Digital Media Strategies

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

October 14, 2014 21:22 MGoodman

First revealed in August, Amazon has completed its $970 million acquisition of Twitch. This acquisition marks the second largest investment by Amazon, trailing only its acquisition of Zappos and further underscores Amazon's intention to be a dominate player in the media industry. Often times Amazon’s acquisitions are designed to fulfil a specific niche or need. LOVEFiLM provided Amazon entry into subscription VOD in Europe, Zappos was an online clothing retailer, and KIVA Systems helped Amazon further automate its order fulfilment system. Twitch is unique, and warranting of its high cost, in that it fulfils multiple needs.

  • Live streaming is the next big growth area for digital video.
  • Twitch has a loyal user base that can be monetized.
  • Twitch will help jump start Amazon’s entry into digital advertising and close the gap with industry leader Google.
  • Enhance Amazon Prime and help grow Prime membership.
  • See the game, buy the game.
  • Amazon wants to be a player in the video game industry.

For more detail on the reasons behind Amazon’s acquisition of Twitch and its implications see Strategy Analytics Insight Amazon has Big Aspirations with Twitch Acquisition

 

 

 


October 3, 2014 18:19 MGoodman

It has been reported in several publications that Tesco is considering selling off Blinkbox, its online movie service. According to The Guardian, Dave Lewis, Tesco’s new chief executive, “has kicked off a strategic review of the service and intends to seek a buyer.”  It should be noted that Tesco has not confirmed this report.

When Tesco acquired an 80% interest in Blinkbox in April 2011 it made a lot sense strategically as physical sell-thru revenue (e.g., selling DVD and Blu-ray movies at retail) is in decline. According to the British Video Association, physical sell-thru revenue in the U.K. fell by $170 million in 2013 to $2.25 billion and physical rental revenue declined by $97 million to $307 million. However, despite Tesco’s best efforts, Blinkbox has failed to gain any real traction in the UK’s $1.6 billion online video market (see Strategy Analytics  2014 OTT Video Market Forecast - Europe for a more detailed analysis of the European online video market).

According to Strategy Analytics 4Q 2013 ConsumerMetrix Survey only 6% of UK internet video viewers used Blinkbox in the past month (see Exhibit 1). In comparison, 72% used the BBC iPlayer, 28% used Netflix, 20% used LoveFilm/Amazon, and 17% iTunes. As a result, Blinkbox is contributing little to Tesco’s bottom line. According to the latest figures filed at Companies House, Blinkbox, in the year to February 2013, had revenues of $5.11 million, up 39% YoY from $3.67 million. Tesco can at least take heart that they are doing better than their U.S. counterparts. According to Strategy Analytics 4Q 2013 ConsumerMetrix Survey only 3% of U.S. internet video viewers used Vudu (Walmart’s online video service) in the past month and 2% used CinemaNow (Best Buy).

Tesco, Walmart, Best Buy and other retailers have failed to understand the changing nature of the home video market. For years the home video market was based entirely on the rental and sell-thru business models, however, Netflix changed all that. The introduction of subscription video services has completely changed consumer home video consumption patterns and devalued ownership. In 2013, SVOD accounted for 54% of consumer spend on OTT home video in the UK and by 2018 this will grow to 78%. Blinkbox, however, does not have a SVOD service. It only supports electronic sell-thru and digital rental, this missing out on the lion’s share of consumers spend on online video. Unless, Tesco intends to revamp Blinkbox’s  business model they are best off cutting their losses and selling Blinkbox. 


October 2, 2014 19:34 MGoodman

Despite facing some unique challenges in France, Netflix is off to a strong start attracting over 100,000 subscribers in the first 15 days since launching, according to French newspaper Le Figaro. To put this in perspective, Netflix has achieved nearly 20% of CanalPlay’s scale, Canal+ SVOD service in France, in just two weeks.  According to Le Figaro, CanalPlay has acquired 520,000 subscribers since launching three years ago.

It should be noted, however, that Netflix is offering the first month free, after which the service will cost subscribers €7.99 - €11.99, so it remains to be seen how many of these subscribers Netflix will retain when the trial period is over. For further analysis of SVOD in France and Netflix’s long-term prospects see Strategy Analytics Insight Netflix Off to a Strong Start in France.


September 30, 2014 19:20 MGoodman

As we noted in this July 2014 Digital Media Strategies Insight (Supreme Court Sides Strikes Down Aereo But Open the Door to Other OTT Providers) in the Supreme Court’s majority opinion they define Aereo as a “Cable Company.” According to Justice Breyer, “Aereo’s activities are substantially similar to those of the CATV companies that Congress amended the law to reach.” Throughout the majority opinion the justices cite the similarities between streaming TV services and cable systems. 

