Digital Media Strategies

We cover all of the major media sectors, including advertising, TV and video, music, games and social media.

May 1, 2015 12:04 dmercer

Multiscreen TV behaviour is at the centre of television’s stormy transformation – viewing of broadcast, linear TV on the TV screen is apparently in decline while consumption on smartphones and tablets is increasing. Making sense of the big picture is increasingly challenging, and legacy players like broadcasters and the major content owners are inevitably somewhat resistant to the idea that their traditional businesses are under serious threat.

We have monitored the early stages of this transformation for the past decade and see its results in our own research, and we continue to predict further industry disruption in our forecasts. But sometimes it is only when you hear the evidence given in person by a senior executive at a leading global player that the scale of the challenge and opportunity are finally brought home.

This happened at last week’s AppsWorld event in Berlin, where I chaired the TV and Multiscreen conference. The speaker was Andreas Peters, Head of Digital for the Walt Disney Company Germany, Austria and Switzerland. Andreas presented some of the most compelling evidence I have yet heard that television is truly a multiscreen medium for the next generation of viewers.

Disney’s challenge in Germany was to launch a television show called Violetta aimed at 8-12 year old girls. It had been introduced successfully in Argentina but had failed in the UK. As it often does, Disney had invested considerable amounts in merchandising and retailers were eagerly anticipating sales of the new product lines. The show was first broadcast on German free TV on May 1st 2014 but it achieved only very low ratings.

The question for Disney managers was whether traditional TV had stopped working. A crisis meeting was held with a view to writing off the investment. Disney had previously not made its shows available online in Germany but the Violetta situation was so serious they were persuaded to experiment. Two episodes were made available on Youtube with a link to Disney’s own website. Viewing of the content on Youtube very quickly went viral until Disney had achieved a reach of 50% of 8-12 year old girls and eight million views. Violetta went on to become a success in German-speaking markets.

The evidence was clear: for some shows at least, younger children cannot now be reached using the traditional broadcast TV/big screen model. Peters explained that the Violetta experience was transformative for the Disney organisation and led to the inclusion of online and digital media as a key element in the business case for many products. In fact it also led to the development and launch of Disney’s own Watch App, which includes live streaming and seven-day catch-up programmes from the broadcast Disney Channel.  

Even after the Violetta experience Disney was sceptical that an app was needed – there was a feeling that the website would be sufficient. Nevertheless the app was launched and Disney had planned for 20,000 downloads. Instead it has passed one million downloads in its first six months. Peters noted: “This was a real shock for us. We completely underestimated the demand.” Around 500,000 viewers are now using the Disney Watch app for linear television viewing, in addition to millions of shows being downloaded for catch-up viewing. Peak app viewing hours are between 6am and 8am and then between 1pm and 9pm on school days, with a different pattern at weekends. Peters made it clear that children did not want lots of features built in to the app – just like TV, they just want to hit “play” and watch.

“Our TV colleagues of course don’t want to believe this,” said Peters. “But the world has changed and it will continue to change.” Disney has also seen a knock-on effect from its app launch with an increase in free-to-air broadcast TV viewing. But the firm is now clear that mobile is not just an add-on to TV or a promotional tool; it must be an integral part of the entire process.

There are many implications for content strategy. TV and Digital have to “understand each other”, which is a challenge when the KPIs in each world are very different. As we have often heard, the video industry is crying out for a set of common metrics which can apply and support advertisers in both TV and online worlds. Video consumption patterns vary and different content may be relevant to different platforms.

But the overall lesson is clear: “TV” is not just the big screen in the corner of the living room. It must embrace multiscreen distribution strategies in order to reach its maximum potential. TV companies are betraying their audiences and their investors if they don’t target the 6.4bn addressable screens available to them.

David Mercer

 


April 24, 2015 21:20 MGoodman

Boosted by solid growth in usage and advertising spend across major social networks, the global social network market continued to show strong growth in 2014, according to Strategy Analytics Global Social Network Forecast.

Ad spend on social networks grew a robust 41% globally in 2014 totaling over $15.3 billion, accounting for 11% of global digital ad spend. Facebook accounted for three-quarters of global social network ad spend in 2014, while Twitter accounted for 8%. In 2015, ad spend on social networks is expected to grow by 29%, totaling $19.8 billion.

The U.S. had the highest ratio of social network users to its population (62%) in 2014. One of the results of this is that he U.S. accounts for the largest share of global social network ad spend (41%), totaling $6.2 billion in 2014, up 35% YoY. On a per user basis this translates to an ad spend of $31.37 per user in 2014. This is expected to grow 27% to $39.84 in 2015.


