Wednesday, 14 August 2013

What's the problem to be solved with TV?

What’s the problem with TV? The industry’s too caught up with technology and not enough about actually watching.

Everyone agrees that there’s a problem to be solved with TV. The blogosphere looks towards Apple iTV to solve it since Steve Jobs "cracked it", but rather like a modern day Fermat, he forgot to tell us the answer before he died. Actually, I think, rather like Deep Thought coming up with the number 42, nobody is clear what the question actually is.

The US Senate thinks that the answer is a la carte pricing, therefore the problem is that people are forced to buy stuff they don’t want to watch. But we now have machines to watch TV for us, so it doesn’t matter if we don’t want to watch it. And actually, it's the bundles make money for Pay TV. Providing channels that nobody watches makes providing channels that people actually watch, profitable.

James Cameron thinks that the answer is 3D, and if only people did it properly then we would flock to cinemas and buy 3D TVs by the armful. As I pointed out in a previous post, most consumers disagree and are finding it hard to care. And this is despite the fact that most new TVs are 3DTVs so it’s becoming harder to avoid.

The BBC thinks the answer is more HD and not 3D, so it will soon simulcast all its channels on HD and SD. NHK has been thinking for a while that the answer is even more HD, and is preparing to broadcast 8k Ultra HD in 2016.

These changes are technology-driven, require huge investment by manufacturers (to fundamentally change their manufacturing lines), broadcasters (to handle more versions of content, more codecs, and re-allocate bandwidth), and programmers (to master a new production grammar for shooting in HD or 3D). And if done poorly, as was demonstrated with 3D, only the technologists remain interested.

Intel (except maybe its new CEO) thinks the answer is Internet-delivered TV (OTT), therefore the question is: is there room in the marketplace for yet another Pay TV provider? Apparently so, because both Sky and Google have recently launched their own hardware + software solutions.

But then if we look at the numbers for Netflix, biggest player in this space, we see that even though it brings in over $3.6B of revenue, its net profit is $17M, even with 33M global subscribers, making it a worse business to be in than putting your money in a current account. It runs an expensive business; cost of revenue accounts for 72%. This is why I think it can only be successful if it's part subsidised by a larger business, and part of a larger offering.

To illustrate, I think Now TV is best poised to make an impact in the UK as it’s hit the right price point for hardware by subsidising the standard Roku box (almost free STB, no satellite dishes), subsidising content by promoting its own (undercutting all other streaming services), and subsidising connectivity by utilising its own (Sky run the second biggest consumer broadband network in the UK). It’s both subscription and a la carte, no “D”, and cheap - just what the consumer wants at the moment. And it has the marketing muscle of Sky to promote it.

Intel makes an interesting observation of why this area is of so much interest to tech companies. They agree with my observation that hardware is becoming less important to the proposition, that there are sufficient IP STB that actually work, that development is mostly software. Software is faster to change, and so faster to innovate, and so cheaper to experiment with.

Cable and Telco MSO, with the huge investment of underground cables and green street cabinets, are saddled with a lot of hardware, and find it much more costly to innovate. This illustrates how technology may be green field, but business is always brown field. Technology can innovate, business must evolve; old business models by established players are rarely discarded for new. Cable companies like Cablevision are finally questioning why they spend so much on STB and head ends for so little gain.

The pain is set to increase as sources of content become ever more fragmented. Most people do not get all of their TV from one source. The impact of YouTube, Vine, Netflix, iPlayer, HBO to Go, is to show consumers that they can get their content from an ever-increasing number of sources. Seeing the success of smartphone apps, everyone, from TV manufacturers to supermarkets, wants a piece of this action.

However, just as the fragmentation of apps hasn't been to the benefit of smartphone users, the fragmentation of OTT isn't to the benefit of consumers nor programmers. Fragmentation in apps has led to a "short tail" effect, where only the top 20 promoted content gets bought, because this is the only content to rise above the noise.

TV is fundamentally lean back. The "give and get" is very different to the internet model. To watch the news, we want to give as little as possible, just switch on and select the content, with minimum of button presses. We're prepared to give a little brain space, in learning the channel number and scheduled broadcast time, but that's about it. Content discovery is where things become interesting.

The EPG is the wrong discovery paradigm for TV, and even more so now that content is on demand. The EPG answers (in a technically concise but obdurate way): what’s on next? Which is completely different from the question being asked: what do I want to watch next? MSO are finding it hard to replicate the "people like you" curated recommendations that Amazon has implemented so successfully. Content discovery is ripe for innovation. Recommendations from Twitter?

Advertisers are worried about the answer. The first problem is that there needs to be better measurement, from the Nielsen paradigm to the CPM paradigm. This will then enable us to see clearly the second problem, that the number of people watching ads is decreasing, and the engagement with ads is decreasing.

The answer to engagement is second screen, isn't it? Perhaps, but like discovery, this isn't being done well either. The fundamental difficulty is that content is on demand, but consumption is live, and second screen is uncomfortably both. Way back in 1999, Who Wants To Be A Millionaire became a runaway success as a format, and as viewers engaged through voting using premium phone numbers. Nothing is yet driving second screen to the same extent; success stories aren't as predictable and therefore easy to replicate.

Nobody is really looking at the customer care answer. If I can't watch a programme in the modern household, it could be the fault of the TV, the STB, the in-home WiFi, the broadband router, the broadband connection, my subscriptions, the MSO head end, or the broadcaster. All of these items could be from different vendors, each with their own help line. I don't think I can be bothered to call all of them - I'll just change channels and complain on Twitter using my smartphone. It's a more complex viewing environment, and MSO don't have a good answer for how to provide a good service. And providing a service is the only thing MSO can charge for.

There are a lot of threads to draw together here: hardware proposition, pricing model, technical quality, quality of programming, fragmentation of content, multi-vendor customer support. Even after 15 years of working with interactivity, the industry is still figuring out what works in format innovation, monetisation, social engagement, applying across generational shifts, content discovery, how to measure and assure performance, how to equitably share revenue across the value chain… Aaargh! What's even the right question?

So what do I think? (If you've made it this far, well done - here's the nugget of gold that you’re here to read.) I think that the problem with TV industry is that it’s forgotten that the TV set and associated gubbins are less important than watching TV. So the problem to be solved becomes simply: what shall I watch next? Make the best possible programme first, everything else will follow.

No comments:

Post a Comment

It's always great to hear what you think. Please leave a comment, and start a conversation!