Why SVOD is the catalyst for a TV evolution
Streaming services have been getting a lot of headlines of late. OMD’s Jeremy Gavin looks at what impact such services will have on evolving the television as a medium.
The Netflix beast is a product of its environment.
For decades, the US population has grown accustomed to the idea of paying for television.
At its peak, the cable TV industry in America had achieved 89 per cent American household penetration.
How could Stan’s (alleged) 100,000 subscribers possibly explain a 600,000 person drop in Gallipoli’s audience? Of the (alleged) 100,000, barely any would have watched the series. There is absolutely no evidence it contributed to the drop.
35% penetration seems very optimistic. Foxtel has simmered below this figure for years and it has the holy grail of content – sport.and until SVOD appeared hasn’t had to deal with fragmented content..
Foxtels two biggest problems has been Australians reluctance to pay for TV and Robin Hoods pirating the content they want. Both of which the SVODs are going to have to deal with in addition to fragmented content and no sport..
Its going to get messy.
Jeremy makes some interesting points, however as a user of Netflix on the beloved VPN route I think we need to look at a few things.
Netflix has no ad’s – it is ad free, there is no targeted ads. HULU (owned by Universal, NewsCorp, Disney) – no ads, Amazon Prime – no ads, Crackle (owned by Sony and legally obtainable in AU) – has targeted ads – but free.
If anything SVOD will only hurt traditional cable (such as Foxtel). The SVOD services are essentially movies/tv on demand – a back catalogue of studio content with some first to air content (ie. house of cards etc). There is no news services (Sky, CNN, BBC etc) or live sport (a tent pole for Foxtel).
The real change will come when studios realise what they are missing out on and cut the cable provider out of the equation and go direct. HBO (TimeWarner) are rolling this out in the US shortly where the end user will be able to go direct to get their fix of Game of Thrones etc for a monthly subscription.
To your point the locked up deals by local AU networks (remember the days of the big WB output deal with 9??) will stem the flow to SVOD initially as international studios will rely on the guaranteed income, however as they use their larger markets as a sandpit to test and learn activities such as cutting cable and traditional TV out – change will come.
SVOD will complement existing media consumption by the consumer, and it is that $8-$10 per month that will be cut out of subscription tv packages – that is what will affect TV, and potentially eye balls on terrestrial tv content – and then ad rates will be affected etc.
Consolidation will come – it is inevitable – and the smaller players will be swallowed up and or fail, and then at some stage TELCO’s will want part of thisg. Telstra and Optus while they have their own internet SVOD type of services (Telstra 50% Owner in Foxtel) are sleeping giants at this stage. When they decide to bundle up the likes of Netflix and HULU as an internet package (TRIPLE/QUAD PLAY) then evolution will come to Australia.
Hey Jeremy, great article.
I still love a good torrent though!
clem – hulu in the US does carry ads (on paid service). one of the reasons netflix is so popular.
US TV ‘traditional’ viewing declined around 12% in 2014, a decline which will only continue this year.
all the predicted impact of VOD services on traditional TV ad revenue is becoming very real folks…
the simple reality is (many) people simply don’t want to want normal TV very often (at least in the US). i’m sure it is the same in australia. Anyone who gets to watch the whole new series of House of Cards this weekend can testify to that. tv business models need to adapt to meet changing habits.
Australian Netflix users won’t be disgruntled if (and it’s a big if) Netflix forces them on to the Australian service with limited content. Most will keep their VPN service and switch Netflix regions to watch US, UK and all Netflix global content.
In fact, due to the recent fall in the Australian dollar against the US dollar it actually could make sense to voluntarily switch to the Australian version of Netflix when it launches here since it will a fixed monthly cost in Australian dollars.
A nice article from the think with Google team here:
https://www.thinkwithgoogle.com/articles/evolution-of-tv-reaching-audiences-across-screens.html?utm_source=linkedin&utm_medium=paid-media&utm_campaign=ph2-sp-update
There are two competing but contradictory forces at work in the Australian TV business. Firstly, for two decades the majority (circa 70%) of households have made it very clear that they prefer free TV to paying for it. Secondly, a whole new generation of viewers, mostly under 30, have also made it clear they will pay (or pirate) stuff if it is not available when they want it. Free TV will be around for a long time. But the fragmentation will increase. No-one predicted the (positive) effect digital multichannelling would have on the networks. It would be a brave evangelist who thought they knew where things will be 10 years from now.
