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BI Report Future of Pay TV Table of Contents


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  • 1. The Future of Pay TVThe impact of OTT TV services and the quest for a ‘better TV’ experienceReference Code: BI00052-012Publication Date: August 2011 1
  • 2. Keith JohnsonKeith Johnson uniquely fuses 25-years of blue chip FMCG marketing and brand building expertise acrossthree different market segments (food, drink and mobile phones) with a further 10 years pursuing a portfoliocareer in the interactive TV business. Keith’s focus is on video content convergence from strategy toexecution and, with a special interest in interactive brand engagement, he is a strong advocate of strategic‘over the top marketing’ for brands and content publishers.DisclaimerCopyright © 2011 Business Insights LtdThis report is published by Business Insights (the Publisher). This report contains information from reputablesources and although reasonable efforts have been made to publish accurate information, you assume soleresponsibility for the selection, suitability and use of this report and acknowledge that the Publisher makes nowarranties (either express or implied) as to, nor accepts liability for, the accuracy or fitness for a particularpurpose of the information or advice contained herein. The Publisher wishes to make it clear that any viewsor opinions expressed in this report by individual authors or contributors are their personal views andopinions and do not necessarily reflect the views/opinions of the Publisher. 2
  • 3. Table of ContentsKeith Johnson 2Disclaimer 2Executive summary 15The Internet era of TV arrives 15Existing Pay TV services 17Towards a “better TV” experience 20Chapter 1 Introduction 23Background 23Scope of the report 24Chapter 2 The Internet era of TV arrives 26Summary 26Introduction 28The rise of Internet video 28 Viewing Internet video hits the mainstream but traditional viewing holds firm too 30Web-to-TV growth 31 Connected TVs - towards mass market penetration 31 OTT TV – quality of service 33 OTT can lead Pay TV into the cloud to extend reach 34Connected devices and the OTT landscape 35 Connected TV set to have a big impact on viewing behavior 35 Issue of interoperability between various standards 36 Red button ‘enhanced’ TV still thriving 37 3
  • 4. Content convergence takes center stage 37 Multi-screen viewing experience and companion devices 38 Sony and the push for a cloud-based multi-screen experience 39 HBO and the developing battle to own the consumer 40 Google TV and the user experience 41 Need for compelling content will drive distribution co-operation 43 TV operators must be willing to cooperate and partner with OTT providers / CE manufacturers 43 Samsung and the ‘Smarter Life’ 44Cord-cutting, cord-shaving and the consumer 45 Pay TV incumbents have the ball and it’s theirs to lose 45 Cord attachment not cord cutting in ‘Freeview’ markets 47 Netflix and Hulu making cord-cutting waves but content will cost them more 48 Cord ‘swapping’ more likely 50 Some younger age groups only watch TV online 51Multi-screen content convergence 51 Drivers of multi-screen content convergence 52 Operational challenges still to be overcome 52 Confusing the consumer is a big risk – user experience the top priority 53 User experience is becoming the critical issue for service providers 53 Multi-room services start to utilize other CE screens in the home 54 Device control versus broadcaster control: Cablevision go with cloud-based “nDVR” 55 RVU Alliance and Remote User Interface solutions 56 Content discovery is a multi-screen experience for BSkyB 56 Consumers increasingly using tablets and mobiles as companion device 57 Telenet in Belgium also has early success with its Yelo platform 57Impact on the Pay TV value chain 58 Roadblocks for Connected TV services may delay full impact in the near term 58 CE manufacturers lack of consumer marketing capability – a big barrier to market-making 59 4
