Traditional television business models are changing rapidly due to seismic shifts in consumer preferences and viewing behavior. In January, Morgan Stanley reported that there has been a 50 percent decline in TV viewership in the last decade. And, earlier this month Participant Media's Pivot Network released data from a new study that found that 8.6 million Millennials are "committed to a broadband-only existence." ComScore reports that Americans watched almost 41 billion online content videos in May of this year. As a result of these changes, networks and studios are starting to reconfigure business dynamics--reimagining the execution of original programming and exploring new distribution models to meet consumers on their own terms. There are a number of trends transforming the television industry, but below are the six "biggies" (I couldn't stick to just five) that I believe have sparked a renaissance in television programming, ushering in an era of significant new investment, innovation, creativity and value creation.
1. Creative Deal Making
Direct-to-consumer online video channels (i.e. Netflix, Amazon and even YouTube) are creating new opportunities for creative deal making that extend the business opportunities associated with original television programming and offer new avenues for success for both networks and studios. Many of the major broadcast networks are also testing new combinations of on-air and online "windowing." Essentially, this is the practice of scheduling content releases in a staggered fashion across various formats or delivery methods in order to preserve licensing agreements, while offerings high-value content offerings to targeted audiences in specific windows of time. For example, broadcasters have exclusive arrangements with studios so that they have rights to the "first" pay window--ensuring they can be the primary source of new entertainment content on TV or through related, broadcast-owned streaming services. Then, the second pay window emerges some time later, allowing Netflix et al. to exclusively stream certain content. These new on-air and online windowing models can not only extend the shelf life of first-run television content, but also breathe new life into original programming that may have been struggling to find momentum.
Consider AMC's "The Killing," a show with a large, vocal following that stumbled with end-of-season fan expectations, alienating its audience, and was destined for cancellation. As he details in this LinkedIn post, AMC president and general manager Charlie Collier didn't want to give up on a great show, but he couldn't justify its high production costs without significant return. By striking a deal with Netflix and providing the company with the exclusive streaming video on-demand (SVOD) rights for "The Killing" in an accelerated window, it made economic sense to bring the show back despite a smaller linear audience. Collier was also able to keep the cable companies happy by retaining their “first dib” status for traditional tune-in and video on demand (VOD), while enticing Netflix with premium content it could exclusively offer to its subscribers ahead of broader, transactional VOD distribution. And even if some cable companies have been resisting this sea change, there is likely no turning back.
2. OTT Goes Original
While the current definition of windowing is a compelling advancement, the model has been around for a while. Only in the past couple of years have we seen a massive investment by pure-play over-the-top (OTT) providers in original content or exclusive streaming deals. "Arrested Development" is of course the marquee example of a fan favorite program that wasn’t making its network--FOX--enough money through traditional distribution to keep it on the air. Seven years after its last traditional broadcast, the show was revived and new "Arrested Development" episodes currently air on Netflix. We have reached a point in the entertainment industry where every canceled show--as long as it has a powerful, albeit niche audience--has a chance at further creative development.
Now more than ever, there are countless strategies for making substantial profits from original, creative programming made for online distribution first. And major players are putting a large stake in the ground. Amazon recently announced that it will produce five original series pilots to air exclusively via Amazon Prime, all derived from a crowdsourcing content selection process. Hulu Plus subscribers will also soon have access to an array of new, original programming. Even DreamWorks has announced it is considering foregoing relationships with cable television in favor of a deal with Netflix. Soon, there may be more content choices off of traditional TV than on.
3. Stickier Consumer Experiences
Just as networks and studios will look to new distribution channels to take advantage of unique business opportunities, traditional TV players are embracing novel distribution models that provide opportunities for much deeper audience engagement. Content producers are going where consumer attention is focused. And, where are we spending most of our time? On our mobile devices. During her presentation at D11, Kleiner Perkins Caufield & Byers general partner Mary Meeker discussed the rapid growth of mobile traffic--which is growing 1.5x per year. And beyond that, tablets and mobile devices continue to gain momentum and are forecasted to outpace PCs by 2015. Additionally, consumers are also spending more time in native apps. Native apps provide enormous opportunity to: drive engagement, send reminders and enable the viewing community to access supplemental content. The first screen is now clearly your smartphone or tablet.
Video is the final frontier of native apps, and the entire spectrum of native apps has created exciting revenue opportunities. Consider Rovio, the creator of the Angry Birds franchise; the company developed Angry Birds Toons, an animated series based upon the original Angry Birds characters. This app-only programming allowed viewers to access original video entertainment on-demand across connected TVs, smartphones and tablets. The basic premise: "if you build it, they will come" anywhere online (once you have established a robust Internet audience, as Rovio indisputably has). In fact, apps have created widespread opportunities for non-traditional television programmers to "get in the game." Rovio's investment in original "television" programming with its broadcast-quality cartoon series is indicative of a larger trend. Brands outside of the television ecosystem are providing significant new investment and creative development opportunities.
