The economics of content is broken – Fox Networks

Content is King, but the kingdom is bankrupt. That is essentially the message from Fox Network’s COO Brian Sullivan, speaking at IBC 2017: we’re not making enough money.

Now this might sound a bit greedy, but it is a message which has logic to it. How can content providers continue to achieve the ultimate customer experience and deliver on our lust for procrastination when the economics don’t make sense?

“A $10 dollar ecosystem will not support the creation of quality content which the consumer desires,” said Sullivan during the keynote sessions at IBC.

This is the conundrum which the industry is facing; delivering content which meets our demands, but ensuring it can offer such services at a competitive price for the consumer. Disruption from OTTs have put the cost of content at rock-bottom. The equation is not balanced, and this will only lead to disaster for some.

What Sullivan is actually talking about is an overcorrection in the economics of content. And to understand this, you have to look at the entire story.

In the beginning there were only a handful of channels. Your correspondent remembers the days when you only had five channels, but a few other more ‘worldly’ individuals might recall more limited choice. Next came cable and satellite services which offered more choice at a greater cost. Then came the idea of premium bundles, which again offered choice but at a higher price. Then came on demand services, and the introduction of series packages which made it even more expensive. Before you knew it, the consumer was shelling out a ridiculous amount of cash for content on a monthly basis.

At this point the distortion of power was too much in favour of the service providers; there was a feeling the consumer was being taken advantage of. An environment was created which was perfect for disruption. By forgetting why these services were being created, and potentially getting a bit too greedy, the service and content providers opened the door for disruption, and it was certainly taken advantage of.

“Disruption has always been on the cards, “ said Sullivan. “Power started with the consumer and it got distorted over time.”

Enter Netflix.

This was a great idea which was born in another era, which some people might forget. DVD rental services for an affordable monthly subscription only killed off the high street rental companies, but when Netflix underwent its own digital transformation, the threat and disruption was massive. Through creating an excellent customer experience, with a huge amount of content, Netflix offered the consumer choice. And the choice came at less than $10 a month.

The difference here is astronomical. Consumers could go from upwards of $70-80 a month, to $10. And boy did they. It was the beginning of the cord-cutters generation and the entry to the digital economy. The power has swung firmly back into the hands of the consumer, and the traditional content and service providers are having to adapt to an environment where they are chasing the game.

But this is the problem in the eyes of Sullivan. $10 a month works for the consumer, but it doesn’t work for businesses trying to create and provide content. The distortion of power has overcorrected into the hands of the consumer, leading to an unsustainable content economy.

“The old model didn’t work for the consumer, and the new model doesn’t work for the businesses,” said Sullivan.

Now this isn’t an executive just being greedy, it is basic economics. How long can content and service providers continue to operate in this game when they are haemorrhaging cash? If they are to compete with the likes of Netflix, 70-80% of subscription costs need to be shaved from somewhere. Yes, there probably was a need for disruption to lower the cost of content, but this might be seen as an overcorrection. Can the smaller content creators survive when the cheques from the providers are getting smaller and smaller?

A sustainable price will sit somewhere in the middle. And while this might not be something the consumers want to hear, paying more is realistically the only way the industry will become healthy again. Think about it this way; the smaller the cheques, the less content creators who are able to survive. This means less ideas, less content and less competition. Less competition leads to less innovation, and ultimately a poorer experience for the consumer.

“We need to find a balance which is about delivering a service to the consumer which makes sense, but also delivering the economics which supports the ecosystem,” said Sullivan.

Right now the industry is heading down a bad path. Unsustainable economics means the smaller players will drown in the rising tides of debt, while the bigger players can just sit and wait out the storm. Unless the overcorrection is addressed sooner rather than later, the content industry will start to become a lot smaller. Smaller means less choice. Less choice means less competition. Less competition means higher prices.

Maybe a healthy middle ground will be found, or maybe we’re just at the beginning of the distorted cycle all over again.

We found a telco at IBC and they’re doing something pretty good

It took us a while but we found one, and it wasn’t what we were expecting. Turns out the Aussies are a little bit more enthusiastic about video than the Europeans.

Representing the shy telcos we have Telstra. And what they are doing is a pretty neat little idea. It sounds very logical as well, so it shouldn’t be too long before such an idea becomes a trend. How would you like a bit of pre-positioning?

It’s a simple idea. Using artificial intelligence, LTE-B networks and a host of applications, Telstra has been running a trial to host content on the edge of its network and also caching content on users devices. Imagine a video where you don’t have any start up time, or there won’t be any streaming breaks in the middle; it’s the dream right? And it might be a reality before too long.

What is key here is personalization, which might be a hurdle for a few in the industry. For this to work properly, you’ll need to genuinely understand the customer. You’ll need to have a recommendation engine which is pretty accurate otherwise it would be deemed a waste, but if you can nail the analytics side of things the rewards could be pretty substantial.

