TV’s complexity crisis creates opportunities for content owners

December 17th, 2013 § Comments Off § permalink

This post originally appeared as an insight for Outsell’s customers. Republished with permission.

At a recent industry event, panelists from Adobe and Comcast agreed that if TV Everywhere is to succeed, it must be kept simple.

That’s not as easy as it sounds. The complexity of TV Everywhere is a symptom of the complexity of TV itself. How complex is TV? TV is so complex that…

  • TiVo requires a $15/month subscription to an electronic program guide in order to be useful.
  • TV Everywhere, a free and useful service, is ignored by most consumers.
  • Alice’s living room TV has been replaced with a home theater that has a set of instructions she printed up so the family members that didn’t set it up can actually operate it.
  • Bob’s TV, DVD player, Roku, iPad, Wii, and Xbox all have Netflix on them, as well as apps for dozens of other channels. Some of those channels are well-known brands and some he’s never heard of, but he thinks he should try them out some day.
  • Carmen’s favorite programs, the channels they run on, and her pay-tv service all have apps (and websites). She doesn’t don’t know which one will let her watch her favorite programs, which only offer clips, which will have advertising, and whether it will be skippable.
  • Dimitri’s hasn’t has used all the features of his cable box. But it may be getting Netflix, too, soon. Or Hulu. Or maybe both.
  • Steve Jobs died before he solve it.

Implications

Somewhere in the middle 2000s, TV became more complicated than the internet.

As television became more complex, the internet became a lot simpler. If Alice, Bob, Carmen, or Dimitri don’t know where something is on the net, they know that Google can get them there. If they’re looking for a television program they’re likely to start with Netflix. If they just want to know what’s going on, they’ll check Facebook or Twitter. If they want to buy a book, they’ll go to Amazon. And Google will get them to everything else.

TV’s complexity stems from a lot of sources, including rights, business relationships, the limitations of the TV user interface, the (understandable) lack of a keyboard, the (incomprehensible) complexity of TV remote controls, and the issue with scaling a three-network interface to by two orders of magnitude to hundreds of channels. Meanwhile, the complexity of delivering to multiple devices has created headaches for pay TV operators.

The result is that, despite their disadvantages, over-the-top services have the advantages of ubiquity, simplicity, and usability over traditional television, whether it’s linear or TV Everywhere. Audiences know where to get it, how to find what they way, and how to use it. They’re just as likely to use Over-the-Top services than their pay-TV operator to binge-watch TV.

It’s up to the MVPDs to simplify television. The set-top boxes, interfaces, remotes, physical connections, interfaces, and services belong to them. But the coming wave of consolidation we forecast in our Future of Television report makes that unlikely in the short to medium term. Especially if it’s financed with debt, like Charter’s proposed takeover of Time Warner Cable. Charter’s shareholders claim that virtually all the “synergies” from the merger will come from cost-cutting, not new revenue. That doesn’t suggest that innovation will be a priority any time soon.

Television and channels and producers can’t wait. They will have to navigate a complex television landscape.

We looked at some of the strategies that content owners can use in our Future of TV report. Complex distribution systems are both a response to and a cause of complex audience behavior. The result will be audience behavior that looks increasingly chaotic.

Content owners who overcome complexity with creative distribution, audience communication, and marketing will have a competitive advantage in this chaotic world.

Content partners face an increase in YouTube’s ad share

December 11th, 2013 § Comments Off § permalink

This post originally appeared as an insight for Outsell’s customers. Republished with permission.

YouTube has increased the share of revenue it takes form its content parters from 30% to 45%. This may still be cheaper than going independent.

Important details

YouTube is changing the way it shares revenue with its content partners. It’s moving from taking as little as 30% from the ad revenues of (preferred, high-profile) partners to taking 45% of the ad revenue from (nearly) all partners.

The carrot attached to this stick is that partners will be able to keep 100% of revenue above the rate card. So, if a content partner can sell its ads at 150% of YouTube’s rate card, they can equal their current net revenue from ad sales.

Implications

YouTube is increasing its share of advertising revenues because…well, because it can. YouTube channels and multi-channel networks need YouTube more than YouTube needs them.

YouTube provides its partners with a reliable, low-maintenance platform for publishing their videos, an opportunity to offload ad sales, an existing social network within which to promote their videos, and a familiar interface for their audience. All of this has tremendous value for channel partners, so it’s not surprising they’re being called upon to share nearly half their ad revenue with YouTube.

