Thursday, 11 May 2017

Thoughts from the DTG Summit 2017.

The broadcast industry is catching up with the world around it. It’d better hurry up.

The DTG Summit is one of the smaller conferences, catering to the UK broadcast community. Even though it’s small, there’s a good mix of broadcasters, technology vendors, service providers, and regulators, which usually makes for a good spread of perspectives. This year, they all seemed to converge on a couple of ideas: 1) IP is a good thing; 2) Netflix and Amazon have a lot of money.

A climate of fear
However, both of theses ideas were expressed in a way that fed a pervading sense of fear. Fear of being forced to spend money on newer shinier kit, fear of other entrants taking market share, fear of losing revenue, fear of the world moving on whilst broadcasters ossify.

These are all real, legitimate fears, founded in established market trends. For example, the only revenue growth in Pay TV appears to be from the lower spending homes. For example, the most popular UK TV content is still free, so there is a large constituency of TV viewers who are happy with not paying  – even if it means missing out on the latest features – so there is a large legacy viewership to keep happy. For example, investment cycles by TV operators is still around 5-7 years, compared with software app cycles of 1-3 months, which makes it very hard to TV technology platforms to keep up with best in class software.

Disruptive effect of IP everywhere
Broadcasters have been late to implementing IP end-to-end because they’ve been trapped in their decade-long investment cycles. Other sectors like banking have come to grips transforming their infrastructure to highly available, highly secure, highly flexible, all the while reducing operational costs – through implementing IP everywhere. (The banking sector has spent a huge amount of money to get here, but the point is, they are already reaping rewards.) The broadcast sector is just starting to link its digital islands, and is finding it very hard and expensive to do so.

Whilst IP everywhere will undoubtedly lead to improved operational efficiencies, that isn’t the disruption being caused in its wake. The disruption is a consequence of the cost. The irony for me is exactly what the broadcast industry finds expensive and hard, has actually made it cheaper and easier for new entrants to come into the marketplace. The barrier to entry into the broadcast space has been lowered because: you don’t need as much scale to be economic since the incremental cost of IP delivery is negligible; new opportunities can be trialled without needing to underwrite/write off large development costs; geographic location is truly irrelevant opening new opportunities for resource arbitrage.

To put it another way, newbies can find value with IP everywhere in not only doing new things, but also doing existing things because they can do it cheaper than broadcasters. The solution for broadcasters appears simple to me: get on the IP everywhere train as soon as possible to remove the cost disparity and to find new value opportunities. It’ll cost a lot to implement, but it’ll cost a lot more to go slowly out of business.

Disruptive effect of new money
Despite a pervading air of fear, the conference never fails to self-congratulatory over UK’s talent in media and entertainment. UK broadcasters may not have the wherewithal to spend as much as Netflix on new content, but at least every villain is British. UK broadcast punches above its weight.

My problem with this contention is the aspiration to spend as much as Netflix. For a start, Netflix and Amazon together now spend more on creating content than all the Hollywood studios combined (around $12B). We don’t feel the need for BBC or ITV to be as big as Disney, so perhaps we shouldn’t feel threatened by Amazon.  My other problem is the implicit correlation between spending money and creating quality programming. Whilst it’s true that the more money you spend, the bigger the sets you can build. It’s also true that there is plenty of quality TV to be found in niche broadcasters like Channel 4.

For me, the disruption isn’t the fact that there are new entrants with deep pockets. The disruption is the fact that these new entrants have ability to move the market. For example, Netflix is pioneering the use of data and analytics in its delivery of content. For example, Amazon has implemented voice search successfully for TV (and I think this will be the interaction mechanism of choice with TV viewers within a couple of years). For example, Netflix launches entire series in one go, a practice that is now common amongst all providers.

It’s also a fallacy that these new entrants have a money-no-object approach to new technology. They have deep pockets because they’re successful, not because they’re profligate. It’s this success that we should emulate, not the spending.

A future of opportunity
These musings may sound gloomy, but I’m actually very upbeat. I came away from the conference with a renewed sense of confidence. There’s a key advantage to being a second entrant into a market – others have created that market space for you. There’s already a clarity of vision, and someone else has shown all the steps (and missteps) to getting there.

Broadcasters can learn from the many lessons from other industries, and from first movers. Learning these lessons should reduce the inevitable cost and effort required to re-platform an entire industry onto IP everywhere. Learning these lessons will help to create industry-leading content without industry-leading spend. The opportunity is to learn from the pioneers and to do it better.

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