The UK is turning to VoD – Ofcom

Half of UK homes now subscribe to TV Streaming services, reveals a new Ofcom report, as the country increasingly opts for video-on-demand.

The precise proportion is 47%, which is lower than some might expect given the apparent ubiquity of Netflix, Amazon Prime, etc, but still a significant jump from 39% just a year earlier. Furthermore, since many people have more than one service, the total number of subscriptions increased by 25%. If this keeps up it won’t be long before nearly all of us spend our evenings consuming copious amounts of VoD.

This is the headline finding from Ofcom’s latest Media Nations Report, which takes a deep look at the country’s media consumption habits. Any parent won’t be at all surprised to hear that younger people far prefer on-demand video over traditional broadcast and, as a result, consumption of the latter is in rapid decline. Thanks to the oldies broadcast telly is still the most popular form of video consumption, but not for long.

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“The way we watch TV is changing faster than ever before,” said Yih-Choung Teh, Strategy and Research Group Director at Ofcom. “In the space of seven years, streaming services have grown from nothing to reach nearly half of British homes. But traditional broadcasters still have a vital role to play, producing the kind of brilliant UK programmes that overseas tech giants struggle to match. We want to sustain that content for future generations, so we’re leading a nationwide debate on the future of public service broadcasting.”

The UK state seems to be in a mild panic about the decline in viewership of what it considers to be public service broadcasting, which means any old rubbish that’s publicly-funded. It’s highly debatable how much of the content produced by the BBC provides any kind of public service other than distracting us for a few minutes, but Ofcom seems to still think it’s really important.

This last table is especially illustrative of the current state of play, with younger adults all about YouTube and Netflix. If Ofcom had surveyed teenagers we suspect that bias would have been even more pronounced and as these trends continue the TV license fee is going to become increasingly hard to justify.

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Netflix doubles profit but Wall Street not very happy

Netflix has increased its annual revenues by 35% and doubled profits over the course of 2018, but that didn’t prevent a 3.8% share price drop in overnight trading.

Total revenue across the 12-month period stood at $15.7 billion, though growth does seem to be slowing. Year-on-year revenue increases for the final three months were 27.4%, with 21.4% for the first quarter of 2019, though this compares to 40.4%, 40.3% and 34% in Q1, Q2 and Q3 respectively. However, when you consider the size, scale and breadth of Netflix nowadays this should hardly be considered surprising.

“For 20 years, we’ve been trying to please our members and it’s really the same focus year-after-year,” said CEO Reed Hastings during the earnings call.

“We’ve got all these ways to try to figure out, which shows work best, which product features work best, we’re a learning organization and it’s the same virtuous cycle, improve the service for our members. We grow. That gives us more money to invest. So, it’s the same things we’ve always been doing at just greater scale.”

This is perhaps the reason Netflix has succeeded in such a glorious manner where others have succumbed to mediocrity or failure. Investments have been massive to build out the breadth of content, while the team has not been afraid to alter its business or invest in content which others might snub. Bird Box is a classic example of a movie some might dismiss, whereas we find it difficult many competitors would have given the greenlight to the original Stranger Things pitch.

On the content side of things, investments over the last twelve months totalled $7.5 billion and Hastings promises this will increase in 2019. Perhaps we will not see the same growth trajectory, as despite the ambitions of the team, another objective for Netflix pays homage to the investors on Wall Street. Operating margin increased to 10% during 2018, up from 4% a couple of years back, though the team plan on upping this to 13% across 2019.

Content is where Netflix has crowned itself king over the last few years, aggressively pursuing a varied and deep port-folio, though it will be pushing the envelope further with interactive story-telling.

“I would just say there’s been a few false starts on interactive storytelling in the last couple of decades,” said Chief Content Officer, Ted Sarandos. “And I would tell you that this one has got storyteller salivating about the possibilities.

“So we’ve been talking to a lot of folks about it and we’re trying to figure it out too meaning is it novel, does it fit so perfectly in the Black Mirror world that it doesn’t – it isn’t a great indicator for how to do it, but we’ve got a hunch that it works across all kinds of storytelling and some of the greatest storytellers in the world are excited to dig into it.”

