TV's complexity crisis creates opportunities for content owners

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.

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

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.
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.

Creating Television for Generation Minecraft

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.
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

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.
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

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.