IBC
Video on demand (VOD) is fast becoming a significant revenue stream for pay-TV operators with predictions at IBC2015 from Time Warner Cable Media that 50% of its revenue may be generated by VOD in less than five years.
Meanwhile Roger Lynch, CEO of OTT start-up Sling TV predicted OTT services will be in 35 million US households by 2022, representing a quarter of the market.
“In 2014 there were more than 1 billion on-demand impressions generated per month from US cable networks which is starting to be a meaningful scale for advertising models and starting to generate meaningful revenue,” said Joan Gillman, EVP and COO, Time Warner Cable Media (TWCM).
The irony of course is that Time Warner, which has launched VOD to IP devices and STBs and also owns HBO which has taken ‘Game of Thrones’ direct to fans with its own OTT service, and Sling TV parent Dish Network – are the old distribution media which OTT is out to consume.
“Some say we're attacking pay TV but in reality we are attacking the pain points that consumers are facing,” said Lynch in an IBC2015 keynote. “The next generation of TV viewers are younger, more mobile and more educated but the reasons they reject traditional pay TV are the same pain points of current subscription based pay TV; long term contracts, channels you don't watch, hidden costs and poor customer service.”
He added, “Dish understands that OTT is where the market is going and if it cannibalises their core business so be it. It turns out we don't cannibalise Dish because the demographics of satellite are different to that of OTT services.”
Both Lynch and Gillman argued that the growth of OTT is actually building a bigger pay TV pie. Lynch said he expected the overall pay TV market to grow, even while the share of traditional pay TV declines. “In the US, all pay TV operators sell the same package of channels but OTT will segment the market.”
“TV is still 93% of all content consumed in the US,” said Gillman. “Live viewing may be down 8.9% in the US but if you combine live linear with DVR and VOD then TV viewing is increasing by 16.4%. The growth of VOD on cable is thanks to a healthy TV ecosystem.”
She illustrated this with a statistic showing that views per month of ‘The Food Network’, a single cable channel, were higher than total views of YouTube in the same period (13.3 million to 13 million). “Scale matters,” she asserted. “The ad supported TV ecosystem is significantly larger than YouTube.”
In terms of ad supported VOD TWCM's revenue is under 10%. The speed at which it will rise depends on content availability and experimentation with business models. “Consumers do not use the term VOD,” said Gillman. “TV is TV and that's the way we think about it. They do not mind advertising if the ad load is well thought out, but they will also pay to receive 'ad-lite' premium content.”
Thomas Bremond, MD, Europe at advertising management specialist FreeWheel, believes the timescale by which VOD revenue exceeds that of conventional broadcast to be as short as two years; “consumers experience VOD as if it were linear on the TV, yet operators have the ability with digital to perform ad insertion and manage rights. VOD creates the best of both worlds between programmers and operators.”
In the same session, Channel 4 Sales Director Jonathan Allan, revealed that VOD will comprise 10% of Channel 4’s revenue in 2016. “90% of revenue is still not VOD so let's put this in perspective. But over the last 5 years the TV market has grown about 20% while our VOD revenue has grown 360%. In turn, that means we can afford to invest in our platforms and our content.”
Gary Woolf, EVP Business Development, Digital and Insight, all3media international also believed the percentage of revenue producers derive from digital will grow “aggressively.”
“By 2019, 3 billion minutes of video will cross the internet each month, video will make up 80% of consumer traffic and 75% of that is long form video,” he said, quoting Cisco stats. “Consumer demand for VOD will double between now and 2019 so broadcast VOD is an important opportunity.”
However, he warned, that a more fragmented ecosystem put the basic content funding model at risk. “It is critical to retain value from linear into the on-demand space,” he said. “We don't want to exchange analogue dollars for digital cents.”
Noting that even mid-range UK drama required distributors such as all3media to deficit fund 30-35% of a commission against future sale of rights, he warned broadcasters to mind the funding gap; “We want broadcaster partners to benefit from growth in digital but we need to make sure the costs are balanced.”
Another trend noted by the panelists was that Netflix no longer has a monopoly on content. The rise of Hulu+ and Amazon Prime as well as pay-TV operator VOD offerings has created more competition for content.
“Content owners have more choice but from a monetisation point of view it is critical to figure out the business model so that content development is healthy,” said Gillman. “If great shows aren't being made and funded then you are going to weaken your business.”
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