April 24, 2015 20:47 MGoodman

SVOD start-ups HOOQ and iFlix are seeking to gain a foothold in Southeast Asia before Netflix has a chance to expand beyond its foothold in Australia and New Zealand and upcoming launch in Japan in fall 2015. Currently, there is little competition in the market. Strategy Analytics estimates that there were approximately 10.8 million SVOD subscriptions in the Asia-Pacific region at year-end 2014, accounting for just under 3% of broadband households (see Strategy Analytics Asia-Pacific OTT Video Forecast for more information). With over 378 million broadband households in the Asia-Pacific region at year-end 2014, according to Strategy Analytics Global Broadband Forecast, the region is ripe for SVOD growth.

Expected to launch in 2Q 2015, iFlix will provide broadband households (fixed and mobile) in key Southeast Asian markets, including Malaysia, Thailand, Philippines, Indonesia, and Vietnam with over 10,000 hours of U.S., Asian regional, local market content, and original programming. Helping to fund its impending launch iFlix has secured $30 million in funding from corporate parent Catcha Group and the Philippine Long Distance Telephone Company (PLDT), the leading telecommunications provider in the Philippines.

One of the biggest challenges facing iFlix, as well as any other video service provider in the region, is getting Asia-Pacific consumers to pay for content. According to iFlix chairman Patrick Grove, who’s also co-founder of Catcha, “more than 90% of Southeast Asian households currently consume pirated content”. Changing this mindset will not be easy but a vast opportunity awaits the company or companies that can “crack this nut.”


March 24, 2015 16:03 lkawasaki

The Canadian Radio-television and Telecommunications Commission (CRTC) announced last week the decision to mandate pay TV operators to offer TV subscribers a basic package priced at no more than C$25 a month ($20 USD). According to CRTC, the decision reflects ongoing viewers’ changing habits and preferences. The CRTC decision will supposedly give consumers a more affordable choice via the pick-and-pay option starting March 2016.

While current pay TV subscribers are forced to pay expensive packages for a large number of channels that they never watch, the new entry-level TV service will prioritize the local and regional news and information programing plus educational channels capped at C$25, and give subscribers the option to add individual channels on a la carte basis. However, while this ruling will give consumers cheaper options for local and regional programing, subscribers opting to pay for just a couple of entertainment channels will quickly pay more than if they had selected a package from a pay TV provider as consumers get exposed to the true market cost of each channel.

We have seen recently U.S. broadcasters and cable networks including CBS and HBO develop direct-to-consumers OTT service costing $6 and $15 month respectively. When consumers start adding entertainment channels on an a la carte bases they will quickly see that pay TV packages such as Shaw Communication’s 73 channels for C$35 is not such a bad deal after all.

The CRTC chairman and CEO, Jean-Pierre Blais defends the new ruling alleging benefits to various groups of TV viewers including college and university students, young urban professionals and families, as well as retired citizens who may be interested in smaller selected packages. Some service providers also support the ruling as it could potentially bring higher revenues on a la carte basis. While according to CRTC these changes in pay TV landscape in Canada will give consumer flexibility to build their own packages at a better value proposition, the question surrounding this mandate is whether this better value-proposition is real. Canadian consumers will most likely end up paying more for the a la carte option. One certain consequence is that the true cost of programming will be exposed, and it will not be pretty as we have already seen with the launch of stand-alone OTT services from broadcasters and cable networks in the U.S.


March 23, 2015 16:59 MGoodman

On March 18th, Sony Network Entertainment and Sony Computer Entertainment announced the launch of PlayStation Vue, an over-the-top (OTT) subscription TV service on the PlayStation 4 (PS4) and PlayStation 3 (PS3). Initially available in New York, Chicago and Philadelphia, PlayStation Vue will offer subscribers live and on-demand TV programming starting at $49.99 per month. Included in this offer is a cloud-based DVR feature that allows subscribers to watch any episode of a show that aired with in the past 28 days.

PlayStation Vue is comprised of three tiers of service.

Access

The Access package costs $49.99 per month and includes broadcast networks like CBS, FOX, and NBC as well as more than 45 of the most popular channels.

Core

The Core package costs $59.99 per month and includes all the channels in the Access package, plus local regional sports networks, as well as additional sports and movie networks.

Elite

The Elite package costs $69.99 per month and includes all the channels in the Access and Core packages as well as more than 25 lifestyle, music and family channels.