The example which Telstra’s Mukaddim Patham used was Telstra’s own content offering (which removed some of the complications which we will explain later on). Telstra has been growing its content offering over the last couple of years, focusing heavily on sports. Here, AFL, NRL and Netball are the pillars and over the last two years, sport specific video data traffic has grown 130%. Ideas for ensuring improved experience were welcomed.

Using an in-depth recommendation model, the team were able to figure out what content individual users would want, and with a greater emphasis on network analytics, the team was also able to predict when the content should be delivered to avoid congestion on the network. The result was mobile cached content, and Patham reckons he can get a 30-40% efficiency gain on the network as well.

Whether it would be 3X greater average bitrate, or 3X faster start-up time or 5X lower buffering ratio, the results of the test were pretty positive. If you get it right, the experience for the user on a mobile device should not be too dissimilar from traditional TV. A demonstrable drain on the battery was seen, and there could be storage issues, dependent on the users device, but it is a pretty good idea.

And now down to the complications. If you don’t know your user, there is no point. Why deliver content to a user who is never going to play the video. This could be an issue for a number of companies who recommendation engines are not the most accurate. Sticking with analytics, if you don’t have a comprehensive understanding of you network, delivering the content strategically might become problematic as well. Ideas like this will soon figure out who has been investing appropriately in analytics and who hasn’t.

Another complication would be certificates. Telstra was able to run this trial effectively because it owned the rights to the content, but the delivery of certificates when using partner content could be a bit of an issue. But this is still on the test grounds, Patham never said it was perfect.

It is a simple idea, but the best ones often are. Users are demanding highly quality and more readily available content from providers, and while there is little reward for actually getting it right, the consequences of getting it wrong are massive. It is a thankless task, but nonetheless, little ideas like this will make it a bit easier.

Where are the telcos hiding at IBC 2017?

Content is a game that every telco wants to get involved in, but there doesn’t seem to be much evidence of it at IBC this year.

Multi-play is a majestic buzzword which has peppered the telecommunications world for the last couple of years, as operators look to recoup lost profits. Convergence is another which is on the lips of every PR-greedy CEO. Content is, of course, an important factor of this strategy. Arguably king.

But watching the keynotes this morning at IBC 2017, and flicking through the agenda, the telco presence is pretty limited.

While it is your correspondent’s first time at the conference, a few industry friendlies also highlighted the absence to us. This wasn’t just a passing comment either, we’re looking for some sort of reason. A couple of years ago, BT hogged the stage with loud and bold ambitions of dominating the content space; quite a contrast from this year’s event.

Maybe we shouldn’t be surprised. The telcos are treading the steady slope to utilitization, and there doesn’t seem to be much friction. Spin-laden announcements declare the interest in adding value through content services, but perhaps that is all there is to these announcements – PR rhetoric to keep feisty investors at bay.

The truth is content is a difficult game to play in. You have to walk a fine line between sensible investments and lavish spending. Look at Netflix. It might be the poster child of the video evolution, but the costs of securing attractive content have spiralled upwards. Some might look at these costs and become a bit less bullish in the content arena.

Sports is another area where the balance is tricky. Yes, it is a strong emotional connection to the audience, but how much money do you want to spend for such a limited product lifecycle. If you are only leasing the rights you are playing a dangerous game of cost escalation.

Orange has taken a different route, going down the perhaps less attractive cultural content route, but then again this is also no guarantee of success. It is certainly more cost effective, but if you don’t get a return even a small amount of wasted cash could be seen as sacrilege.

And you don’t have to be a content producer. Just look at what Facebook is doing. It has cultivated an audience, and now charges access to it. It has even been very clever when it comes to original content. It hasn’t paid for it, but encouraged the narcissist in its users to the surface which has resulted in an absurd amount of user generated content.

The telcos might not have the same scale and footprint as Facebook (few people do), but they do have subscriber bases. How many customers does BT have in the UK? Or how about Vodafone across Europe? This is a trusted connection to an audience which the telcos are not making use of.

If telcos are too scared to be content producers, why not consider the less attractive and showy route of being a content distributor? It’s not as glamourous, but there is cash there; Facebook wouldn’t be considering it if there wasn’t.

This is essentially a golden ticket. The millennials, an audience which many want to reach, are notoriously difficult to nail down. But you can guarantee they won’t go anywhere without their smartphone. This is an audience which the telcos have an unreal connection to because on this dependence on devices. How are they not making better use of it!?!

All that remains is connectivity. This the telcos seem comfortable and happy doing, but this is not going to recover the eroding mountains of cash. This is simply going to make them a dumb pipe. The content revolution is happening right now and it just seems to be passing the telcos by.

So the absence this year has been noted. And the next time a telco complains to you about the relegation to the role of utility, perhaps you should quiz them as to whether they are just standing back and letting it happen.

