The convergence of linear and digital is well underway, and it's creating tension as media companies work to innovate digitally in order to compete for "eyeballs." As we know, it's no longer the case that cable companies are the only way to reach consumers. Direct-to-consumer players such as Hulu and Netflix are getting a piece of the pie that cable companies previously solely enjoyed--but so are networks (i.e. HBO, ESPN, ABC and others). Thus, advertising--which used to only be directed to distributors--can now be shared among these other members of the media and entertainment world.
As a result, there's an educational shift that must take place. In the early days of digital, ad-supported media was the only way to make money. But digital "pennies" are nothing compared to premium media "dollars." So, the media companies that are doing direct-to-consumer digital best understand that digital doesn't discount or supersede linear value. In fact, media brands can take advantage of their direct-to-consumer digital play to better monetize their traditional offerings. The reality is that digital efforts must be integrated into overarching content initiatives. Through our online video platform and related monetization and protection technology, Brightcove is an "arms dealer" in this war of the living room.
How Can Premium Media Derive Major Revenue from Online Anyway?
It's true that in these relatively early days of digital entertainment, the model is really ad-supported media. Unfortunately, digital ad revenue simply cannot compete with a traditional media advertising windfall. To confront this, the major broadcast networks are using their catch-up TV apps to drive traditional viewing. They have found, through big data and intensive analysis, that offering immediate access to already-aired programming drives additional tune-in and thus gives them a ratings boost through the traditional channels. As a result, they have additional leverage when negotiating distribution deals with cable providers and can charge advertisers higher rates due to their increased audience. In essence, their TV Everywhere strategy is showcasing their innovations to consumers, but ultimately it's also having an "old school" effect--and padding their pockets where it counts through traditional advertising efforts.
A great example for this point is the Oscars app, what some consider to be the gold standard for live event apps. The app was so good--and it provided tons of content that was complementary to the show (backstage video, actor bios, etc.)--that it drove people who normally would have watched just on the app to turn on the TV as well. The Oscars then had a totally captive audience and two screens to advertise to them.
Also consider HBO Go or Watch ESPN. These were obviously significant, expensive initiatives to develop. Ultimately, though, they have tremendous strategic value for the networks. Building an audience through these apps allows the networks to potentially control their own destinies. In fact, and this is all speculation, it's not entirely impossible to consider a moment in time where the networks can forgo a cable "middleman" and foster direct-to-consumer engagement. More than that, these mobile assets give networks invaluable brand recognition. These apps have become the destination for catch-up viewing, as opposed to the Xfinity or Fios apps. Brand recognition is incredibly important for both big media brands and smaller players alike. In order to pick up distribution, they need people to call the cable company and ask for their network to be added to the lineup. Access, awareness and engagement through apps can accomplish this. Can you see how this is all incredibly circular?
Instant and On-demand
Our view is that media companies are missing the point if they are only thinking about digital content in an ad-supported manner. Digital must be integrated into the rest of the content strategy as a cost of doing business. For now, the benefit will be derived from digital awareness leading to linear success. But, in the future, our hunger for on-demand content will take hold. Consider Generation Z, children who today have always had access to on-demand entertainment on every device--virtually from birth. They are the content consumers of the future. Media companies need to embrace the digital shift now to prepare themselves for ever-evolving digital consumption habits in the near future.