It would be an understatement to suggest 2015 will be the year for streaming.
Late 2014 saw a flurry of partnerships and launch announcements (Seven and Foxtel to join forces in a 50:50 JV to deliver Presto and Nine confirmed Fairfax as partner for 'Stan') and just this week Netflix (after announcing it's AU plans late last year) has commenced it's 2015 assault on the market with trials to block some Australian VPN users.
Prepare yourselves for the onslaught of content deal announcements in the first quarter: The first of many this week - "Stan signs Amazon Prime shows, announces pricing and kicks off pre-launch campaign".
One thing is for sure - there will be more choice and more freedom to choose (as very well articulated by Chris Stephenson). The growth in SVOD will spur the delivery of more diversified content and ensure it is more evenly distributed than ever before with consumers at the helm of choice (and device). Streaming is undoubtedly the future of how Australians will consume content.
Streaming is the future of content - internet TV will replace linear TV. CEO of Netflix, Reed Hastings predicts the demise of broadcast TV by 2030. Undoubtedly, TV audiences are ageing and 16 years will see us move through another generation of viewers. There may potentially still be those in older segments clinging to traditional viewing but largely, the market will have transitioned away from traditional TV.
I don't see the future of TV devoid of advertising. Early proclamations of ad-free options are a lure to gain adequate audience numbers early.
With the advent of greater consumer choice comes greater media fragmentation making media buying even more challenging. Streaming does however, present the opportunity for advertisers to achieve placement in content rich and contextually relevant environments. More importantly, operating as a subscription service, the data enables greater personalisation, validation and retargeting opportunities. The pressure and ability to resist the opportunity might prove too great and ads within SVOD (or tiered subscriptions with lower tiers delivering ads) are an inevitable outcome.
Netflix while currently ad-free is said to have signed 'commitments' to Google Partner Select (a programmatic video ad marketplace) and while Stan (currently) promotes its platform as 'ad-free'. As consumers, let's rejoice and take advantage of the short-term ad-free commitments while they last but as advertisers and planners, rally the (strategy) troops for when the flood gates open.
Of the potential of streaming in the market, there has clearly been consideration in numerous boardrooms for the size of the prize. Whilst there are already seeing large consumer segments shifting significant portions of their viewing to SVOD and many players scrambling to get a slice of the action investing huge swathes to stake their claim there are not many public proclamations of market potent. Early estimates from Nine assume that 40% of Australians will be streaming within 4 years. That would be approximately 10.2 million Australians based on population growth estimates or 4.031 million households (at current estimates of 2.53 people per household and assuming they mean all people).
It's important to note that 83% of Americans claim to be currently streaming movie and TV content at home, Netflix enjoys reach to almost 12% of total Americans and significantly 2 in 3 prefer to stream with commercials than pay a monthly subscription to stream without commercials.
Nine/Fairfax, Seven/Foxtel, Netflix and Quickflix have all been vocal in their offerings and each will come out aggressively. We've yet to see the full extent of Telstra's plans, and we've not yet heard from Apple and Google (or Android TV - fully launched this week) or even contemplated the possibilities from Amazon or tie ups with TV manufacturers. (Check out some of the players here).
But buying content is not a cheap business. Nine and Fairfax announced a JV backed by a $100 million investment, Foxtel and Seven have combined their pennies and most notably Netflix recently paid $90 million for the first season or 10 episodes of the original Marco Polo. Netflix clearly benefits from global rights deals and currently pays less than local players so the current lower cost of content and the production of epic originals can be shared across multiple geographic markets. Local players will have domestic volume advantages when negotiating rights, but I'm not sure any party can accurately put a figure on or a fully prepared for the looming increases in the cost of content rights.
For mine, the AU market is too busy and it's unlikely all players will be able to sustain the high cost of content over the long haul. There will be success stories, there will be losers and for some, there may be small wins but without the breadth and depth/quality and the quantity of content required to draw significant enough numbers to put a double digit dent in market share. Profitability from subscriptions alone then comes into question and therefore the proposition of ad-supporting becomes more attractive.
Here are my (brave and potentially embarrassing if wrong) predictions of what I think will play out:
1. Quickflix and EasyFlix are acquisition targets. If they can't hang on for the near there years it will take for them to benefit from streaming becoming mainstream they will need to succumb, focus on niche content to keep content costs low or incorporate another revenue (advertising) stream. Their catalogue offerings will not draw adequate audiences needed to fund the bigger content plays in the short to mid-term.
2. There will be a direct impact on the traditional TV market. As Google and Apple become more active they won't play to the same conventions as local operators will aim to dictate. TV will be online - we're not talking catch-up but new, original content which shakes-up traditional program schedules (what consumers want, when they want it). Just this week at CES, US satellite operator, Dish announced Sling - its online television service. It almost certainly will be a very delicate dance for FTA and Pay TV owners to ensure they maintain the traditional TV fortress for long enough to transition adequate audiences to SVOD without impacting current TV revenue. Once the numbers arrive at SVOD offerings and presumably some are lost to FTA and Pay TV where does the (traditional) TV ad revenue go? It's not a hard sell to suggest a product which is a blend of traditional TV and catch up shouldn't have ads - viewers are already well acquainted with ads in both TV and catch-up environments. Ads here are a given and so is the power of dynamic ad insertion and programmatic.
3. The last bastion for streaming to conquer will be live sports. A mass exodus from live TV for viewing of live sports is unlikely and not imminent in Australia. Networks control TV production; an expensive investment and TV viewing of sport is currently the preferred method of consumption Clearly though there are portions who are transitioning to other devices (think Cricket Australia Live and NRL Digital Pass). Control by the rights holders (like Cricket Australia and NRL Digital Pass) will see the networks relinquished to content distributors of sport only. I'm not convinced that's the preferred option (for networks) if we see a future where all content is streamed. If live sport is integrated into the streaming offerings of networks, ads are inevitable, just like on traditional TV.
Sponsors won't want to relinquish their presence in these sports especially if the streaming platform draws adequate numbers, so at the very least native advertising will be an easy obvious solution. But imagine the advances in on-screen interactive ads, augmented reality and click-to-buy in real-time within the next 1-2 years. Might they be too tempting? A three-way play from Telstra, Foxtel and Seven offering TV coverage/production, streaming platform and data access bundles could be formidable.
4. Accurate (and independent) measurement and validation of audience numbers across platforms (including mobile!) will be mandated as advertising becomes incorporated. This requires a step-change in current solutions and thinking - solutions which compliment and add to current measurement. It most definitely is not a digital replica of TV measurement and nor is it a panel only solution. The gate is wide open for some very creative solutions and partnerships.
Hang on to your hats - we're in for one hell of a ride.
More launch activity with the announcement of Presto Entertainment - the joint venture between Foxtel and Seven West.
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