On the surface this does not sound much different than existing offers from other pay TV providers. In fact, Sony is providing fewer channels for the same price than Comcast, Verizon and other pay TV providers; however, unlike these other pay TV providers what you see is what you get.  There are no hidden set-top box or technology fees and the rate will not automatically increase in a year or two after the introductory offer expires. In addition, PlayStation Vue includes the cloud-based DVR in the basic subscription fee. All told PlayStation Vue cost approximately $30 - $40 less than a comparable pay TV subscription. Furthermore, since you need a PS3 or PS4 to use PlayStation Vue (and it is probably safe to assume that PlayStation Vue will be available on other devices in the near future) it removes the capital expense of acquiring and maintaining STBs that other pay TV providers face.

Now that is not to say PlayStation Vue is not without warts. In particular, it is missing several key channels/networks including ABC and ESPN and is only available in three markets currently. Also, on the surface PlayStation Vue does not seem to provide consumers weary of the high cost of pay TV a break. It is only when you did down into the fine print that the difference in cost become evident.  Communicating this to consumers is going to be a challenge, particularly that is seems like Sony is asking consumers to pay the same amount for fewer channels.

At the moment PlayStation Vue has a distinct advantage, operating without many of the same burdens as their facility based competition (i.e., retransmission/must carry and other program carriage rules). While the FCC has signaled that they intend to even the playing field by defining Online Video Providers (OVDs) that deliver a linear stream of programing as Multi-Channel Video Providers (MVPDs). Doing so, however, is not without challenges. As noted by the National Cable & Telecommunications Association doing so has the potential to give rights to online entities the FCC does not track or license and may not have physical facilities in the U.S.

Whether or not the FCC chooses to apply these rules to PlayStation Vue and other similar OTT video services remains to be scene. But despite this PlayStation Vue represents an interesting view on what the future of subscription TV could look like.


March 10, 2015 16:38 MGoodman

Much to the chagrin of many in the music industry, Spotify, Pandora, and other streaming music services have made it too easy for subscribers to legally stream any song they want from their free, ad-supported services. While freemium services generate advertising revenue they also undercut other more profitable downloading and subscription business models.

Universal Music Group’s CEO, Lucian Grainge, directly attributes declining download sales at Apple’s iTunes store to Spotify’s free tier citing Spotify’s own research which shows that 12% of former iTunes customers have become Spotify users, and of them, 60% use Spotify’s free ad-supported tier. Executives at Universal Music Group (UMG), Sony Music and Warner Music have not been shy about expressing their desire to replace the “freemium model” with paid subscriptions.  According to UMG’s Grainge “ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors.”

With Apple’s help the record labels want to transform the digital music landscape once again. According to various reports, Apple is in discussions with the record labels to re-brand and re-launch its Beats music subscription service without a free ad-supported tier. According to reports, after a trial period users will be required to pay an $8 a month subscription fee. In order to sweeten the offer, Apple is said to be in discussions with the record labels regarding windowing and exclusives to ensure that the best content is only available to premium users, and if Apple is willing to pay the price, only to Apple’s premium users.

While this will not completely transform the music industry and bring back the glory days of a decade ago the recording industry must do something to reverse its downward slide. Until recently there has not been much the labels could do as they have been locked into licensing agreements, however, those deals (at least with Spotify) expire this year (2015) and the labels are adamant about changing the terms of those agreements. Apple provides the labels with leverage in negations with Spotify since Spotify will not want to abandon its freemium tier without a fight.

Spotify will point out that the freemium model has been fundamental in helping curtail piracy and that it provides an entry point to a paid subscription. And to a certain extent they are correct; however, all the record labels have to do is look at their balance sheets and see that the status quo is not sustainable. Too many people are paying a fraction of what they did five years ago (assuming they are paying at all) for the same or more music. Spotify can argue for the freemium model all they want but in the end “content is king” and the record labels get the final say on what business models they support.

Clearly things need to change but the record labels must be aware that this effort will not cure all that ills the music industry. If successful this effort will likely help grow subscription revenues but it does little to address all the music being consumed for free on YouTube (which will likely grow exponentially if freemium tiers are eliminated) or change the fact today’s business models enable consumers to spending significantly less for their music than they did a decade ago.


March 4, 2015 15:58 lkawasaki

MTV is partnering with mobile operators to launch OTT initiatives in both online video (MTV Play) and music subscriptions (MTV Trax).   MTV Play is a video on-demand (VOD) service featuring 1,500 hours of MTV content, including some episodes of Catfish which will be available at a premium prior to airing in the linear window. The MTV Play app will be launched on March 5th in Germany, Switzerland and Romania. While current subscribers to MTV Mobile branded tariff in these countries will have access to MTV Play at no charge, the cost for new subscribers to access MTV Play will be €2.99 per month or €29.99 for the year.