Now the FCC is stepping through the door opened by the U.S. Supreme Court as it prepares to define Online Video Providers (OVD) that deliver a linear stream of programing as Multi-Channel Video Providers (MVPDs), similar to cable, telco, and satellite providers. This would reverse a prior FCC ruling that “that having a facilities-based transmission path was necessary to be an MVPD. It should be noted that this only applies to OVDs that provide a continuous linear stream of pre-scheduled programming, not Netflix or similar providers which provide on-demand video programmer without a linear lineup.

By defining Online Video Providers (OVDs) as MVPDs this ruling will even the competitive playing field for OVDs trying to create virtual MSOs and increase competition by giving them access to must have programming via the must-carry and retransmission consent rules, while simultaneously opening them up to program-carriage requirements.  This ruling, however, is not without challenges. As noted by the National Cable & Telecommunications Association this ruling 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. That being said consumers will benefit from the increase competition.


September 8, 2014 13:54 lkawasaki

Compared to sell-thru and rental, subscription is a relatively new business model in the home entertainment industry. But this is not keeping it from dominating consumer home entertainment spending. In 2013, consumer spending accounted for 47% of OTT video revenue. Of this, SVOD made up 47% of the consumer spending category. By 2018, consumer spending will account for 54% of OTT video revenue, of which SVOD will comprise of 74% of the consumer spending category.

While there are many SVOD services across Europe, it is important to note that Strategy Analytics only estimates pure-play OTT SVOD players. In other words, we only account for stand-alone OTT video services; we do not include SVOD services that are value-added to a Pay TV service.

For a detailed breakdown of Western Europe OTT Video by country and segment please see the full 2014 European OTT Video Forecast and Market Overview Report (European OTT Video Revenue to Reach $9.45 Billion by Year-End 2018).

 


September 2, 2014 15:12 MGoodman

Driven predominantly by the growth of Netflix, which accounted for 68% of paid SVOD subscriptions, there were 46.3 million paid SVOD subscriptions at year-end 2013. This translates to .43 paid SVOD subscriptions per broadband subscription. Combined, Netflix and Hulu accounted for 79% of paid SVOD subscribers in 2013.

Please note we are counting paid subscriptions to services such as Netflix, Hulu, YouTube, MLB.com and NFL.com not households as households can subscribe to more than one service. By year-end 2014 paid SVOD subscriptions will grow to 55.3 million and by 2018 will reach to 73.4 million, a 2013-18 CAGR of 8.0%. This translates to .61 paid SVOD subscriptions per broadband subscription in 2018.

It should also be noted that we do not include Amazon subscribers in this count as Amazon bundles its Prime Instant Video service into its Prime membership at no additional cost, thereby inflating its video subscriber count as not all Prime members make use of this service.

For a detailed breakdown of OTT Video by country and segment please see the full 2014 North American OTT Video Forecast and Market Overview Report (North American OTT Revenues to Reach $24 Billion by 2018).

North American SVOD Subscriber Forecast


August 19, 2014 15:15 dmercer

Would Sky or any other “legacy” pay TV provider ever offer all of its video services over the open internet? And I’m not referring to “TV Everywhere” services which are only available to “real” pay TV customers, but pure OTT. There are all kinds of arguments for and against, and the general consensus is that it will be quite some time, if ever, before this is practical if only from a technical perspective.

But Sky seems to be pushing ever closer to offering its own fully fledged OTT pay TV service with its new Now TV pricing. As we noted at Now TV’s launch sports and movies were always going to provide the greatest appeal for Now TV customers. Movies have been in place and are a compelling proposition at £8.99/month for Sky’s entire movie VOD library. Sports have always been more problematic, not least for technical issues as we identified at the service’s first major rollout. Since then Sky has persisted with its expensive £9.99 Day Pass sports option and has likely sold very few of those products.

Until last week, that is, when it launched two new sports options: the Day Pass is reduced to £6.99 and a new 7-day pass is introduced at £10.99. By some measures this could be calculated as an 84% price reduction (previously the cost of watching Sky Sports on Now TV for a week was £69.93, though I suspect there had been zero customers).

I have no doubt this new price point will prove a great deal more compelling, allowing football fans typically to watch three live Premier League games and one from the Championship, as well as a number of games from European leagues.

Sky’s stated aim with Now TV is to target non-pay TV customers who currently use free services from Freeview and Freesat. It claims that 80% of Now TV customers have never previously taken a pay TV package. Our own ConsumerMetrix survey only found a small sample (28)  of NowTV users in Q4 2013 so while the findings should be treated with caution we found that more than half were subscribing to a pay TV service. Nevertheless, Now TV clearly has the confidence to experiment further with price points which put Now TV ever closer to the Sky TV equivalent.