  • 5. Product management ethos still prevails, consumer market insight missing 59Retailers moving into video streaming: Tesco buys Blinkbox, Amazon buys LOVEFiLM 60Tesco deploy Trove hybrid technology across range of Freeview devices 61French broadcasters lay out key engagement principles for CE manufacturers 61 Statement lays out the requirements for CE manufacturer ‘compliance’ 62Google and Apple and their “unique ability to scare broadcasters” 63Channel brands and program brands... and second wave OTT 63 Companion device + app is building an interesting ‘second OTT wave’ 64ITV to wean itself away from reliance on “hideously cyclical” 30 second ads 65 ITV need a hybrid TV proposition full of compelling content and interactive formats 65Sky, YouView and BBC iPlayer frame the issues for aggregated catch-up TV on the TV 66 Lack of consumer marketing input on YouView 67 Multiple versions of the BBC iPlayer could have been avoided 67Channel 4 distributed on YouTube 68Broadcaster ad-funded models are not sustainable in this new fragmented world 69 Interruptive ad-funded model cannot support channel fragmentation 69New micropayment systems may help broadcasters 70 TAS provides the ‘plumbing’ for broadcasters to monetize 2-screen 71Netflix moves into the premium TV business with original content 71 Netflix positioning itself to Hollywood 72Facebook and Warner Bros. stir things too 73 Facebook streams The Dark Knight 73 Warner Bros. very active in multi-platform engagement 74Niche content publishers and brands can take full control of their OTT distribution 75 OTT opportunity for special interest content owners 75Cable operators go on the front-foot 76 Consumers still need a cord to get OTT content 77Increasingly faster broadband speeds drive both cable and OTT models 77Potential for Pay TV content value chain disruption 78Content management issues facing Pay TV in multi-screen video delivery 80 5
  • 6. Aspera offers a new standard for moving large video files 82 The CDN is a vital component of future hybrid networks 82 Scope for Pay TV operators to become successful CDN providers 83 Potential for migration of existing Pay TV services to OTT (CDN) delivery 83 Changing world for set-top box manufacturers 84 Common Interface Plus (CI+) allows TVs to bypass set-top boxes – a temporary solution? 85Social media infusion into online and TV 87 Social media is viewed as entertainment, content needs to reflect this 87 Social gaming 88 Virtual goods are the most important revenue generator for social gaming 92 Netflix working with Facebook on deeper online integration 92 Integration of Facebook in the TV environment 93 Social network driven search and recommendation – will it work on TV? 94Advertising spend 95 US advertising spend not (yet) following online video consumption 95 Growth in online video and mobile advertising 98 Branded content ‘engagement’ adds pressure to traditional advertising thinking 99 New pay models evolve for newspaper publishers 102 Apple enables iPad subscriptions 102 Publishers are getting more generous terms from Google 103Chapter 3 Existing Pay TV services 105Summary 105Introduction 108 Pay TV revenues flat-lining in Western Europe 108Content owners and original (premium) content 112 Entertainment companies still vulnerable to disruptive force of OTT 113 6
  • 7. Importance of watermarking for ‘early-window’ VOD 114 Netflix creates OTT dilemma for Showtime, Starz and others 114 Netflix showing the power of the ‘content-2-me’ model for OTT engagement with consumers 115 Time Warner Cable and Cablevision go OTT with TV channels direct to iPad 115 TWC / Cablevision maintain streaming iPad app is within existing carriage deals 116 “Oscar Backstage Pass” Companion App debuts 117 Meta-data creation / management can unlock new value: CBSSports and 117 Live sports content and ‘cable lite’ bundles 118 Regulator intervenes in UK Pay TV market, takes on Sky re. premium content 120 Sky forced to wholesale premium sports channels to rivals 120 The Kokott Ruling: challenging the lucrative rights model in the EU 121 Exclusivity rights are ‘contrary to EU law’ 121 Kokott’s ruling not yet legally binding; will have significant effect if accepted 121Premium formats 123 CE giants push 3D products 123 3D TV channels set to increase in Europe, but original content lacking 123 3D TVs forecast to reach 91 million global shipments in 2014 124 Format war in 3D glasses will only further stall the consumer market 126 360 degree video 127 World’s first 360-degree view music video 127BSkyB 128 BSkyB “build your own” Pay TV bundles, pay-per-view and other pricing 128 Virgin Media also segmenting packages 131 Sky launches Sky Mobile TV app for iPad 131 BSkyB product bundling will be further stimulated by hybrid VOD service 132 Sky Atlantic / HBO premium content deal 132 Part of Sky’s investment in a broader range of entertainment content 133 Sky will strategically cover multiple platforms 133 “Multiplatform future is paid content” 133 7
