As the internet continues to wreak havoc with old-fashioned business models, it leaves a trail of disrupted industries and foundering incumbents in its wake, along with flourishing newcomers. The music industry has had its turn, so has the newspaper business, and now, after a few years’ warm up, it looks like 2017 will be broadcast television’s year – especially as the Netflix effect bites.
Traditional broadcasters are scrambling to compete online as they re-invent and update their own streaming offerings. But the lines are becoming increasingly blurry as big tech companies like Facebook and Amazon also pile into the fray. Even those old stalwarts of the media industry, radio and newspapers, are trying their hand at producing video content. This new era of video abundance may be great for viewers, but how will it pan out, and what does it mean for the television industry?
The rise of the streamers
The rise of streaming-video services like Netflix has shown how fast broadband alters the way people use the internet. With the average household now chewing through around 160GB of data per month, people have cottoned on quickly to the convenience of streaming their favourite shows online using virtually any device, rather than over the air, via a television screen. The rising popularity of binge-viewing is hard to do via linear television, to do that you need the internet with its ability to serve up any show at any time.
While Netflix is the poster-child for streaming television-style content, there is other solid competition too. In New Zealand, there is Lightbox, which is backed by Spark and boasts a respectable library of content. Then there is Neon (owned by Sky), Quickflix, Amazon Prime, YouTube (and its paid-for, advert-free version, YouTube Red). There is also a plethora of online video rental stores, which include offerings from Apple, Google and Microsoft. Throw the likes of Facebook and Twitter – both of which are seriously pushing video content – into the mix, and competition for eyeballs is hotter than ever.
New Zealand ahead of the pack
The latest ConsumerScape 360° report from IDC confirms the pervasiveness of Kiwi viewers’ new-found streaming awareness. It reveals that New Zealand is now a top performer on the global stage in terms of how we are adopting and using premium digital services. This includes not only video-streaming services but also paid online music services (think Spotify, iTunes and Google Music) and subscription console-gaming services (like Xbox Live and the
PlayStation Network). Some 22 percent of us now consider streaming video our primary source when it comes to watching television and movies at home.
This figure puts us well above the global average of 14 percent and equal with the US. The sheer pace at which this change has occurred is staggering when you consider neither Netflix nor Lightbox or Neon existed in New Zealand before 2014.
Television still king – for now
So, is it the end for traditional television channels? Not yet. Research conducted by New Zealand On Air, in 2016, painted a slightly rosier picture for broadcasters. It highlighted the continuing “dominance” of television as New Zealand’s medium of choice, citing the fact it still reaches nine out of every 10 people as evidence. This means television still has the benefit of an existing audience to try and win over. But, to do that, it needs to embrace the internet, which is where every single one of those competitors now operate, and is also where people now spend an enormous amount of their leisure time.
This is something the NZ On Air report highlighted, particularly among younger audiences that have grown up with YouTube. It specifically mentions that “there is an increasingly big generation gap in media consumption.” And that, “In 2016, more 15–34 year olds stream online video each day than watch linear TV.”
Fast forward to 2017 and NZ On Air took things a step further when it released its Statement of Intent – a document that outlines its plans for how NZ On Air will dish out funding for new content in the years ahead.
In the preamble to the document, NZ On Air’s chairwoman, Miriam Dean, tellingly proffers: “As we face massive change in New Zealand media, NZ On Air is embarking on the most profound strategic shift in our history. In the 2017 year we will move from a broadcast-centric approach to a platform-neutral public media funding agency.”
The broadcasters’ response
In short, NZ On Air is pushing the funding
door all the way open to include non-broadcasters. It’s a forward-looking acknowledgment that the pool of content producers now encompasses more than just traditional broadcasters.
With threats now seeming to come from all angles, broadcasters are scrambling to catch up online. They have all invested heavily in their online presence.
In June this year, TVNZ completely revamped its website and now
offers live streams of all its channels, along with an increasing selection of shows for on-demand viewing. And, as recently as August, TVNZ’s CEO, Kevin Kenrick, provided a glimpse into just how grave the online threat is when he told Newsroom.co.nz that his company would look towards “paying more for digital (rights) and less for linear (scheduled free-to-air TV) as audiences migrate.”
MediaWorks has similarly poured money into its online offerings, with live streams of its Three and Bravo channels, along with on-demand viewing of its shows.
Sky has dipped its toes into online streaming in a variety of ways over the past few years. Sky Go is the company’s main platform and live streams several Sky channels, along with on-demand episodes of various shows. More recently, a Sport Highlights app was released that pushes sports clips out to mobile phones. However, both require a traditional Sky subscription to access and risk being themselves abandoned by subscribers deeming the overall Sky package too expensive.
With this in mind, Fan Pass, Sky’s streaming site for sports, may be more relevant to the burgeoning streaming crowd. It lets people view live streams of some (not all, mind) of the Pay TV operator’s sports channels – without the need to subscribe to Sky Sport.
