The Cat in the Art Gallery

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My vaguely dystopian piece in the Streaming Media magazine's European edition last month was perhaps more prescient than I expected: At IBC the feeling of pending change only grew. This was strongly reinforced by conversations with numerous key actors in our sector throughout the conference where I outlined my sense that the broad sector is focused on the wrong things—and they universally agreed.

The analogy I used is that the industry is behaving like a cat in an art gallery that only has eyes for a laser pen someone is messing with. The laser represents the endless boring and uninformed cord-cutting conversation that has dominated our industry press for 2 years. And the cat is missing the rich variety of creativity and art that is actually going on under its nose in the form of community-targeted and user-generated content.

While I don’t want to name names, these actors who shared my belief were from the very largest telcos, network operators, and of course the FAANG collective. 

Conversations at IBC started with a debate that one of the actors had been involved with (under Chatham House Rules) where the topic was "When will the OTT 'tipping point' be?" While this is a fair enough topic, most Streaming Media readers will instinctively reply "Didn’t it already happen?" But at IBC we are sometimes walking with dinosaurs. There are still those who spend all day catching up with industry news on YouTube or Linkedin and yet think that everyone else is watching their traditional broadcast channel, and online video is yet to catch on.

That's a fatal mistake. 

Additionally, the audience measurement companies (one of my pet hates) have finally admitted defeat. Nielsen’s firesale(and effective admission that they frankly don’t have a handle on streaming) was echoed back to them by an entire industry commenting that they didn’t have a handle on sample/panel-based estimation of traditional broadcast either. The mask is off, and it's a little like the end of a Scooby-Doo episode where we have found that the unmasked villain is a bungling opportunist whose moment has gone. 

These audience measurement companies have been the backbone of "advertising currency" for decades. They continued to sell a dated model that was valid in an oligopoly-controlled TV market in the pre-1988 era (where 4 channels were all you could get, and so advertising had a direct effect) for decades after those markets were deregulated and that advertising was completely diluted by the vast array of choice consumers have. No longer does the Super Bowl or the World Cup Final unavoidably broadcast to "everyone"—those that have no interest in such things have a plethora of alternative content to choose from. The value of reach alone no longer has a premium, and reach-based measurement is giving way to "accuracy." A $30 million advertising spend on the only TV channel carrying the Super Bowl might make sense, but when you realise that 90% of the audience are not interested in buying your product, it invariably makes more sense to spend $3 million on highly targeted adverts that hit that 10% making the buying decision on YouTube and see the same revenue for sales of your product.

Advertisers keep all but the largest traditional TV subscriber models in business today. That means that much of the traditional TV industry is fundamentally underpinned by the freemium ad-revenue driven model. And that underpinning is failing.

In some ways, the Nielsen mask falling away was the moment the dam burst. With subscription services now becoming affordable—more so than cable or satellite—for the first time there is an option for the consumer to opt out of advertising-driven channels. The result is that the freemium channels struggle to afford rights as their ad revenues are diluted by a huge change in the supply to the market. The advertisers are much more interested in spending budgets on niche-targeted advertising to small online community groups and niche interest channels—YouTube and Facebook are much more granular than Neilsen’s proposition. They can target advertising with accuracy that a traditional broadcast can only dream of. So the advertisers are moving there, and in effect funding a coming of age of what we in the sector derided as "mere user-generated content" a decade ago.

And these groups are almost uncountable, only being measurably by Google's or Facebook’s own metric systems. 

Add to this the fact that Tier 2 operations that rely on ratings and ad revenue to pay for their networks and rights, and who historically only competed with their highly regulated former TV provider or telco, are now in direct competition with Global OTT operators who are affordable to the consumer, and offer an ad-free and richer range of content. Most countries still have what I would call a Tier 1 broadcaster (typically either a former state TV company or telco, or a News Corp-affiliated sat-co). Most of these have some churn moving to OTT services, but due to their entanglement with ISPs (State TV and state PSTN providers and ISPs are all usually very close cousins, if not members of the same identifiable family) these Tier 1s have spread their risk and are a little more protected than the Tier 1 that has no real network and subscribers. 

The Tier 2s (for example ITV or Channel 4 in the UK) have really struggled to adapt to the "OTT" (yes I hate the term) world. Sure, they are technically present. They have broadly capable cross-platform UI and video encoding pipelines, and ultimately their services work. But … watching adverts. 

Pragmatists say "people are happier watching highly targeted adverts," but this is like saying "cancer patients are happier on higher doses of morphine." It may be true, but it misses the point that we are not really making people happier, just reducing the pain we are inflicting. Subscription services take that pain away. Why take more morphine when you can simply have the cancer removed with no side effects and without breaking the bank?

And with the audience measurement companies now admitting they cannot provide accuracy, audiences moving away to subscriber platforms for quality content and to UGC content for their niche interests advertisers are finding much better ROI on the Facebook and Google platforms than on their Tier 2 broadcasters. So, frankly and brutally, their days are seriously numbered.

I know firsthand that over the past 3 months many of the top sales people in our sector have moved and bedded into good packages in long-term roles in savvy OTT/IP First companies. There are massive opportunities out there, but they are all expecting significant change and disruption—and given they are the market makers, they are worth following! 

Collectively a number of us were debating in depth at the IBC beach (admittedly after a few beers) that next IBC will be the very last one where there is a question of things moving to IP—and the discussion will be more along the lines of "Right, so everything is IP, how do we help the struggling former traditional broadcasters catch up?" Indeed, I predict that a few weeks after IBC next year a whole bunch of familiar Tier 2 traditional broadcasters will realise their models are ineffective and they will cull, layoff, and squeeze wherever they can. Many may even fail altogether.

But while all is looking pretty rough for the traditional broadcasters, we in the streaming media and the (to coin a phrase) "IP First" generation have nothing at all to fear.

The fact is, we got it right. We don’t really care about cable, satellite, and TV companies. We care that our mate's gig on YouTube last night was amazing, or that link shared on Twitter to some obscure Twitch feed of a game got to me before Cat091 got the worldwide high score. Ten times a day I watch a focused bit of video content directly relevant to me, my work, my hobbies, and my passions. I skip ads at the start of everyone, and I spend 3 to 5 hours watching my own personal TV. Only then do I sit in front of my smart TV and open Netflix and watch 3 more hours of some high production quality escapism that costs me less than 3 pints of beer a month. The very idea that I might fight my way through adverts pre-rolling/mid-rolling and skip-preventing my free access to my content sounds like some police state TV stuff from the cold-war era. And the traditional industry is still wondering if this internet thing will catch on?!!

Just as iTunes sorted out the relationship between the music industry and the online consumer, paving the way for the various subscription audio platforms, Netflix has sorted out the relationship between the video production industry and the online consumer.   

And YouTube and Facebook are changing the relationship between the niche content producers and technology vendors who can help them reach their audience. TV has been disintermediated. 

The old models are just that. Old. Dated. And very soon irrelevant. 

Leave the poor (traditional broadcast industry) cat to watch the laser pen. You, me, and the rest of the streaming sector are going to do just fine selling gallery space, paints, brushes, tickets, and subscriptions to those that want to make and appreciate the actual art.

Photo by Erica Leong on Unsplash

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