MTV Trax, launching today in the UK and in New Zealand later this year, is a pay-as-you-go music service targeted at prepaid mobile users in partnership with mobile operators. This new service, powered by MusicQubed, differs from services like Spotify or Deezer in that it is not a streaming service, rather music playlist are downloaded to smartphones via WiFi or cellular. MTV Trax offers consumers a curated playlist of the 100 hottest tracks which is refreshed daily.

The MTV Trax app is available for download on iOS, Android and Windows phones. After a two week free trial, the first 10,000 subscribers to the premium version of the App and subscribe prior to April 2nd 2015 will have promotional subscription price of £0.79 per week, £7.99 for 3 months, or £12.99 for a total of 6 months subscription. Consumers who do not qualify for one of the promotional subscription will be able to subscribe to MTV Trax at standard subscription fee of £4.99 a month for Apple users; £4.49 a month for Android/Windows users; and one-off payment of £1.49 for a 7 day subscription.

According to Chris Gorman, founder and CEO of MusicQubed, MTV Trax is a more rewarding model than the freemium/ad-funded services (at least for the music industry), because it is 100% paid and introduces “windowing” to the music industry. For operators, they can bundle it as top-up rewards to drive loyalty and get a slice of subscription revenue for using their prepaid billing platform. It’s not going to take over the world but it is a relatively risk free opportunity for operators to play in the digital music ecosystem. Given its established brand, MTV hopes to bring some credibility to the market that operator’s lack.

MTV Trax is not designed to compete against Spotify, Deezer or other subscription services, but rather it offers a proposition to casual music listeners that want a lean back experience and/or have a low tolerance towards advertising. Considering that millennials comprise a significant portion of MTV’s TV audience, an MTV branded services (MTV Trax) targeted at millennials on prepaid mobile plans makes some sense, however, despite MTV efforts to offer a different type of music service, there are still a couple of challenges MTV Trax must overcome.

  •  People’s music tastes are diverse, even within clearly defined demographic cohorts such as millennials. A fixed set of 100 tracks may not be sufficient to appeal a large enough cross-section of the market.

 

  •  Although £0.79 a week may be attractive at first, costing about a third of a Spotify subscription, there is a huge difference between the ability to access 100 songs Vs. 20 million songs.

 

 

 


February 23, 2015 15:25 dmercer

My colleague at Decipher, Nigel Walley, has done a great job of summarising many of the key differences between the British and American TV markets. I have covered many of these issues over the years in our own research and blog. Like Nigel, it never ceases to amaze me how little is understood in each country about TV on the other side of the Pond. I would go further and extend this argument to the rest of Europe, although there are again many differences between European countries which make them even more alien to a US visitor.

I would add a few notes to Nigel’s review. He rightly mentions the importance of the cable providers (MSOs) in the US ecosystem. The origins of cable are a little different from how he explained them, but again illustrate the historical differences between the UK/Europe and the US. Cable technology originated in the 1940s as a means of getting free over-the-air signals to places which were out of reach of broadcast signals. Viewers paid service and installation fees to get this “free” programming and payment has therefore been a familiar part of the US broadcast landscape for more than 50 years, even though some of the programming is available free-to-air where broadcast signals are available. After many years of evolution (98% of US homes are now passed by a cable system) and the addition of premium channels, most US consumers don’t think twice about paying for TV, if only at the level of “basic” fees.

I’m not sure either about the arguments about picture quality. Even in the old days of analogue there was a fierce debate between NTSC and PAL proponents, but now that the systems are entirely digital it is more a question of how much bandwidth is allocated to each channel. As with all media distribution networks, what the viewer sees on the TV screen is subject to a huge number of variables. And it’s worth noting that the US mandated HD for terrestrial broadcasts, which, quality issues aside, is one reason, amongst several, why HD took off earlier in the US than in Europe.

The net result in the US is the significant power of operators in the cable as well as satellite and telco sectors. There are indeed still many small, local operators, but there are also a few mega-players who are set to consolidate even further in the coming months and who have huge influence over the future direction of television technologies and services. These companies manage the revenue streams which deliver the vast bulk of income to the US TV industry and there has always been a resulting tension as well as close relationships between content owners/broadcasters and their distributors. The OTT players have certainly been shaking things up in recent times, and there are even signs that pay TV is in decline, by some measures, as I wrote here. But we should never underestimate the power of Comcast, AT&T and others to maintain their leading positions.