YouTube’s revenue split may be a good deal for channels that can charge premium prices for advertising, or sell sponsorships inside their shows. Those channels are the ones that already have strong brands, great relationships with potential sponsors, strong influence with their audiences, and quality dedicated sales forces.

But they’ll need their own video distribution platform if they want a future beyond YouTube. Some MCNs have moved in that direction.

Maker Studios, one of the largest YouTube multi-channel networks, acquired its own distribution platform last summer when it bought Blip, for likely less than $10 million.

Revision3, owned by Discovery Communications, already carries its channels on its own site, in addition to YouTube.

YouTube’s new revenue split is going to split the market further into big channels with strong market presence (Maker, Revision3) and little guys who aren’t ready to cover the overhead of serving their own videos, let alone pay a decent sales force.

There are lessons for everyone in this turn of events:

  • Brands matter: A YouTube celebrity may not be the same thing as real celebrity.
  • Advertising doesn’t sell itself: Even in a programmatic ad buying world, someone has to make the cold calls, and they’ll want to be compensated.
  • Breaking free of ad networks is a key to success: Ad networks can fill gaps in a schedule, but they commoditize advertising.
  • Distributors will get their beaks wet: And they’re going to make long-term planning nearly impossible.

Demand Media’s fall is good news and a warning for publishers concerned about quality

December 3rd, 2013 § Comments Off § permalink

Demand Media looked like a promising new model for internet publishing in 2008. Outsell was one of the first to analyst firms to recognize Demand’s rapid growth, as well as its evolutionary content and audience development model (Demand Media: This Online Pied Piper Draws Large Audiences Using a Disruptive Publishing Model, 18 November 2008).

Demand’s market capitalization quickly rose to more than $2 billion, after it went public in 2011, greater than that of the New York Times. Today,
Demand’s stock has plunged to roughly a quarter of its peak value. Revenues for the most recent quarter were down year-over-year for the first time since that IPO.

Now, Demand is focused on spinning off the only healthy component of its business – its commodity domain registration business. Meanwhile, it is attempting to pivot its content business from an SEO-driven advertising model with weak audience relationships to an ecommerce model. Having quietly sustained several rounds of layoffs this year, the media side of the business is almost certain to be sold or taken private after the split.

Implications

Demand Media’s rise and fall provides two important lessons for internet media.

Integrity matters. During Demand’s rise, the elephant in the room was always that they were spamming Google. Demand’s content wasn’t very good, but they used questionable SEO techniques to get themselvs on the first page of search results. In other words, their strategy was to make Google a less useful product for Google’s customers. The problem wasn’t simply that the advice on (for example) eHow was poor to worthless. It made Google results less helpful, and it muddied the waters for useful Q&A services. As Google tuned their algorithms, more useful services, such as Stack Exchange, rose to the top. This was good news for publishers who focused on quality content in the dark days of the late 00′s.

There’s a bigger lesson for publishers who care about quality. It’s a bad idea to build a business on someone else’s reservation. Using another company’s API, or site, or data introduces arbitrary risks as a partner’s business priorities change. Facebook schooled Zynga on this. Twitter schooled their third party developers on this as well.

Today, publishers who are using Facebook for their comments and community are risking their relationships with their audiences. Outsourcing comments may be the best business decision, but a fee-for-service company with a sound migration option, such as Disqus, will be less likely to lead to business model conflicts in the future.

Two opposing visions of the future of TV

November 1st, 2013 § Comments Off § permalink

This post originally appeared as an insight for Outsell’s customers. Republished with permission.

Will pay-TV companies continue to try to control access to content, or will they decide that their core business is something simpler, and possibly more profitable? Two keynote speakers at NYC Television Week differ.

Important Details

At NYC Television Week in New York on Monday, two keynote speakers presented entirely different visions of the future of television.

http://nyctelevisionweek.com

David Stern, NBA commissioner and attorney, told Multichannel News Editor-in-Chief Mark Robichaux that “TV Everywhere is going to be an accepted part of our video and television infrastructure“. Stern’s vision is that teams and leagues will contract with channels, which will work with pay-TV providers to charge consumers to watch games on the internet.

That same day, analyst Craig Moffett told his audience, “Imagine a world where content was purchased directly by the consumer. … The business that [the cable operator is] in is not buying and selling content, the business that I’m in is delivering content.”

These vision are mutually exclusive. In the short term, we can expect and emphasis on TV Everywhere from pay-TV providers. In the longer term, it’s far from clear that this is the right path.