Dual screen apps are another key piece of this puzzle. Driven particularly by iOS (with Xbox One, Comcast X2 and others sure to follow), dual screen apps offer television programmers with new real estate that they can take advantage of to drive audience engagement with supplemental content and functionality that enhances the viewing experience. DIAL, a protocol created by a partnership between YouTube and Netflix, allows viewers to launch video apps from their mobile device on their TV, or "primary screen." Over time, this will help to simplify the interaction between applications on devices and applications on television. And then there's Miracast, which "allows certified devices to send mirror images of their screens directly to other displays." The living room television experience is increasingly characterized by deeper engagement with programming, which is made possible by the interplay between mobile devices and TV monitors.
4. Going Social
Social networks are also transforming the TV experience and the monetization potential of multi-screen content. The creators of the incredibly popular ABC Family teen drama "Pretty Little Liars" recently told the Wall Street Journal that viewer response to their show on social media actually influences their creative process. It's almost like a modern incarnation of "choose your own adventure," where your thoughts and wishes expressed via Twitter can alter the destiny of a specific character or plot line. They also noted that, in their view, people are watching broadcast television simply to be a part of the Twitter conversation in real-time. Twitter, recognizing the advertising opportunities that result from such enthusiastic social TV engagement, recently announced Twitter Amplify. So, when a viewer is Tweeting about a specific show, advertisers can target them directly with show-related video content. Think of it as a promoted Tweet, but with the power of video bolstering its effectiveness. Rather than detract from monetization opportunities--because, let’s face it, if people are on Twitter at commercial break, they may not be tuning in to the ads--social networks can actually enhance advertising opportunities for brands.
5. Better Brand Experiences
Twitter isn't the only platform offering innovative advertising opportunities. A slew of startups have emerged in recent years to help publishers conform to consumers' growing sensitivities to traditional advertising. SocialWire develops dynamic, "fun" product ads, specifically for Facebook. And the likes of YuMe, Tremor Video and Adap.tv have seen great success delivering online and mobile video ads. Additionally, the IAB is working to expand online video ad standards to encourage creativity and new format adoption. It recently unveiled "Digital Video Rising Stars," ad unit standards that are specifically designed to increase digital video advertising interactivity.
The "ads of the future," driven in part by these changing formats, may not resemble the traditional promotional formats to which we have grown accustomed. Brands are experimenting not only with advertising formats, but also with content types. Specifically, native video advertising that communicates brand messaging while also meshing with a publisher's editorial look and feel have risen in popularity, though not without controversy. The recent native ad deal between BuzzFeed and CNN represents native video’s foothold in the future of digital advertising. Simply put, native creates new opportunities for brands to strengthen their relationships with consumers by offering less obtrusive, more relevant content that matters to the viewer through intelligent targeting. Brands understand that they can’t adhere to the status quo and expect to attract consumer attention, so there's incentive to be ahead of the curve.
Hulu also announced that it will only charge advertisers for ads watched to completion. Given the costs of advertising production, advertisers want to be charged for full views. This form of a monetization strategy will require that advertising creative and delivery must be more compelling, targeted and relevant to viewers.
6. Authenticated TV Viewing
Authentication: it's a small step for consumers, but a giant leap for the TV industry. As the old adage goes, "The more things change, the more they stay the same." While processes are changing regarding distribution, devices, content delivery, app experiences and advertising, there's still an entrenched, multi-billion dollar network and studio ecosystem. Authenticated TV viewing (TV Everywhere, or TVE) helps to preserve the business while enabling greater reach and engagement. TVE is a bridge to a new era of choice and control for consumers. Essentially, through authentication, viewers can enjoy all of the same content that they are able to access at home, but from anywhere and on the platform or mobile device of their choosing. At the same time, they still need their cable or satellite subscription to access all of their favorite programming. It’s a "win/win" for both the viewer and the cable and satellite providers. TVE is now table stakes for the television economy, and both consumers and content providers have embraced it, or at least acknowledged its role in TV's survival of the fittest. In fact, according to recent data released by Adobe, TVE video content grew over 12x year-over-year in 2012. And, broadcasters are constantly rolling out supplemental TVE experiences; for instance, A&E just launched full-episode streaming apps for the Android platform. Authenticated television viewing has introduced a powerful new value dimension for multi-screen apps, which are growing in popularity alongside the rapid proliferation of smartphone and tablet adoption.
Television will continue to evolve and this is only a good thing. The TV business model will continue to transform, and programming execution will become more fluid in order to take advantage of the rise in direct-to-consumer content outlets. Netflix CEO Reed Hastings said it best when he penned an open letter offering his perspective on the future of television--given the factors influencing the current consumption landscape. His take? Content quality matters. Apps will reign supreme. And, online video streaming is not just good business for media companies, it's a survival tactic. It's clear that traditional TV viewing habits and the device landscape have irrevocably shifted. But as the trends and developments above suggest, the industry is embracing change at an accelerated pace, which has ushered in an exciting new era of development and growth.