Streaming Media
In a marked shift from almost a decade ago, a consolidated UK broadcaster VOD service is on the cards after the UK media regulator appeared to greenlight such a development.
Ofcom, the British media and telecoms overseer, re-iterated calls for the main four UK broadcasters—Channel 4, ITV, BBC and Channel 5—to collaborate on content and distribute it over a shared online platform.
“We have seen a decline in revenues for pay TV, a fall in spending on new programs by our public service broadcasters, and the growth of global video streaming giants. These challenges cannot be underestimated,” said Sharon White, Ofcom’s CEO.
She said Britain’s public service broadcasters (PSBs) must “collaborate to compete” with the FAANG companies (Facebook, Amazon, Apple, Netflix, and Google), in a complete reverse of the situation a decade ago just as Netflix and YouTube were rising to prominence.
In 2009 the UK’s Competition Commission blocked Project Kangaroo—a joint venture between ITV, Channel 4 and BBC Worldwide—because of the fear it might have killed interest in video-on-demand services.
In its final report, the Commission “decided that this joint venture would be too much of a threat to competition in this developing market and has to be stopped.”
The frailty of this decision has been apparent for several years but Ofcom’s latest figures are the starkest reminder yet of OTT dominance of the UK media landscape.
According to Ofcom’s Media Nations report, subscriptions to Netflix and Amazon (and Sky’s Now TV) reached 15.4 million in the first quarter of 2018, exceeding the total for pay TV—15.1 million—for the first time.
More worryingly for the nation’s PSBs, the report found that the amount of time spent by viewers watching scheduled programming on a TV has continued to decline and, in 2017, stood at an average of 3 hours 22 minutes a day, down nine minutes on 2016, and 38 minutes since 2012.
Among children and viewers aged 16 to 34, the decline was steeper, leading to the over-65s watching four times as much broadcast television as children in 2017.
Netflix is taken by 9.1 million UK homes, up 32.7% in a year. Amazon Prime grew by 32.7% to 4.8 million. Paid SVOD is also catching up on free catchup on-demand TV. While a third of people visit BBC iPlayer, 28% use Netflix and 12% claim to use Amazon Prime Video. That compares with just 16% who use catch-up service ITV Hub.
In a speechto staff at the BBC in March, BBC director general Tony Hall warned that the success of the “west coast giants”—the FAANG companies—threatened to undermine British values unless reform keeps with what he called “breath-taking, seismic change.”
Ofcom seems to agree, calling on UK broadcasters to commit more resources to jointly produce more UK-based original content at a time when spend by UK PSBs on local programming has dropped almost a billion pounds a year from a high of £3.4 billion in 2004 to £2.5 billion last year.
It has also indicated, though gave no details, that further measures might be taken to protect British TV content including having smart TV manufacturers prioritise PSB content on their homepages and even “obliging” the likes of Netflix and Amazon “to make more UK-originated programs and distinctive content, perhaps even news” according to ITV News in an interview with White.
Whether Ofcom permits a joint OTT video service between the UK PSBs, Strategy Analytics believes it won’t make much difference to the competition Netflix is imposing.
“Be it from a content discovery, marketing/awareness or even financial standpoint, it is doubtful how the PSBs will benefit—all the more as they are already performing well on their own, particularly BBC iPlayer,” says analyst Brice Longnos.
No regulation around smart TV providers will help either, says Longnos. “At the end of the day, the competition should be around the production value of their content and the consumer experience. If the PSBs can team up on that aspect, they have a chance to gain further foothold in the OTT landscape.”
Any broadcaster aiming to repel FAANG (currently valued over $3 trillion) is facing a formidable challenge. Those companies have the financial muscle and customer reach to dominate the market. Most observers agree that high-quality content, tailored for the local market, is vital to survival.
“Broadcasters should aim to complement FAANG services with their own local or unique content, rather than challenge directly,” says Brian Paxton, head of video consulting at Cartesian. “Content is the main differentiator in this fragmented market space and will drive viewing on an OTT service. In the last few years, the primary challenge has become content discovery. Broadcaster consolidation helps this issue … but does not resolve it.”
Arguably, any such move is long overdue and not enough to compete with the online giants. Digital players are investing heavily in locally produced content, too. Netflix spent £100 million making Brit royalty blockbuster series The Crown, for example.
Paolo Pescatore, an independent analyst, says, “We shouldn’t underestimate the value of local content and regional differences. As FAANG spend more on local programming, then there is no reason why that broadcasters shouldn’t partner with them.”
He also believes broadcasters should work more closely with telcos, which have a direct relationship with their subscribers. “This way, they can unlock opportunities to provide users with more immersive experiences and identify new sources of revenue.”
As to whether these partnerships will be successful, it very much depends on how they go about it. There’s a chance to offer the “best of both worlds”—i.e. marrying the quality of TV content with the addressability and targeting of digital advertising—but to do this, they will need to focus on improving the consumer experience and innovate, not replicate, the failing TV advertising model on their combined OTT platforms in the world of ad-free premium video access created by Netflix and co.
As Ovum analyst Matt Bailey puts it, “Broadcasters need to work together to create advertising contexts and formats that are interactive, relevant, informative, and enjoyable to digital consumers used to controlling what they see and hear if they are to give themselves a chance of succeeding against FAANG.”
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