Implications

Because of their desire to preserve their bundle, pay-TV operators take on many businesses and expenses that are unrelated to the one business they do that no on else can do: operate the pipe that connects consumers’ homes to the internet. These businesses include development, distribution, and maintenance of devices in the home, such as cable boxes, cable cards, and DVR’s; operation of vast fleets of service personnel and vehicles to maintain these devices and the connection to the video services; provision of cloud services, such as video on demand, virtual DVR’s and authentication services for TV everywhere; operation of the back-end services for delivering linear video the home; negotiation with cable channels, broadcasters, producers, and others for rights to video content; and running vast sales and customer service bureaucracies devoted to video channels and services.

As one point, not that long ago, there was genuine synergy between all these elements. It was necessary to bundle these services to create a product that consumers could understand, afford, and use. They became something that was more valuable than the sum of its parts: a simple linear television service that could be operated with a simple remote by a simple person.

But now the bundle is more complex. It is almost certainly hiding inefficient businesses that are cross-subsidized by the more-profitable core business. Meanwhile, the internet continues to innovate — from billion-dollar service providers, all the way down to the devices consumers hold in their hands. And, finally, content creators (including sports teams) may decide to take more control of their distribution.

The pay-TV industry will be unable to keep pace with change in the open market, and therefore its strategy must be to slow the pace of change.

Also, it’s also not clear how to transition from being a pay-TV provider to being a pure-play internet service provider. It’s also not clear what the regulatory implications of such a move would be.

Cable companies could find a profitable equilibrium at the end of either path. Consumers may finally come to love TV Everywhere in 2014.

But in the long run, cable companies may decide to be just cable companies.

Creating Television for Generation Minecraft

September 6th, 2013 § Comments Off § permalink

This post originally appeared as an insight for Outsell’s customers. Republished with permission.

People born after the turn of the millenium aren’t more creative than previous generations, but they are more likely to be creators. They’re building worlds in Minecraft, creating videos to share with their friends, and some are already assembling audiences of like-minded viewers.

Important details

At the recent Next TV Summit in San Francisco, most speakers acknowledged that young teens use video very differently from those of their older siblings.

  • They don’t remember a world without an iPad, iTunes, or YouTube.
  • They have the tools to make and edit their own videos.
  • They’ve discovered Vines.
  • They’re building worlds in Minecraft.
  • They recognize and follow YouTube performers and channels.
  • Many of them already have smartphones.

In three to five years, they’ll be turning 18.

In the last five years, older teens and young adults have shifted their online attention from the Web to Facebook, Twitter, and Tumblr. Their kid brothers and sisters have a greater destiny.

Young teens certainly still watch TV, and are influenced by it. But they’re coming at it differently from their older siblings. And in fifteen years, many will look back on Minecraft with more nostalgia than they will traditional television.

For them, online video isn’t simply viral. They share videos and links in person, rather than in social media, because many don’t yet have social media accounts.

Young teens have their own tablets and phones and computers that they use for watching video. Television is something they hold in their hands on on their laps. They’re growing up capable of navigating, finding their own paths, and taking the recommendations of trusted channels.

Existing online channels and multichannel networks (such as Maker Studios, Machinima, Alloy Entertainment) have strong audiences in this demographic. They’re able to exploit their strongest channels and biggest names to promote not only their advertisers, but their other, newer properties.

Video cameras are ubiquitous. Everyone has video editing tools. And this year, Vine redefined (or obviated) video editing.

YouTube has removed the barriers to entry for young producers and talent. Any user can create a YouTube channel that is a peer to their favorite YouTubers’ channels.

Implications:

For the television industry, this is literally a once-in-a-generation change. It represents an inflection point as surely as the shift from AM to FM, broadcast to cable, newspapers to websites, CDs to pure data, and Blackberries to iPhones.

This is not simply about technology. This is not the shift from analog to digital, VCRs to DVRs, 4:3 to 16:9, coax to Cat-5, CRTs to LCDs, or even MSOs to OTT. Because of the scale of the change, it’s going to take a decade — or possibly a generation — to be fully understood.

The good news is that because it’s a generational change and traditional television has so much momentum, many incumbents won’t have to change their habits any time soon.

The better news is that Generation Minecraft is going to create new opportunities. It’s going to

  • Give current producers new ways of reaching audiences.
  • Open new revenue opportunities for incumbent providers willing to experiment at the edges of their distribution models.
  • Harness the creativity of people who had previously only dreamed of making their own programs.
  • Remove barriers between creators and their audiences, and allow fans to become collaborators.
  • Enable new means of funding television.
  • Create entirely new genres of television.