  • 8. 10 million Freeview homes a prime target for a ‘lite Pay TV’ proposition 134Virgin Media 135 Backwards-facing EPG for ‘missed TV’ will drive TV consumption 135 Integration with TiVo 135 Virgin embraces OTT by going ‘through the middle’ with managed OTT 136 Segmenting the pipe for managed OTT 136ComCast Xfinity TV 137 Re-launched with 2-screen companion app 137 Comcast (and Time Warner) partners with Samsung 138 Key moment for Comcast Xfinity multi-screen evolution 138Verizon FiOS TV 139 iPad app does not support streaming, even in the home 139 FiOS add options to personalize service bundles 140Liberty Global UPC Horizon: “wonder box” 141 User can move content around the home 141Prisa TV Digital+ a la carta 142TF1 143 TF1 have developed 5 apps for Samsung Smart TV, but not VOD (yet) 143 TF1 launches social media VOD trial with Facebook 143Orange 145 Challenge of service rationalization across multiple access networks and screens 146ONO 147Apple TV 148 Apple AirPlay: wireless streaming in the home 148 Apple partners with Netflix 149 Apple TV adds live streaming apps 149 Apple launches iCloud 150Hulu Plus 151 8
  • 9. Netflix 152 Netflix is a destination 152LOVEFiLM / Amazon 154 Amazon observes that customers will pay extra to stream a movie immediately 154Chapter 4 Towards a “better TV” experience 156Summary 156Introduction 158 Content discovery in OTT TV: moving beyond the Internet search experience brought to the TV 159 Control of user interface and revenues that go with it 159 NDS create a content marketplace for OTT channel EPG integration 160 The NDS interface covers the most important parameters for any content deal 161 Hitting the mass-market in the living room 161 Multi-room and in-home multi-screen 162 DLNA could play a key role in multi-room 162Content discovery and the user experience 163 Content discovery and metadata take center stage 163 “Metadata” not a consumer-friendly concept to communicate, but is key to differentiation 164 Integration of broadcast and VOD metadata so viewer can stay within the broadcaster service 164 TalkTalk trial Technicolor MediaNavi 164 Rovi Media Cloud 165 Ability to duplicate program listings on companion screen 166 The EPG and content discovery 166 Search, recommendation and ‘enabled’ serendipity 168 Viewers want to discover new programs from a list filtered for relevance 169 The ‘shoppable’ EPG and contextual commerce 170 TV apps and the evolving hybrid TV experience 170 Unifying the consumer experience across multi-screen subscription packages 171 9
  • 10. Suggested discovery and recommendation 172Companion devices open the 2-screen engagement door 173 Personalized, real-time, synchronized TV viewing on the companion screen 173 Channel 4 drives participation levels and formats 173 PlayToTV for Germany’s Next Top Model 174 Junaio mobile ‘augmented reality’ browser driving participative TV in Germany 175 Aurasma ‘augmented reality’ app links up with Super 8 movie 176 Screach real-time engagement ‘experiences’ target interactive TV 177 Screentoo powered with real-time metadata from Snell broadcast automation system 178 Digital fingerprinting 178 iPad pushes 2-screen with audio triggering 179 Audio watermarking for real time 2-screen synchronization being widely evaluated 180Socially augmented TV 181 Couch Crew in Germany develop advanced social TV app 181 zeebox augmented TV 182 Use of contextual metadata from a variety of sources 182 Opt-ins will enable the ability to see what friends are watching and interact 183 NDS Hoovu 183 Yahoo! moves into TV sharing with IntoNow 184Content convergence 185 Multi-source strategies are essential to TV curation 185 Content overload increasingly a problem 185 Real-time, 2-screen content engagement will transform ‘transmedia storytelling’ 186 Alert to the opportunity of connecting real-time, one-to-one 186 Brands as media – Red Bull in pole position on OTT 187 Content commoditization and the growing opportunity for OTT niche and local content 188 YouTube to seed-fund up to 20 ‘premium’ YouTube channels 188 Pay Per View can work for long tail: niche audiences will pay for scarcity 189 1.5 million people watch live video coverage of the Murdoch Phone Hacking Parliamentary Hearing 10