Finally, I would emphasise once again the critical importance to the shape of the UK television industry of the licence fee business model in the UK, something which often still has to be explained when visiting the US. It is something we take so much for granted, and yet UK residents often fail to appreciate just how different the UK market is because of how we pay for the BBC.  US executives have often liked to quote the BBC’s success in some digital venture as evidence of its potential in other markets, forgetting that without the licence fee the BBC would be unable to explore such new ventures free of any concern over such mundane matters as revenue streams or RoI. I remember particularly this report relating to the iPlayer, which turned out to be somewhat prescient given the absence of any similar broadcaster VOD services in the US since it was written six years ago.

Many of the differences Nigel mentions – the competition in free-to-air platforms, the relative lack of advertising – are only with us because we pay £3.7bn ($5.7bn) in annual fees. Some friends in the US, on hearing this, question how different that is from “pay TV”, and it’s a reasonable point. One thing is for sure – we should realise what a difference it would make to many aspects of the UK TV market if the licence fee model was to be radically altered at the next Charter renewal in 2016.

David Mercer

 


February 18, 2015 15:18 MGoodman

Sony sold its online game division, Sony Online Entertainment (SOE) to New York investment firm Columbus Nova for an undisclosed sum. The former SOE will operate under the name Daybreak Game Company and keeps its development teams intact. SOE, which launched in 1996 as part of Sony’s 989 Studios, was built to develop and run subscription-based massively multiplayer online games (MMO). They developed and released numerous MMOs including EverQuest, DC Universe Online, Planetside 2, and the recently launched zombie MMO H1Z1.

So given how important Sony Computer Entertainment and PlayStation are to Sony, why would it divest itself of one of its game studios? At its core, SOE ceased to be a strategic asset and just as they did a year ago when they sold off their PC business to focus on mobile it was time for SOE to go. Sony’s focus is on the very profitable PlayStation business and SOE’s focus is on developing pay-to-play (P2P) MMOs (primarily for the PC), in a market that is rapidly shifting towards free-to-play (F2P) games that require publishers to give games away and generate revenue through in-game micro-transactions.

Sony’s divestiture of SOE does not mean that it is getting out of online games, rather it signifies a sharpening of its focus on other aspects of its digital games business such as the PlayStation Network, full game downloads to the PlayStation 4, and downloadable content (DLC) such as maps, levels, and expansion packs. Furthermore, the cash from this transaction will enable Sony to invest into its other, more profitable divisions.


February 13, 2015 20:13 MGoodman

Not content to allow Netflix’s European expansion to go unchallenged Wuaki TV announced that it plans to expand to 15 countries in Europe in 2015. Wuaki TV, which was acquired by Japan’s e-commerce giant Rakuten in 2012, has 1.85 million users, up 85% YoY, and is currently available in Spain (1.25 million subscribers), the U.K. (400k subscribers) and Italy, France, and Germany, where it launched in late 2014, and which account for the remaining 200k subscribers. Wuaki TV will launch in Austria and Ireland in the first half of 2015 and later expand to the Netherlands, Belgium, and Portugal followed by launches in Denmark, Norway and Sweden.

At its core, Wuaki TV is a premium video-on-demand service focused on rental and sell-thru (movies and TV shows), however, unlike Blinkbox which Tesco recently sold off to TalkTalk (see Digital Media Strategies Insight TalkTalk Acquires Video Rental Service Blinkbox from Tesco) or Target Ticket which is being shuttered as of March 7th, Wuaki TV also offers a monthly subscription service, Wuaki Selection. Wuaki Selection offers older movies and TV shows making less attractive than similar subscription VOD (SVOD) offerings from Netflix and Amazon.

According to Wuaki TV CEO Jacinto Roca about 15% of Wuaki TV users subscribe to the monthly service. Wuaki TV does not offer original content. The advantage of premium VOD is that is that new releases are available earlier as rentals or sell-thru, often taking weeks or months before making their way to subscription services (see Exhibit 1). Despite this consumers are flocking to SVOD service such as Netflix, Hulu, and Amazon due to the convenience and value these services provide. According to Roca “It is in Rakuten’s DNA as an e-commerce company to offer a transactional model. It feels better with our core business, especially since DVDs and other packaged media have been a big part of our business”.

Continuing along this vein, Wuaki TV also supports UltaViolet, providing consumers who purchase a movie on DVD or Blu-ray with a digital copy, similar to Carrefour’s new online video service, Nolim Films (see Digital Media Strategies Insight Carrefour Launches Online Video Service).

While Wuaki TV may believe strongly in the transactional model what truly sets it apart is it support for sell-thru, subscription and rental simultaneously. If Wuaki TV can build out its subscription library and develop cross marketing opportunities between its sell-thru, subscription and rental businesses it will be in a strong position to offer something no one else currently does, a complete video offer.