Direct comparisons are impossible: there are only 12 entertainment channels offered in Now TV’s package, compared to more than 35 in the basic Sky package. But in terms of content the movies and sports comparisons are very close. The two major differences are Now TV’s lack of recording (DVR) and HD. Sky’s cheapest package offering basic + movies + sports currently retails at £51.50/m standard. A Now TV customer can now pay £61.60/m for Entertainment, Movies and Sports (based on pro-rated sports 7-day ticket).

Now TV of course offers a great deal more flexibility – no up front contracts and the freedom to dip in and out of different content packages without penalty. Some sports fans may find that they can avoid buying one or two weekly packages a month if they happen not to watch any events that week, in which case the cost will fall below the equivalent Sky TV package.

BSkyB will continue to promote its Sky set-top box service as the premium offer (through superior content choice, DVR, HD, 3D, Sky Go etc) and will be very careful to watch for any sign of defections of its own customers to Now TV. I suspect these will still be very limited in spite of the new Now TV pricing – most Sky customers are happy with their service, if resentful of high prices. And technical issues continue to dog Now TV as evidenced by regular complaints to customer forums – increased demand for live OTT sports streaming will put further pressure on the Now TV systems.

But Now TV has evolved rapidly, as we expected, into a fully fledged pay TV service, even if Sky would prefer to describe it as “Pay TV Lite”. BSkyB’s challenge now is to make sure its main service continue to just the prices demanded by “Sky TV Heavy”.

David Mercer


August 12, 2014 18:21 MGoodman

Most retailers prefer not to get in to public spats with their suppliers but this clearly this is not the case with Amazon who in a dispute with Disney has blocked pre-orders of certain upcoming releases, including “Muppets Most Wanted," "Maleficent," and "Guardians of the Galaxy." Disc options for "Captain America: The Winter Soldier" and “Million Dollar Arm” are not listed at all, while Amazon Instant Video pre-order options remain. In comparison, these titles are available for pre-order at other online retail outlets such as Walmart.com and Target.com.

Disrupting existing business models is nothing new at Amazon. In fact, it is a core principle upon which their business is built. Since launching in 1995, Amazon has grown to become the 5th largest retailer in the U.S. and 10th globally with $74.45 billion in retail sales worldwide in 2013. In all likelihood Amazon will join an exclusive club of four retailers with $100+ billion in retail sales, in the not too distant future.

When comparing online sales Amazon dominates even more completely. In the U.S. in 2013, Amazon had $67.9 billion in e-commerce sales, totaling more than the next nine largest retailers online sales combined, according to data from Internet Retailer. Apple had the 2nd most e-commerce sales with $18.3 billion, followed by Staples ($10.4 billion), Walmart ($10.0 billion), and Sears ($4.9 billion).

Now Amazon is setting its sight on challenging the business models that have exist between content owners (e.g., book publishers, movie studios) and retailers for decades.

Amazon’s dispute with Disney is not its first with a content provider.

Amazon is locked in a several month long dispute with publishing house Hachette over eBook prices which has resulted in shipping delays for some Hachette titles and pre-order buttons being stripped away for others. This dispute is on-going.

In a dispute over pricing in mid-May, Amazon refused pre-orders on upcoming Warner Bros. home videos including "The Lego Movie," "300: Rise of an Empire," "Winter's Tale" and "Transcendence." Amazon and Warner Bros. came to a mutually agreeable solution after a few weeks.

In the best of times the retail business is challenging, retailers do not want to discourage sales or drive consumer to competitors. Clearly, Amazon feels secure enough in its position in the market to take this risk; however, this is an opportunity for competitors offering pre-orders of these movies; particularly those with large home video business such as Walmart, Target, and Best Buy to highlight that they are doing so and gain back a little ground lost to Amazon.

Recapturing market share from Amazon is particularly relevant in the U.S. home video category where physical sell-thru has lost nearly 50% of its value over the past decade and electronic sell-thru is proving insufficient to offset this decline. Strategy Analytics estimates that electronic sell-thru accounted for $1.1 billion in revenue in 2013.

Amazon rarely gives competitors such a clear shot to distinguish themselves, when they do it is imperative that they take advantage because it is not going to last for long.


August 11, 2014 18:49 MGoodman

Vivendi is in the middle of a major overhaul as it seeks to become more focused both operationally and geographically. Until recently, Vivendi’s strategic focus could be best described as unclear or disjointed. Did Vivendi want to be a media company (Canal+ Group, Universal Music Group (UMG), and Activision Blizzard) or a telecommunications company (Société Française de Radiotéléphone (SFR), Maroc Telecom, and Global Village Telecom (GVT))?