  • 11. 189The future of TV advertising 190 Yahoo! “joining the dots” with multi-platform ‘smart’ ads, in context and interactive 190 Sequential advertising to improve effectiveness 191 Microsoft unveil NUads ad platform for Kinect 191 BlackArrow creates a unified multi-platform approach to ad management 192 Ability to cost-effectively swap-out ad copy across multiple screens 192 AAMP, CEE MEE, BARB and the urgent need for ad measurement systems 193 Canoe Ventures ‘CEE MEE’ study planned 193 BARB takes first small step on audience measurement for online TV viewing 194 Addressable advertising will create niche advertising opportunities 194 Sky AdSmart to extend to Sky+ 195 YuMe Relevance Engine’s ‘content awareness capability’ 196 Apple iAds drive improved engagement and ‘tap through’, but take up is slow 196 Apple cuts minimum spend demands on iAds 197 SkyLife and Kudelski JV to deploy advanced advertising solutions in Korea 197 Addressable advertising will challenge brands and their agencies 198 Reality is that most brands do not sufficiently understand addressability: new thinking is needed 198 Ad agencies need to re-engage with TV reality or get OTT’d themselves 199 Lack of thought-leadership and know-how will need to be addressed 199 If data is the new oil, applied data skills and affinity for the technology will differentiate 200 ROI is the driver of engagement activities 201 Freedom to innovate will challenge the old ad model 201 As media and creative converge, need for greater understanding of creative methods in media 201 Renewed creativity around contextual advertising 202 OTT technology funnel for intelligent content and ad creation – the personal media moment 203 Longevity of content / ads will be inbuilt from conception 204 New type of ‘agency’, new type of client… 204 11
  • 12. Clear tension between ad agencies and tech companies 205Appendix 206Glossary / Abbreviations 206 10-foot viewing experience 206 Converged or blended content 206 DTO – download to own 206 Hybrid TV 206 Managed OTT 206 OTT / Over–the–top 206 VOD – video on demand 207 12
  • 13. Table of figuresFigure 1: Internet video users by region (m), 2009-14 29Figure 2: % of consumers watching OTT TV on a PC or TV, April 2011 30Figure 3: Connected TV shipments by region (m), 2009–13 32Figure 4: How consumers view their TV paid services, April 2011 46Figure 5: Apple, Netflix and TV access provider content costs as a % of revenues, 2009-11 49Figure 6: The Pay TV content value chain 78Figure 7: The OTT disrupted Pay TV content value chain 79Figure 8: Pay TV content creation and management chain 81Figure 9: Social gaming users by country (m), 2010–15 89Figure 10: Global number of online gamers by gender, 2010 91Figure 11: US major media ad spending, by media ($bn), 2009–15 96Figure 12: US media ad spending share, by media (%), 2009–15 97Figure 13: Branded ad spending share of total marketing for US companies ($m), 2001–2010100Figure 14: Branded content spending for US companies by media ($, 000), 2000–2010 101Figure 15: Western European Pay TV revenues by segment ($m), 2006-16 109Figure 16: Western European Pay TV households (m), 2010-16 111Figure 17: 3D TV unit shipments by region (m), 2009–14 125Figure 18: BSkyB “Entertainment pack” 129Figure 19: BSkyB Pay TV bundles 130Figure 20: Influences on what viewers watch (% of respondents), by age-group 168Figure 21: OTT technology funnel for intelligent content and ad creation 203 13
  • 14. Table of tablesTable 1: Internet video users by region (m), 2009-14 29Table 2: Connected TV shipments by region (m), 2009–13 33Table 3: Hulu Plus and Netflix US online movie / TV rental subscription subscribers, revenues and ARPU, 2010–13 48Table 4: Social gaming users by country (m), 2010–15 90Table 5: Global number of online gamers by gender, 2010 91Table 6: US major media ad spending, by media ($bn), 2009–15 97Table 7: US media ad spending share, by media (%), 2009–15 98Table 8: Branded ad spending share of total marketing for US companies ($m), 2001–2010100Table 9: Branded content spending for US companies by media ($, 000), 2000–2010 101Table 10: Western European Pay TV revenues by segment ($m), 2006-16 110Table 11: Western European Pay TV households (m), 2010-16 111Table 12: 3D TV unit shipments by region (m), 2009–14 126Table 13: Verizon FiOS service bundles, 2011 140Table 14: BSkyB EPG changes, 2011 167Table 15: Influences on what viewers watch (% of respondents), by age-group 169 14