Convergence, Change and the Current Landscape of Media Technology

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The media and entertainment industry would appear to be in a perilous state given the current macroeconomic headwinds, a supply chain pressure that won’t go away, and the hold on investments driven by rising energy prices. A new survey published by broadcast tech vendor trade body IABM may not make CTOs sleep easier at night, but there are some silver linings.

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According to IABM’s “State of MediaTech” report, aside from the “geopolitical decoupling evocative of cold war times, exacerbation of pandemic-induced and the potential return of stagflation, there are many reasons to believe the future will be different.

“COVID-19 has reshaped consumption patterns irreversibly, particularly for younger generations. The same applies to businesses such as MediaTech companies. While digital transformation may not be as rushed as in COVID times, it is still underway with no going back.”

Digital transformation manifests in various ways and is increasingly blurring the lines of demarcation between Media & Entertainment sectors, with games becoming the epicenter of this shift. The report notes an increasing number of media businesses have launched initiatives that combine data and interactivity “to improve engagement with younger generations as well as augment and diversify their revenue streams.”

Here’s why: The report finds that consumers, presumably younger generations, have become less concerned about content values (picture quality), and are more interested in others such as interactivity.

This impacts video streamers who may need to diversify their content experience to keep pace.

In a letter to shareholders (albeit from Q3 of 2021) quoted in the report, Netflix identifies its main competition:

“We compete with a staggeringly large set of activities for consumers’ time and attention like watching linear TV, reading a book, browsing TikTok, or playing Fortnite, to name just a few. As one example of this dynamic, on October 4, when Facebook experienced a global outage for several hours, our engagement saw a 14% increase during this time period….”

One area of convergence gaining significant traction in the US is the closer marriage of live sports broadcast with the sports book. Disney has its eyes on this prize.

“While multiplatform television and streaming will continue to be the foundation of sports coverage for the immediate future, we believe the opportunity for The Walt Disney Company goes well beyond these channels,” said Disney’s CEO Bob Chapek in February this year.

He outlined the strategic importance of the metaverse and sports betting.

“It extends to sports betting, gaming and the metaverse. In fact, that’s what excites us, the opportunity to build a sports machine akin to our franchise flywheel that enables audiences to experience, connect with and become actively engaged with their favorite sporting events, stories, teams and players.”

Digital first players may get there first though. David Gandler, co-founder and CEO at fuboTV says:

“Online sports wagering is a highly complementary business to our sports-first live TV streaming platform. We believe there is a real flywheel opportunity with streaming video content and interactivity. We not only expect sports wagering to become a new line of business and source of revenue, but we also expect that it will increase user engagement on fuboTV resulting in higher ad monetization, better subscriber retention, and reduced subscriber acquisition costs.”

There are other touchpoints for convergence too. The rise of virtual production is one. Here, VFX for film and TV merges with computer games to drive real-time storytelling. Unreal Engine experienced a 40% rise in downloads in 2021 alone while in-camera visual effects (ICVFX) stages were counted at 250 worldwide at the start of 2022 — up from less than 12 a year earlier.

Convergence also increases latency in production, leading media businesses to look to the edge.

Major media clients like Fox are demanding this. When AWS expanded its Local Zones by 32 new cities in February this year, it did so in close proximity to Fox production hubs enabling the studio “to deliver cloud resources directly to our artists, allowing them to craft their vision without the limitations of traditional remote solutions,” Christian Kennel, VP of Post & Production Technology at FOX Entertainment, explains.

Media tech businesses continue to transition to cloud-based and data-driven workflows, as well as a move to SaaS on the supply-side. For example, with AWS, German broadcaster ProSiebenSat.1 “is improving the time to market [for] new applications, and introducing advanced analytics and machine learning.”

Globo’s transition to the cloud included the migration of 100% of its data centers to the cloud and the increasing use of machine learning services. Meanwhile, Disney+ is expanding its use of AWS’s services to include more than 50 technologies, such as machine learning, database, storage, and content delivery.

This requires vendors to adopt or adapt IP-based and virtualized technologies. While some were “born” that way (such as Blackbird, the browser-based edit system), hardware companies at the camera end — the part of the chain arguably least simple to move into software — are shifting that way too. For example, Atomos, maker of monitor-recorders, is evolving its gear into software-enabled products and applications.

“The preference for best-of-breed technology is also driving multi-cloud usage, though lack of integration and standardization between providers is increasing complexity for media businesses,” the report notes. However, it also says, “the old [legacy tech workflows] remains very much the cash cow, with most seeing it as still crucial to future success.”

Publicly-funded broadcasters are at particular risk of being left behind. For example, the BBC has had funding frozen, and its license fee may be scrapped altogether in 2027 — leading to it shedding 1,000 jobs, shutting down two channels, and reducing programming output.

France Télévisions will have its license fee scrapped in favor of VAT funding, making this funding more volatile and dependent on political cycles.

Flat or declining funding is a problem if PBS is to make the move to cloud. Irish pubcaster RTÉ in a February 2022 says in a letter to the Irish government after it is criticized for live streaming issues:

“On-demand and live streaming technology requires extensive investment and infrastructure to deliver parity of service with linear broadcast services, which have been in operation for many decades, with continued investment of significant capital funding to the level of tens of millions… In addition, further evolution of the service needs additional specialist skills which will require increased operating expenditure.”

Vendors are feeling the squeeze — and inflation is real. Tech vendors are highly reluctant to talk about having to raise prices but those with public stocks have no choice.

“The high and global inflation has clearly a negative impact on our BOM (bill of material) costs and on our remuneration costs,” Serge Van Herck, CEO of sports replay server and asset management systems EVS, says in an August 2022 earnings call. “We have started compensating for the impact of those increased costs by applying price increases. We expect that we will need to continue adapting our pricing to the raising inflation.”

In 2021, one of the main risks for the industry was linked to the scarcity and price of electronic components. Compound that risk with inflation and a highly uncertain global geopolitical and economic outlook, there is, as in other industries, huge unclarity within the future.