Consumers call the shots now and we better get used to it – IBC 2017

The internet is a wonderful thing for most people, with its cat videos and platform for exhibitionism, but there has been a cost to those who used to control the flow of content.

The first casualty were the newspapers. The internet democratised information meaning you didn’t have to buy the morning rag. It diluted the advertising business model and has dampened the influence of many former moguls. But traditional TV has also been on the back foot. This might have been a bit more of a slow decline, but the slope is getting steeper.

Speaking at IBC 2017, Kim Proder of Modern Times Group (MTG), one of the Nordic’s largest broadcasting and content companies, highlighted where the pain is. It’s in the subscription models. The VOD services. The advertising revenues. The content production relationships. It is everywhere.

The theme for this years conference is ‘truth, trust and tranformation’, but lets be honest about what this really means; ‘cord cutter, cannibalization and cost savings’.

The millennials are the cause. Us again (speak for yourself – Ed). Generation X can’t seem to find any other reason for things going wrong. But it is true. Millennials are shifting the video and content market to anywhere and everywhere. They don’t want to sit down in front of the TV at 7.30 to get a daily update, they want to do it when they want. And this doesn’t just mean the time and place, it means the channels as well. Facebook and YouTube are becoming the new go-to places for content.

For Proder, this is a new paradigm which needs to be accepted. The value chain of the broadcasting world has changed forever. Companies like MTG no-longer dictate the agenda, the consumer has the power. Many might be preparing for this change, but that is too late; the power shift has already happened.

“I grew up in a home where we had one phone, and one television screen,” said Proder. “It was small and probably black and white. But when I look at my home now, I can count probably ten screens. This has changed the value chain, the power is now in the hands of the consumer.”

But this is not necessarily bad news. Video is growing and growing fast. There is an appetite for content, and consumers are greedy. The question is how to adapt to this change.

For MTG, the change started in 2015. The team made the conscious decision to focus more on digital. Now, many have made this decision, but few have followed it up with any gusto. MTG on the other hand sold traditional TV businesses in Africa, the Czech Republic and the Baltics, and invested heavily in the new world. It bought eSports brand ESL, gaming brands InnoGames and Kongregate, and also digital video platforms Splay Networks and Engage. Out with the old, and in with the new.

But this is the only fundamental change. MTG can no-longer control the consumption of the content, it just has to be present in same place as the consumer. This means Facebook or YouTube or any other platform which you can imagine. As long as you are meeting the consumer and offering a relevant product, you are doing your job.

Think about the core business of MTG; cultivate and audience, and then whore that audience out to the highest bidder. This concept has not changed, only the delivery. The advertising relationship are still the same; the metrics might be different, but the concept of capturing an audience and putting a relatable marketing message alongside still works.

But the key here is sacrifice. As Proder put it: “You can’t protect what you have. You have to invest in new areas and be prepared to cannibalize yourself”.

Video is for the brave.

Facebook stole your sandwich, but wants to sell you a salad

Alongside Proder, Facebook’s Daniel Danker also gave his vision for video, and it focused around two areas; Facebook Live and Facebook Watch.

Facebook’s video ambitions are no secret. It views video as the next champion as traditional online advertising begins to slow. In Live and Watch, Facebook has two platforms which are highly engaging, highly interactive and potential highly profitable.

Danker claims these products can help create and engage an audience. Facebook Watch certainly looks to be a good platform for distribution, and Facebook Live receives 10X more comments than other videos. Another interesting statistic from Facebook is the way videos are viewed. 40% of videos are viewed by someone sharing it (either on their feed or by tagging a specific person). The snowball effect of reaching new audiences is potentially massive.

But here’s the PR spin. Facebook is selling you a solution, to a problem it created. Admittedly, blaming Facebook alone would be cruel, but the OTTs are the cause of the challenges being faced by traditional media. They are the ones who offered flexibility and changed the rules of the game.

This is something the traditional broadcasters might have to accept. They will never be as profitable and powerful as they once were. For being the distribution platform, Facebook will take a cut of revenues. The broadcasters will still have control of the (although not all) advertising relationships, but they have lost the distribution channels. And they will probably never have control of them again.

When most industries are disrupted, the disruptor takes control of the relationship with the end-user. But this is a strange one, as Facebook is leaving the relationship with the end-user alone when it comes to content. It wants to be a curator, not a producer. You can have a relationship with the consumer, but you have to pay us for the privilege of accessing them.

As Danker put it: “We want to be a platform where people can find shows and content which they love. But we also want to be a platform where content creators can engage with their audience.”

It is an evil, brilliant move. Facebook is not stealing advertisers or revenues directly from the broadcasters, but telling them they have to pay to continue their way of life. It is holding the audience to ransom.

So we stole your sandwich, but you can have it back as long as you buy a salad off us.