Of course, Sky famously rejigged the pricing of Fan Pass just before the Lions’ tour, to bring it more into line with the cost of a fully fledged Sky subscription. This move that was roundly condemned by customers and critics alike, and indicates uncertainty on Sky’s part around how it can make money from online services.
Lastly, Neon offers a Netflix equivalent – it taps into Sky’s vast content library.
Sky’s vision for the future was, briefly, intertwined with Vodafone’s. However, this dream was shot to pieces earlier this year when the Commerce Commission rejected the proposed Sky/Vodafone merger. This would have provided a single, mega content-delivery platform, complete with the rights to virtually every sport in the country.
So, the locals clearly aren’t sitting still in the face of stiff online competition, but with such a focus on the internet as a delivery mechanism, the days of broadcast television as we know it seem numbered. This means the incumbents need to find ways of using their existing content ownership advantage before their platforms become irrelevant in the face of overseas entrants.
It’s still all about content
As ever, the winners in any future television world will be those with the most compelling content. For now, the content owned by Sky means it’s an enticing prospect, the question is: can the company pivot fast enough to offer it all in a package that appeals to the sensibilities of the kind of viewer being won over by Netflix? Sports could well decide the matter.
Sporting rights are the meal ticket
Sports rights, especially for rugby, have long been the ace up Sky’s sleeve when it comes to money-making. Like many Pay TV operators around the globe, Sky has been able to subsidise the cost of buying those rights by bundling a bunch of other content in with sports and charging a premium. However, that’s all changing.
According to its own earnings report in August, Sky shed some 30,000 subscribers over the past year. In the US, the story is similar. Reports cite the loss of 762,000 pay television subscribers across the industry during the first quarter of 2017 alone. Exiting customers typically blame high cost and lack of flexibility as reasons for ditching their subscription. This customer churn leaves the door open for deep-pocketed rivals to swoop in and snap up those valuable content rights.
“We're working together to migrate the focus towards paying more for digital (rights) and less for linear (scheduled free-to-air TV), as audiences migrate.”
Ripe for the picking
On that note, rumours have circulated lately suggesting that Amazon is eyeing up rugby rights. This rumour becomes even more significant when you consider Amazon recently worked with New Zealand Rugby to make a documentary about the All Blacks. There’s already a precedent here for a coming digital land-grab. Earlier, Amazon bought the rights to stream ATP (Association of Tennis Professionals) tennis in the UK along with 10 NFL (National Football League) matches for the coming season in the US. Both these deals were preceded by Amazon making documentaries about the two sports.
Sky’s CEO, John Fellet, played down these rumours when talking to the National Business Review’s Chris Keall recently. He equated the tennis and American football rights picked up by Amazon as being like Sky
bidding for rights to our Breakers basketball matches. NBR concluded, however, that such deals are nothing more than “warm ups” for Amazon as it prepares to go after the big stuff.
Meanwhile, Facebook is looking to capitalise on its advertising power to cover its costs and has made a serious (US$840 million) bid for Indian Premier League cricket. It already owns the rights to live stream 20 Major League Baseball games in the US this year. Twitter too has experimented with streaming live sports. And YouTube streamed Kiwi boxer Joseph Parker’s title fight in the UK in September (Sky has the rights here in New Zealand).
Some pundits see the issue of slow internet connections, particularly in rural areas, as a political barrier to the likes of Amazon obtaining sporting rights. However, as NBR points out in the aforementioned article, “that objection is melting away” in the face of the Government’s ramping up of its Ultra-Fast Broadband and Rural Broadband initiatives.
Back to square one?
In addition to snapping up content rights, both Netflix and Amazon are content producers in their own right. They produce hundreds of hours of programming that are exclusive to their platforms. This is a major selling point in the battle to lure new customers to their services.
However, this raises another question: what if everyone decides to sell their content direct? A recent announcement by Disney points to exactly this kind of future since, from 2019, it will have its own streaming video service that will sell its content direct. This means most, if not all, Disney content (bear in mind that Disney owns everything from Pixar to Marvel, to ESPN and the Star Wars movies) in the US will eventually disappear from Netflix. And, presumably, the same will happen to any other Disney rights’ holder in markets where it decides to set up its own shop.
This scenario could be repeated many times over and points to the possibility of an incredibly fragmented future for television. If every content producer decided to go direct to the end user, it could be a case of back to square one – the cost of subscribing to half a dozen different streaming services just to get the content you want might end up costing consumers as much as a full Sky TV bundle.
New York Times journalist Kevin Roose wrote about this very subject in a recent article, in which he bemoaned the fact that he now has to “hunt” his content down by searching through the various streaming services to which he subscribes. He, somewhat alarmingly, calls the situation a “hyper-fragmented mess” that ironically sees him longing for the good old days of a Pay TV subscription.
While there is no denying the internet is the future of television, quite what shape it will take is far from decided.