Nowadays I rarely look at my TV set. I have good-sized screen hooked up to my lap-top and watch iview, SBS On Demand, News24, YouTube, Aljazeera and other overseas streams. Frankly, I couldn’t tell you what ads are screening on free to air networks.
I think Jeremy has missed a key point about the disruptive force of SVOD in relation to TV ad revenue.
TV ad revenue at $3.5 billion is at huge risk from SVOD services because the key demographics see value in being able to watch what they want when they want, with no ads. Key demographics are changing their viewing habits – in many cases to places where advertisers cannot find them.
FTA broadcasters customers are media buyers and then advertisers. SVODs customers are viewers. Big difference in approach.
SVOD will devalue the whole advertising market as it reduces eyeballs watching live content (with the exception of sport, news) and it will reduce the valuable demographics watching FTA. The best play the FTA broadcasters have here is making Freeview Plus and catch-up TV work. At least they can talk about the audience that watched it at another time.
SVOD is to FTA as what Uber is to Cabcharge.
So you think “They could banish the Nielsen family and create a robust and reliable TV measurement model”.
Surely you mean an SVOD model. I’d also be interested in how you would be planning to determine how many people, and who they are at the other end of the SVOD connection.
You also seem to forget that TV ratings exist to estimate the viewing to the programme that the ad is inserted in. Judging by the SVOD fans, ads are the devil incarnate. So, yes you might end up with stream counts for content that as an agency you can’t capitalise on.
It’s almost like someone needs to come up with a linear TV and IPTV hybrid, which mixes traditional ad supported TV stations with IP delivered on-demand ad-free content.
Last year, Netflix is reported to have spent $2.7 Billion dollars on programming and is forecasted by industry to possibly spend $5 Billion in 2015. This is what the local players are scared of. Their companies aren’t even worth as much as this, let alone be able to spend it on programming.
http://www.businessinsider.com.....016-2015-2
The key part is they are really big. And have A LOT of money to spend. More than any of our local media owners here could ever dream of. This is why Stan launched a few weeks ago and beat Netflix to the streaming market. They knew it was easier to landgrab share as a first to market pure play streamer, as they knew that once Netflix entered the market it would be hard for them to challenge Netflix if they had launched first. Netflix also has the benefit of being international and likely be able to generate economies of scale for programming product across markets, so in this sense it could be hard for Stan and the incumbents in the future being a local player only.
But what does ‘big’ mean…. Netflix is currently valued at around US$20 Billion. This is more than every major media (NEC, SWM, Foxtel, News Corp, Fairfax, Ten etc) owner in Australia – Combined. (that includes News Corp at US$9.5 Billion which is technically international…).
Ultimately fragmentation is the outcome, but it will be interesting to see how the business end plays out.
@Ashley – Some really bad assumptions there.
What if you added up the international value of each of the channels on Foxtel (Viacom / Fox / BBC / HBO / Disney / etc) – They would dwarf Netfix, but the local market still benefits from their investment in programming.
And if you added how much all these ‘small’ Australian small companies invest in local content that would be significantly higher than Netflix invests globally.
Apples and pears buddy.
I agree with @I Wonder – People are no longer prepared to watch ad breaks, they either fast forward through them, or jump onto social media when they are on.
I would hate to be selling TV ads. they are on their last legs.
Streaming services will mainly replace video stores, which are disappearing anyway.
In the US, telcos cannot set download limits, and the success of streaming services is chewing up their profits, hence the uproar over there about “net neutrality”. The telcos in Australia have no such limitation. The only reason Foxtel has to charge more is because they provide the infrastructure, which subscribers must pay for with Netflix. (Telcos are saying they will allow unlimited streaming – you can bet that won’t last). Its also unlikely that ad-free content will last.