether they are
Part 4
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KEY INDUSTRY PARTICIPANTS
DirecTV had partnered with the telecom giant to of their customer-service and field-support organi-
create integrated broadband-and-video offerings. zations positions them well for this strategic pivot –
In executing this approach, players should also as long as they move quickly and maintain the
deploy the integrated multipathway navigation pace.
interfaces discussed earlier in this report.
The prerequisites and benefits of this move are
Compete on exclusive content. Another op- as described in our discussion in Part 3. Yet the
portunity to differentiate one’s video distribution challenges in taking this approach and executing
service is on the basis of exclusive content. For it effectively will be significant for many operators,
over a decade, English Premier League rights have and warrant special attention here:
been used as such a strategic asset by a number of
distributors in the UK market. For video-only distri- In many cases, the execution of an “open”
butors, this approach can help them retain their navigation strategy, covering content both inside
competitive advantage in an environment where and outside the distributor’s walled garden,
infrastructure-based video distribution is de- re
quires a significant change in mind-set and
emphasized. culture – both among a management team and
across a large organization that has long been focused
Merge with strategic broadband players. on building and protecting core video subscribers.
Rather than continue to fight a potentially losing
battle, strategically aligning with a broadband Pursuing this approach will also create signifi-
player can be a sound option. In many cases, cant conflict with key business partners, most
video-only players still enjoy one of the largest, if notably broadcast networks and set-top-box
not the largest, video customer bases in their providers that will act to prevent this shift.
market. For broadband players, the opportunity to
acquire those customers and drive scale and Equity markets – analysts and investors – may
buying power can be very attractive. Meanwhile, be slow to understand and reward this pivot in its
such a move insulates video-only players from an early stages. After decades of focusing on metrics
exodus of subscribers to the online ecosystem. such as revenue generating units and video sub-
These are among the strategic considerations scribers, they may have difficulty adjusting to
behind the AT&T-DirecTV merger in the U.S. a strategy that de-emphasizes protecting the
traditional video offering.
Distributors with broadband capability.
Large, well-positioned Subscription TV distributors Depending on the specific market or geo
with attractive broadband services should move graphy, there may also be licensing and regulatory
aggressively to pursue multiplatform navigation issues to be addressed.
(Scenario 2 in Part 3 of this report). The strength of
their current relationship with consumers, the quality
of the services they currently provide, and the scale
Part 4
Finally, it will likely be important for these dis- Implications for online content
tributors to consider approaches to investing in, aggregators
or owning, key elements of proprietary content.
However, this will need to be pursued on a highly Online aggregators are carving out leading po-
selective basis. Players must carefully balance the sitions in nonlinear experiences. And many are
trade-off between owning video content and related building attractive economics and related valuations.
rights that have the potential to strengthen the core
broadband subscriber base while also ensuring As they look at the potential scenarios described
that key content has the broad reach and access in Part 3, aggregators, too, have a fundamental
necessary to maximize its value. strategic choice: to protect their leading position in
nonlinear viewing experiences in the online value
Small Subscription TV distributors. These play- chain or to directly attack infrastructure-based dis-
ers will be in a challenged position relative to all tributors by licensing linear FTA and Subscription
scenarios other than gradual evolution. They do not TV channels and providing them to consumers.
have the scale required to design and implement This choice will, and should, vary across markets
the technical changes necessary for integrated on the basis of the following:
video navigation and curation. As a consequence,
they will be dependent on third parties to develop » The competitive position and financial strength
these capabilities and license them on attractive of online content aggregators in the market
terms. And with lower margins than the larger » The degree of maturity for the market’s infra-
players (in most geographies), due to higher con structure-based distributors (household pene-
tent costs and a smaller customer base over which tration of Subscription TV, degree of consolida-
to amortize fixed operating costs, many of them will tion, quality of network architectures, and level
have to carefully think through the strategic choice of consumer satisfaction)
between remaining independent and participating – » The regulatory frameworks that define the con-
as a seller – in industry consolidation. duct and structure of industry competition
84 | 85
KEY INDUSTRY PARTICIPANTS
86 | 87
GLOSSARY OF TERMS
AVoD. Advertising-supported video on demand IPTV. Also known as Internet Protocol tele
is a business model where an online content vision, IPTV delivers video content via IP networks,
aggregator offers free access to a large library generally those of major telecom companies,
of video content, including movies, TV shows, instead of via cable, satellite, or terrestrial systems.