The Time Warner Cable/CBS blackout war had no winners, but it did have losers

September 3rd, 2013 § Comments Off § permalink

This post originally appeared as an insight for Outsell’s customers. Republished with permission.

We don’t know who was the biggest loser in the blackout war between CBS and Time Warner Cable, but there weren’t any winners.

Important Details

CBS and Time Warner Cable have come to an agreement, following a month in which subscribers in New York, Los Angeles, and Dallas were unable to get their local CBS stations on their cable systems. Among other things, CBS wanted more money per subscriber from Time Warner Cable, and Time Warner Cable wanted more restrictions on how CBS could resell its own content.

Both companies sought a public advantage, and both companies made their partners look bad. Time Warner Cable took CBS’s local stations and their cable channels (Showtime Networks, CBS Sports Network and the Smithsonian channel) off their system. CBS denied access to its websites to Time Warner Cable customers.

The two companies finally came to an agreement just before the NFL was to return to CBS and a few weeks before the fall television season.

The terms of the agreement are not public, so we don’t know who blinked, and how much, but the dispute is an indication of deeper problems in both the cable and broadcast industries.

Implications

Both parties in this dispute, and their industries, came out looking more vulnerable.

CBS was not in a good negotiating position. Broadcasters have become dependent on fees from cable operators. Their local advertising markets aren’t healthy, and the biennial flood of the political advertising is now at risk from cheaper, more targeted internet advertising.

Time Warner Cable’s hard line reflects the maturity of their business. Subscriptions are flat, the internet access boom is over, and prices have probably peaked. It’s time to cut costs.

Consolidation is the natural fate of mature industries, and the cable operators are about to take the next logical step.

Broadcasters are not ready for what’s about to happen. Many station groups have been consolidating in hopes of being in a better position with the cable carriers. But if it turns out that CBS wasn’t able to make sufficient progress against Time Warner, even the largest of station groups may not be big enough to hold their own. And then the only rationale for broadcast consolidation will be further cost-cutting.

Consumers didn’t stop watching TV during the blackout. A few weeks of new behaviors could be enough to change some people’s lifetime of habit. Not many people, but not zero, either.

There were plenty of substitutes for CBS summer programming available both on cable and the internet. Even CBS’s Steve King miniseries Under the Dome, was (and still is) available for streaming free for Amazon Prime customers.

The Great CBS Blackout of 2013 was not enough to get anyone to drop their cable service, or watch less network TV. Unless, of course, they’d already been considering their alternatives.

Tribune Company splits TV and newspapers, suggesting focus beats synergy

July 10th, 2013 § Comments Off § permalink

This post originally appeared as an insight for Outsell’s customers. Republished with permission.

The Tribune Company’s decision to split its newspaper and broadcast properties suggests that newspaper and broadcast cross-ownership is no longer a strategy. Perhaps it never was.

Important Details: The Tribune Company, which has been languishing on the market for years, made a relatively bold move by announcing it would split its newspaper and broadcasting divisions.

This move has been likened to News Corp splitting its newspapers off from its entertainment assets and cable networks, but that’s the wrong analogy. The new Twenty-First Century Fox is comprised primarily of fast-growing, strategically sound, and profitable businesses with national footprints.

But Tribune’s local broadcast properties are mostly declining, or growing slowly, and threatened by the internet, cable networks, and the collapse of the local advertising ecology.

The better analogy is the split of Belo’s newspaper and broadcast properties in 2008, which by Gannett’s purchase of Belo’s broadcast business this year. The split creates a broadcasting business big enough to negotiate credibly with large cable providers for must-carry fees. It also insulates the broadcast business from the risk in the newspaper business.

Implications: For decades, newspaper publishers and broadcasters have chafed under the FCC’s cross-ownership rules, which keep them from owning newspapers and stations in the same market.

Now, Tribune has broken up one of the original, grandfathered cross-ownerships: the Chicago Tribune and WGN. To date, Tribune newspapers and TV stations newsrooms really merged only in Hartford Courant/FOXCT.

Tribune’s split — and Gannett’s acquisition of Belo — signal that even if the cross-ownership rule were lifted tomorrow that broadcasters and newspapers wouldn’t stampede to merge.

The last thirty years have taught us that the two businesses (newspapers and broadcast) have so little in common that merging them would neither lower costs nor increase revenues sufficiently to make it worth the trouble.