The team are attempting to figure out what works and what doesn’t for the interactive-story segment, but this is one of the reasons why people are attracted to Netflix. The team are exploring what is capable, brushing the dust away from the niche corners and experimenting with experience. They aren’t afraid of doing something new, and the audience is reacting well the this.

Looking at the numbers, Netflix added 8.8 million paid subscribers over the final three months of 2018, 1.5 million in the US and 7.3 million internationally, taking the total number of net additions to 29 million across the year. This compares to 22 million across 2017, while the team exceeded all forecasts.

However, this is where the problem lies for Netflix; can it continue to succeed when it is not diversifying its revenues?

According to independent telco, tech and media Analyst Paolo Pescatore, the Netflix team need to consider new avenues if they are to continue the exciting growth which we have seen over the last couple of years. New ideas are needed, partnerships with telcos is one but we’ll come back to that in a minute, some of which might be branching out into new segments.

This is perhaps most apparent in the US market, as while there is still potentially room for growth, this is a space which is currently saturated with more offerings lurking on the horizon. Over the next couple of months, Disney and AT&T are going to launching new streaming services, while T-Mobile US have been promising its own version for what seems like years. If Netflix is to continue to grow revenues, it needs to appeal to additional users, while also adding bolt on services to the core platform.

What could these bolt-on services look like remains to be seen, though Pescatore thinks a sensible route for the firm to take would be into gaming and eSports. These are two blossoming segments, as you can see from the Entertainment Retailers Association statistics here, which lend themselves well to the Netflix platform and business model. Another area could be music streaming, though as this market is dominating by Spotify and iTunes, as well one with low margins, it might not be considered an attractive diversification.

The other area which might is proving to be a success for the business are partnerships with telcos.

“It’s sort of been this March from integration on devices and just makes that a point to engage with the service to doing things like billing, on behalf of or we do billing integration,” said Greg Peters, Chief Product Officer.

“And now the latest sort of iteration that we’re working with is, is bundling model, right. And so, we’re early on in that process, but I would say we’re quite excited by the results that we’re seeing.”

This is a relatively small acquisition channel in comparison to others, but it is opening up the brand to new markets in the international space, a key long-term objective, and allowing the team to engage previously unreachable customers. This is an area which we should expect to grow and flourish.

The partnerships side of the business is one which might also add to the revenue streams and depth of content. Pescatore feels this is another area where Netflix can generate more revenue, as the team could potentially offer additional third-party content, hosting on its platform for users to rent or purchase. Referral fees could be an interesting way to raise some cash and Netflix certainly has the relationships with the right people.

Netflix has long been the darling of Wall Street, but it might not be for much longer. The streaming video segment is becoming increasingly congested, while the astronomical growth Netflix has experienced might come to a glass ceiling over the next couple of years. The businesses revenues are reliant on how quickly the customer base grows; such a narrow focus is not healthy. Everyone else is driving towards diversification, and Netflix will need to make sure it considers it sooner rather than later.

Sky moves to ditch the dish

UK premium TV and video content provider Sky has indicated it wants to allow access to all its services over broadband, hence removing the need for a satellite dish.

The statement was made during Sky’s latest quarterly earnings announcement, in which Group Chief Exec Jeremy Darroch said he plans to introduce ‘Sky over fibre’ in Italy and its first all-IP service in Austria, both of which remove the need to bolt a great big plate to the side of your house.

There are already many opportunities to get Sky content over a regular broadband connection, with the Now TV option of cherry-picking families of Sky content on a rolling monthly contract apparently proving popular. In a bid to make it even more so Sky is launching the Now TV Stick – a USB dongle you can plug into your telly to make the magic happen.

Lastly there were a bunch of announcements regarding investment in original programming, including the launch of Sky Cinema Original Films (not Movies, note). This indicates that Sky increasingly considers itself in competition with Amazon, Netflix, etc, rather than terrestrial broadcasters.

