Broadcast
With the likes of Facebook and Apple joining the fray, the
battle for the best sport, drama and entertainment is intensifying.
The mantra ‘content is king’ has always sounded glib, but
arguably has never been more apt. The battle between broadcasters, pay-TV
operators and OTT streaming platforms is revolving around three pillars of
premium content: live entertainment, live sport and serial drama.
So much so that Guy Bisson, research director at Ampere
Analysis, is prepared to declare “content is god”.
“The TV business has worked on an incredibly geographic
basis; every deal was done for one territory and often for one form of distribution,”
he says. “All of that is breaking down with the global rollout of platforms and
the need to control global or pan-regional rights.”
VoD has been the driving force behind TV’s transformation
over the past decade. Analyst Ovum asserts that “few trends will be bigger
in 2018 than the transformation of TV and video by OTT technology and
services”.
The first question for content players is how to strike the
right balance between on-demand and live.
“Legacy broadcasters used to rely exclusively on live (including
scheduled programming) and have moved into VoD by launching catch-up and
other services,” notes Strategy Analytics vice-president David
Mercer.
“Netflix and Amazon and started out in VoD and are now
adding, or thinking of adding, live, including live sport and/or scheduled
programming. Everyone is now on everyone else’s turf.”
Last week, for example, Facebook told Broadcast it wanted
scheduled “appointment to view” formats rather than “bingeable” box sets.
Two programming events that seem to reflect the changing
balance of power are the migration of the Top Gear presenters to Amazon
for The Grand Tour and Netflix scooping the rights to Left Bank’s The
Crown.
Pledging to spend 25% more on original programming in
2018, Sky managing director of content Gary Davey admits: “There’s
never been a more competitive time to be in the content business.”
Or more expensive, he might have added. According to figures
from analyst IHS Markit, Sky spent £280 per subscriber (including sports) in
2016, compared with Amazon’s £130 and Netflix’s £32.
This equates to £4.7bn, £2.6bn and £3.5bn total programming
budgets respectively – figures that already look small compared with the latest
commitments.
Netflix will spend £5.6bn on scripted originals this year –
a figure that Ampere suggests makes it “comparable to a premium channel group
or platform”.
Amazon – which is paying £175m for global rights to a Lord
Of The Rings series – is forecast to spend more than £3.3bn. Hulu, the first
SVoD platform to win a best drama Emmy (for The Handmaid’s Tale), will
spend £1.75bn on its scripted slate.
IHS Markit data suggests that Amazon is spending close
to 140% of its total video revenue on content, compared with around 60% at both
Sky and Netflix. This has been interpreted as Amazon betting on a fast
subscriber ramp-up or being ready to use content as bait to drive non-video revenues.
Either way, the near- to mid-term picture is one where the
best content is going to be spread among more places. “Few operators have the
scale to succeed in developing original content,” says Mercer.
“Even after 30 years, Sky still struggles to develop shows
that attract the highest ratings. Netflix and Amazon have demonstrated
that a few high-profile shows can drive subscriber numbers.”
While Sky has ceded some sports rights (mainly to BT) and is
investing heavily in original drama, BT is differentiating itself as an
“agnostic super-aggregator”, says Bisson.
With Netflix on board since 2014, the recent deal with Sky
also gives BT customers access to Sky Atlantic and Now TV “without giving
preference to own-brand”.
Liberty Global, which spent nearly £165 on content per
subscriber in 2016, is “accumulating a next-generation content distribution
platform”, says Bisson.
It has acquired global rights to Formula 1 and stakes in
Lionsgate and ITV; it has a long-term pact with Discovery to carry Eurosport;
and it is upping its original commissions, including those via All3Media, for
carriage on operators including Virgin Media.
“There is certainly a greater trend for pay-TV operators to
invest directly in channels, programming rights and production companies,
because the risk of losing their customers to OTT competition has increased,”
says IHS Technology principal TV analyst Tim Westcott.