and clips (the content may be professionally
produced, user-created, or both). YouTube is an Multichannel networks. Commonly referred
example of this model in action. to as MCNs, multichannel networks are a new
breed of content player that provide production and
Broadcast networks. This term includes FTA promotion support to the creators of online content.
and Subscription TV channels that aggregate units This support often includes funding, digital rights
of content into a stream of programming. While management, music clearances, and studio and
broadcast networks sometimes create content editing facilities. MCNs – whose ranks include the
internally, through their own production arms, they likes of Vevo and Collective Digital Studios – also
are the chief buyers of content from third-party assist with the monetization of content. While their
creators and rights holders. agreements with creators can vary, an MCN will
typically share in the revenues generated by the
Content creators and rights holders. These are content and, in some cases, may own the content
the studios, sports leagues, and other players that outright.
either shepherd content from idea to production
or control the rights to content (licensing them to Nonlinear viewing. An “on demand” method
other players that wish to produce or distribute the for consuming content, in which viewers are no
content). longer locked into fixed schedules set by program-
mers at broadcast networks. Instead, viewers choose
FTA. Free to air was the first business model when they want to watch content. While non-linear
to emerge in the television industry; it broadcasts viewing isn’t a new concept (the videocassette
content over the airwaves in unencrypted form. recorder and digital video recorder have long made
Revenues are derived from either advertising (in it possible), online pathways are accelerating the
the U.S.) or from public tax levies (the model in trend by making it exceptionally easy for viewers to
many European markets). access the content they desire, when they desire it.
Subscription TV. The second of the two TV everywhere. This business model enables
traditional video ecosystems to emerge (after traditional distributors and Subscription TV
FTA); Subscription TV is the aggregation and channels to make content available, on an authen
delivery of multiple pay channels (for example, ticated basis, across an array of platforms and
ESPN) and premium channels (for example, devices. Essentially, viewers “verify” their under-
HBO) through a distribution infrastructure – cable- lying home-subscription service to the relevant
based or relying on satellites or telecom IPTV. channel or service before enabling access to it via
Typically, subscribers of these services will pay a smartphone, tablet, or other means.
distributors (the cable companies and so on) a
monthly fee in return for the ability to access a TVoD. Transaction-based video on demand is
bundle of broadcast networks. an online business model where aggregators make
content available to own or to rent in exchange for
Premium subscription channels. These broad- a one-time fee. While an Internet connection is
cast networks emerged from the Subscription TV required to download the content, once it is on the
ecosystem as new, direct consumer-pay services user’s device it can generally be viewed without
on top of the government-funded and commercial a live connection. Players that have adopted this
networks included in Subscription TV packages. approach include Apple and Maxdome.
For an incremental monthly fee, customers can
add “deluxe” content to their bundle of channels, Windowing. Under this strategy, content rights
whether that content involves recent theatrical are split across platforms, geographies, and time
films, highprofile sports, or some other “high value” periods. The idea is that by doing so, content
programming. Examples of premium subscription creators and rights holders can maximize the
channels include HBO in the U.S., Premiere in value generated by a single unit of content across
Germany, and BSkyB in the UK. multiple buyers.
88 | 89
IMPRINT
Liberty Global commissioned The Boston Consulting Group to author a study on the topic of the evolving
Television industry in the context of the overwhelming trends toward digital distribution and time-shifted
viewing. The objective of this work is to contribute substantively to a dialogue which is high on the agenda
of industry leaders, policy-makers and regulators, by providing an assessment of the key trends shaping
industry change, the implications for shifts between roles in the industry, and a perspective of the different
potential ways the industry could evolve. The report takes a quantitative angle on each of these dimensions,
and provides empirical evidence on both demand and supply side dynamics influencing this change.
This study reflects BCG‘s thoughts on the topic of the future of TV, supported by industry analyses, expert
interviews and case studies based on publically available information. In the process of writing the study,
BCG and Liberty Global co-hosted a 2015 Davos workshop with more than 25 industry leaders on this
topic. The study provides a basis for discussion for key stakeholders across public and private sectors.
John Rose
Sr. Partner and Managing Director
BCG New York
Rose.John@bcg.com
Joachim Stephan
Partner and Managing Director
BCG Munich
Stephan.Joachim@bcg.com
Frank Arthofer
Principal
BCG New York
Arthofer.Frank@bcg.com
NOTES
EVENT
March 2016
© Published by Liberty Global with permission of The Boston Consulting Group, 2016. All rights reserved.