Recent moves, however, have had the dual benefit of paying off Vivendi’s debt, which stood at €13.4 billion as recently as year-end 2012, while simultaneously creating a more focused company.

·        Spun out Activision Blizzard as an independently owned public company in September 2013 generating approximately $8.2 billion in cash while still retaining a 12% ownership stake, down from 63%.

·        Sold its 53% stake in Maroc Telecom, the leading mobile, landline phone and Internet provider in Morocco to Etisalat in November 2013 for €4.2 billion.

·        Pending regulatory approval, sold its stake in SFR, one of France's four mobile telecommunication companies as well as one of France’s largest Internet providers, to Numericable in April 2014 for €17.0 billion.

At the conclusion of these moves Vivendi was left with pay-TV programmer - Canal+ Group, the #1 record label - Universal Music Group (UMG), and Brazilian telecommunications company - GVT.  According to Vivendi, once the SFR transaction closes and after paying off outstanding debt and paying shareholder dividends the company will have approximately €2.0 billion in cash on hand.

Seeking to further streamline itself as a media company and focusing more closely on Europe, Vivendi is seeking to swap GVT for a share of Telecom Italia. Simultaneously, Vivendi's pay-TV arm, Canal+ is reportedly seeking a majority stake in Italian programmer, Mediaset Premium.

Strengthening its content business by acquiring Mediaset Premium makes a tremendous amount of sense for Vivendi. A programmer like Mediaset Premium aligns well with Canal+, whereas Vivendi has struggled to find synergies between Canal+ and UMG, let alone its telecommunications properties. 

As noted by my colleague Jason Blackwell, “service providers are seeking out valuable content, not running away from it.” Seeking to improve its content portfolio will pay dividends for Vivendi as service providers will go out of their way to get the best content but will shun content that doesn’t add value.

In addition, acquiring Mediaset Premium allows Vivendi to gain some geographic diversity while still retaining a core European focus. According to Vivendi, France currently accounts for about 60% of Canal+ business. Given France’s high unemployment, uncertain economy, and the impending launch of Netflix in France (and other European countries) becoming less Franco-centric is a sound strategy.

Divesting itself of GVT makes sense in light of Vivendi’s focus on becoming more of a media & entertainment company. GVT neither strengthens Vivendi’s content portfolio or geographic focus. Acquiring a stake in Telecom Italia, however, does not make much sense either strategically or tactically, unless Vivendi receives a significant cash payment as part of the equity swap that Vivendi can then use for additional acquisitions. If Vivendi is trying to influence Telecom Italia’s decisions to carry its programming they would be better off continuing to make themselves indispensable by improving their content portfolio.


July 22, 2014 14:04 MGoodman

Retail giant Walmart recently announced it had hired Jeremy Verba to serve as vice president and general manager of VUDU, Walmart’s on-demand video service which it acquired in March 2010 for a reported $100 million.

Verba has an impressive resume having served as president and founder of E! Online, as a general manager at Zynga and at AOL, and as CEO of dating web site eHarmony. Verba has his work cut out for him trying to make VUDU a success as electronic sell-thru (EST) is proving far less popular that physical sell-thru did. According to Strategy Analytics’ Q4 2013 ConsumerMetrix Survey, only 4% of U.S. Internet users that watched TV shows and/or movies delivered via the internet in the last month watched on VUDU. In comparison, 47% watched on Netflix and 28% watched on Hulu. This has has long-term implications for Walmart as digital distribution is transforming the video business, a key part of Walmart’s business.

Entertainment (which Walmart defines as electronics, toys, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid service, movies, music, video games and books) is one of Walmart’s six strategic merchandise units in the US. This segment, however, is in decline, falling from 12% of revenues (approximately $31.7 billion) in FY 2012 to 11% of revenues (approximately $30.7 billion) in FY 2014.

At least some of this decline is attributable to the transformation the video industry is under-going. Physical sell-thru in the U.S. has lost nearly 50% of its value over the past decade and electronic sell-thru is proving insufficient to offset this decline. Strategy Analytics estimates that electronic sell-thru accounted for $1.1 billion in revenue in 2013. A far cry from what the category has lost over the past decade. In comparison, subscription VOD, a service VUDU does not offer, is proving to be consumer’s top choice, accounting for 69% of online video transactional revenue in 2013.

With Comcast’s proposed acquisition of Time Warner Cable, AT&T’s acquisition of DIRECTV and FOX attempting to acquire Warner Bros. Entertainment the video industry is in a period of change. Now might be an opportune time for Mr. Verba to think about expanding the VUDU brand to subscription VOD. Hulu’s owners have considered selling in the past, now might be the time to give them a call. Who know what might happen?