Exclusive sports rights have historically been used to drive
subscription services and they remain important to pay-TV, although to sustain
growth, operators have to compete on as many fronts as possible.
“If they can’t compete for premium sports, wholesaling
[allowing another pay-TV provider to redistribute its channels] is the next
best option,” says Mercer.
“Second- and third-tier sports are also an option, but will
never drive the same subscriber levels as properties like the Premier League
and Champions League.”
Ampere research has identified a large and affluent group of
sports fans who can, and do, pay a significant premium to watch their favourite
teams and competitions. For example, 18% of BT subscribers cite sport as a
motivation for choosing the service.
While the figures for Sky are less polarised – due to its
wider content offering – there is still a marked preference for the channel
among sports viewers, according to Ampere.
Monetising sports
“With sports fans so overwhelmingly eager to pay to access
their favourite competitions, there is tremendous scope to further monetise
sports on TV,” says Ampere analyst Alexios Dimitropoulos.
“The challenge will be to balance the enthusiasm for niche
competitions, particularly evident among younger viewers, with the demand for
big-ticket events such as the Champions League.
”Online services have a chance to maximise this demand, with
an expanded offering of sports events, and that’s why we’re seeing Facebook,
Amazon and Twitter make their first forays into this space.”
Amazon is believed to be keen to acquire rights to the
Premier League to differentiate itself from Netflix and stimulate uptake of its
overall Amazon Prime offer in the UK. If Amazon wants to make money from
advertising as well as subscription income, owning premium sports is a good way
to help achieve that.
Facebook’s revenues are largely built on advertising, but
live sport is considered a “natural add-on” to growing its long-form VoD offer
Watch, and the social conversation about sports, teams and stars that goes on
around events, says Westcott.
“It’s also overwhelmingly a mobile-first platform. These
factors are defining the investments it’s making in sport.”
Mercer suggests that, even with the resources of these
digital giants, it would be a huge leap to compete directly with Sky and BT for
English or European football. “It seems more likely that they would bid for one
of the smaller packages than try to oust the incumbents completely,” he adds.
Priced out of the market (the BBC’s content budget is
stagnant at £1.7bn), PSBs and commercial broadcasters “have largely given
up on major live sports”, says Mercer.
Instead they focus on highlights and minor sports, as well
as listed events like the Olympics and World Cup football – a situation
unlikely to change, given the growing power of subscription-based players.
Yet the valuable exposure and reach that broadcasters offer
is still attractive to leagues and federations: the English Cricket
Board’s decision to return a portion of Test coverage to the BBC from 2020 is
one example; the BBC’s move to stream an extra 1,000 hours per year of mostly
niche sports is another.
“We could see some live sports adopting a mixed free TV/paid
online approach,” says Westcott.
Broadcasters, it should be remembered, continue to dominate
viewing share, albeit with output that tends to be pre-determined by their
licence obligations.
That means UK PSBs continue to place a lot of emphasis on
origination, with live entertainment or live linear events like Strictly Come
Dancing and Love Island their biggest draw.
“The way viewers engage with the platform makes national
mass-audience broadcasters well suited to live entertainment,”
says Bisson. “A show like The X Factor would work less well on-demand. Equally,
a global on-demand platform is less interested in content that only works for a
specific national audience.”
Into the mix comes Apple with a $1bn (£720m) content budget
as it preps a new video service. The exact nature of the service remains unclear,
with some doubts that the content will ever be more than a means of
boosting Apple Music subs and hardware sales.
A recent article in The Guardian speculated that Apple is
exploring “experimental, tech-driven delivery” (like Steven Soderbergh’s
app-based Mosaic) and opportunities to drive Apple’s push into augmented
reality via iPhones.
“Consumers do not want content,” argues William Cooper,
chief executive of consultancy Informitv. “They want to be entertained, and
they want that to be an effortless experience. It is the ability to build habit
around behaviour that creates real value.”
More major companies are investing heavily in content, but
not necessarily because they primarily want to be content companies.
As Mercer summarises: “Content is being used as a means to
drive customers and users for other services.”
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