Although the internet blurs the boundaries of print and broadcast — news sites must have both text and video — the different cultures and news grammars of the two media make synergies elusive.

That doesn’t mean that local media won’t continue to pursue ill-considered cross-ownership plans and other kinds of horizontal integration.

Meanwhile, each unhappy industry is unhappy in its own way.

While TV broadcasters are bulking up to take on the cable companies, cable companies are merging to take on content providers and governments. It will take all the running broadcasters can do just to keep in the same place. Rents from dominant cable monopolies is a short-term windfall, not a strategy.

Newspapers are discovering that the internet doesn’t owe them a living and are retreating behind paywalls, a tactic reminiscent of the Siege of Leningrad. It’s a bloody holding action that’s effective only if you have a longer-term strategy.

Neither strategy addresses the real question: How do you create local media that will be relevant and profitable in the Twenty-First Century?

Focusing on keeping one’s core property viable while creating digital-native news is a big enough challenge without the distraction of dubious horizontal mergers.

Tremor Video’s IPO betrays issues in ad tech value chain

June 27th, 2013 § Comments Off § permalink

This post originally appeared as an insight for Outsell’s customers. Republished with permission.

Tremor Video’s lackluster IPO is evidence that there are still issues to be resolved in the ad technology market, which creates a short-term opportunity for media.

Important details

Tremor Video has gotten off to a slow start as public company. After Tremor’s investment bankers said they expected “The initial public offering price of the common stock is expected to be between $11.00 and $13.00 per share”, they priced the company’s shares at $10 on Thursday. The stock was selling for $9.00 by the end of the day on Friday.

Other ad technology competitors are waiting for their turn in the market, but few seem to be excited.

The advertising technology business is fragmented (with dozens of named competitors) and multilayered. Trading desks, optimizers, demand-site platforms, sell-side platforms, exchanges, all flavors of networks, yield tools, and other technologies are all attempting to insert themselves into the value chain and keep a share of the value they create.

Outsell’s 2013 B2C Advertising and Marketing Study finds that business-to-consumer advertisers overwhelmingly describe advertising networks and exchanges as their lowest priority investments. Advertisers are more focused on their own sites, events, direct marketing, and social marketing. They are 66% more likely to cite plain-Jane SEO and SEM as an investment priority.

Implications

Advertising is still more about Don Draper and Roger Sterling than Wernher von Braun. While technology can create value by incrementally lowering cost-per-whatever, it isn’t delivering breakthroughs. The human touch in marketing and sales still matters.

In Outsell’s opinion, Agencies will continue to control a solid (changed from sold – think it was a typo) share of ad buying, as advertisers focus on what they do best. Agencies, as volume buyers, are in the best position to efficiently aggregate the marginal gains of ad tech’s improved targeting and buying efficiency.

Ad technology companies undoubtedly add value, but it’s marginal and surprisingly difficult to measure. This is especially true in the real world, where variations in product, creative, media, and context defy A/B and multivariate testing.

Consolidation continues to loom as the fate of the ad tech industry. Fragmentation and difficulty in differentiation call for integration. Recent acquisitions, as well as Google’s continued domination, suggest that vertical and horizontal integration will simplify the ad buying process in the long run. But the long run has been surprisingly long in coming.

Media have gotten a reprieve, not a pardon. Despite these complications, ad networks and network-driven metrics continue to influence the ad-buying process. Meanwhile, media sites deliver more third-party trackers than ads. This moment of confusion is an opportunity and a warning to increase the value of media beyond their ability to serve ad networks before it’s too late.

Successful strategies are likely to include some combination of products — sponsorships, subscriptions, mobile, memberships, events, vertical networks, digital products — tailored to a media property’s audience and market. Rapid product development and delivery are essential to getting off the ad network treadmill.

I’m joining Outsell as VP and Lead Analyst

May 27th, 2013 § Comments Off § permalink

I’ve accepted a job as VP & Lead Analyst in Outsell’s Marketing, Media & Analytics practice.

Outsell is a market research firm focusing on media and information. I’ve done several projects with with Outsell as a consultant in the past, and I’m looking forward to working with them full time. I’m taking a week off after leaving Dow Jones and will start on Monday, June 3.

I’ll miss my friends and colleagues at Dow Jones, where I’ve been working with their largest Factiva clients.

I’ll post more details in the usual places as I set my research agenda for the coming year.

The reason for Facebook’s success?

May 18th, 2012 § Comments Off § permalink