“Increasing investment in its own Sky original productions is sensible in light of its recent successes, and its efforts to reduce churn in the UK are resonating with users in part due to Sky VIP which has attracted 1.4m users,” said Paolo Pescatore, Analyst at CCS Insight.

“All eyes are now firmly on the Premier League rights auction. Sky cannot afford to lose its prized assets. Therefore, it must ensure to at least secure the similar packages it has today. However, the channel sharing agreement with BT helps both parties somewhat in the distribution of sports channels to their customers.

“The Now TV streaming stick is big news. Sky is looking to jump on the bandwagon of this segment given the popularity of these small form factor devices. People will be blown away with the price of the new Now TV streaming stick as well as the bundles (stick and passes).

“And let’s not forget the slew of new features, which in our opinion will strongly resonate with users; such as voice control, pause live TV and full HD for the first time on a Now TV product.

This will be a key product ahead of the summer months, when the new EU content portability changes come into effect.”

Dropping the dish, improving its SVOD and general IP content offering and investing heavily in original content all smacks of taking the fight to the big internet players. It’s easy to see a future when linear, as opposed to on-demand, TV is an obscure niche. The only type of content people will continue to feel compelled to watch at specific times will be live events such as football matches. Everything else will move to the Netflix model.

Netflix says 67% of people watch on mobile but Amazon set to can bundling service

Video-on-demand giant Netflix has released some survey data indicating two thirds of people stream video content in public.

At the same time Reuters is reporting that Amazon has pulled the plug on plans to launch a streaming service that bundles select US broadcast and cable channels together because it can’t reach an agreement with the content owners. This sort of thing is apparently called a ‘skinny bundle’ but media networks don’t seem keen to allow such cherry-picking of their channels at a price that Amazon finds acceptable.

This also comes at a time when Amazon is aggressively exploring other ways of making a few more bucks out of video content, including a TV series take on Lord of the Rings, apparently intended as its answer to HBO’s enormously successful Game of Thrones. It’s also apparently talking to content owners about an ad-funded VOD service using long-tail content and it seems to see as some kind of gateway drug to its Prime service.

Back to the Netflix survey. The point of it seem to be to prove that people just can’t get enough VOD and are even prepared to risk public humiliation or opprobrium to get their fix. Almost half have apparently spotted other people watching over their shoulders and a quarter have ended up having a chat about it. They even did an infographic and everything.

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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.

DT and Huawei claim Europe’s first 5G connection

German operator Deutsche Telekom has gone big at IFA in Berlin, with its commercial network in Berlin apparently now churning out a whopping 2 Gbps.

Just like TMUS yesterday DT chose to throw a bone to its kit partner, in this case Huawei. The two claim to be using 3GPP specifications for 5G New Radio to achieve not just 2 Gbps of data throughput, but a mere three milliseconds of latency. This has all been done over the 3.7 GHz band.

This ‘pre-standard 5G’ is derived from the 3GPP efforts in the area of ‘non-standalone New Radio’, which is code for getting the enhanced mobile broadband bit done before the rest is ready. “With this real-world achievement, DT is making its first important step towards a 5G network launch,” said DT CTO Bruno Jacobfeuerborn. “When the standard is defined, we will trial it in 2018 to prepare the ground for a wider deployment of commercial sites and the offering of devices for the mass market as they become available.”

“As long time partners, both Deutsche Telekom Group and Huawei have joined hands to successfully test 5G NR equipment in field environments based on latest 3GPP R15 standards,” said Huimin Zhu, 5G VP at Huawei. “These achievements highlight the capabilities of the 5G NR equipment to meet operators’ requirements for addressing new business opportunities for end users. Huawei is confident that the partnership with Deutsche Telekom can fully prepare the commercial launch of 5G NR services in Europe by 2020 thanks to 3GPP standardization efforts.”

This was just one of a frenzy of announcements from DT at the show. Its EntertainTV video-on-demand is getting a boost with a bunch of premium content including a range of classic German movies. DT has also launched a rather forced-sounding digital lifestyle sub-brand called #JETZMAGENTA. Repeated reading of the announcement shed no light on what the point of it is, so instead here’s a photo of it at the show.

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