Category Archives: Broadcast

The death of big broadcast iron

gearsIABM DC releaed its 2016 Global Market Valuation and Strategy Report February 24, and the news for media technology companies was not good. Overall spending for media technology products and services was down 4.3% year over year. The report also noted that product revenues have been in decline since 2012, but this is the first year since the report shows a decline in services spending as well.

Much of the decline can be attributed to disruption from the bottom of the market. What were previously considered lower end tools, such as Adobe Premiere Pro in editing and Axle in asset management have matured a surprisingly brisk pace and have proven themselves ready for prime time.

Technology disruption also plays a part in the overall decline. As IP-video takes hold, the need for satellite links can be replaced by bonded 4G connectivity. “@Home” production of live sports is also lessening the demand for infrastructure. A sign of things to come is Boston-based NESN (MLB Red Sox and NHL Bruins) and LiveU’s announcement in December that portends the demise of the OB truck.

The network will utilize multiple cameras feeding back to NESN’s Boston-area studios via bonded cellular technology.

NESN plans to use multiple LU500 portable transmission units to pilot live “@Home Productions” on the majority of Red Sox home and road spring training Games in 2016 as part of a new innovation and business model for sports coverage. NESN and LiveU successfully developed and tested this new means of remote event coverage last spring during Red Sox Grapefruit League games in Florida and during the summer from minor league baseball AAA Red Sox games in Pawtucket, Rhode Island.

If the experiments continue to show progress by the 2018 season these major market franchises might be leaving the heavy iron in the garage. Be assured, sports broadcasters throughout North America are watching this closely as they begin their own cost-cutting efforts.

There’s a case to be made that the news is not as bad as it seems for the larger media tech players such as Avid, EVS, and Belden (Grass Valley). Budget pressures are spurring consolidation of independent broadcasters. These large station groups are likely to settle on a single vendor in each product category. Though the industry is notoriously conservative, all it takes is one disruptor to win a deal to get everybody looking at the new, more cost effective solution. Over the past year there has been a perceptible uptick interest in connecting the Adobe Creative Cloud tools to existing shared storage and asset management infrastructure.

Adobe Creative Cloud Market Size 2018 (projected)

Adobe’s estimated Creative Cloud 2018 revenue projections by segment ©2015 Adobe

Though it’s difficult to extrapolate media technology spend from Adobe’s reported growth in enterprise term licenses, Adobe has pinned much of the growth in Creative Cloud adoption of enterprise term license agreements (ETLAs). These licenses typically have a 36 month term with each customer, giving competitors a very small window once every three years to make a play to convert the enterprise to its solution. Adobe is projecting success in the enterprise, projecting $3.8 billion in recurring revenue from Creative Cloud for teams and enterprise by 2018.

Adobe has been well-rewarded for its brave decision to migrate all Creative Cloud customers to a subscription model, but it will run into some headwinds among some of the large station groups. As one station group executive told me, “Everyone thinks we’re eager to jump to OPEX from CAPEX with our technology spend, but that’s not true. We’re focused on keeping OPEX down.” In a consolidating industry, acquisitions are funded by stock transfers. Share price is tied to operating margins, hence the desire to keep OPEX down. Offering a choice between SaaS and perpetual license models, Avid should be able to maintain its current position, and perhaps grow it, in the station group segment.

Consolidation won’t last forever. There are a finite number of independent broadcast stations remaining ripe for purchase, and nobody is launching new ones. What we’re seeing is similar to the consolidation of newspapers during the 1990s in the early years of this century. As customer bases shrink and profits sink, cost cutting through consolidation takes hold throughout a market segment. No one was buying up newspapers for the long haul.

There is one significant difference between broadcasters and their newspaper cousins that makes a broadcast station a better long term investment. Spectrum, a finite resource. Its value will increase over time. Broadcasters aren’t in the broadcast business as much as they are in the spectrum investment business.

The place to be in media technology these days is IP-based video cloud-based SaaS offerings that multi-platform and OTT delivery. The days of big iron in broadcast, like the days of big iron in post are over.

The Netflix effect

Since this blog’s humble little following is consists of media and entertainment professionals, many may have bypassed Farhad Manjoo’s column, “Why Parallels Between Netflix and Amazon Should Worry Media Titans in today’s New York Times. The first couple paragraphs come straight out of 2007. But if you stick with it, you’ll find some a pretty decent presentation of the situation big media finds itself in.

The parallels between Netflix and Amazon extend beyond the ostentatious aspirations of its founders.

On paper, Mr. Hastings’s plan to take on the traditional TV industry has long sounded slightly nutty, as delusional as Jeff Bezos’s strategy at Amazon to overrun retailing once seemed.

We know how that turned out for mall owners. Manjoo presents cases for both Netflix’s eventual dominance from bullish analysts and its potential to become just another mid-tier media company from Netflix skeptics. It all comes down to who ends up with pricing power.

  • Will producers be able to limit Netflix’s ascendency by maintaining high prices, thus preventing Netflix from stealing away traditional broadcast and cable viewers because Netflix will have to raise its subscription fees significantly?
  • Or will Netflix be so dominant that content producers will have to grant it pricing concessions?

The latter will be the case. It’s only a question of when that day comes. Put simply, it’s the day that the audience values the Netflix model above the traditional broadcast and cable model. No commercials. Binge watching. No need to set the DVR or pay TiVo to do it. The scenario is illustrated below. Once the Netflix model becomes the preferred model, as it already has to the fast growing cord cutter population, along with millennials who would never lease a cord to cut in the first place, it becomes the content owners’ most valuable distribution channel.

VALUE-OF-NETFLIX

To those skeptics who believe broadcasters can go toe to toe against Netflix and come out ahead, I ask: Do you believe they will also emerge victorious against Amazon, Google, and Apple? Someone is going to break the old model.

For a much more in depth analysis of the future of television over IP, read Ken Auletta’s February 2014 New Yorker article on Netflix. In it he quotes Marc Andreessen, who co-invented Mosaic, the first commercial Internet browser.

“TV in ten years is going to be one hundred per cent streamed. On demand. Internet Protocol. Based on computers and based on software.” He said that the television industry has managed the transition to the digital age better than book publishers and music executives, but “software is going to eat television in the exact same way, ultimately, that software ate music and as it ate books.”

Even the Beatles surrendered to iTunes, and then again to Spotify because people were going to stop buying. Your content has to be where the audience wants it or they will live without. She may have crow’s feet by the time it happens, but Taylor Swift’s catalog will be available on Spotify someday.

Netflix customers may cheer this vision of the future, but as surely as night follows day when that moment comes, Netflix streaming will no longer cost them a paltry $8/month. Pricing power cuts both ways.

 

Broadcast, Broadband, and OTT

ott

Last week the Pew Research Center published its findings on Americans’ broadband consumption. The tectonic plates defining the digital divide have shifted somewhat over the past year.

..home broadband adoption seems to have plateaued. It now stands at 67% of Americans, down slightly from 70% in 2013, a small but statistically significant difference which could represent a blip or might be a more prolonged reality. This change moves home broadband adoption to where it was in 2012.

This trend has accompanied an uptick in Americans whose only broadband access is delivered via smartphone. The Pew article goes on to note pertinent demographic trends as well.

  • People still overwhelmingly prefer to watch video content on a larger screen through a standard in-home broadband connection when possible.
  • A significant proportion of smartphone-only access people cite cost as the major reason they do not have a home broadband connection

This portends several possible outcomes.

  1. Some people will shift viewing from traditional cable and OTT to IP-delivered content over LTE.
  2. These customers will often face data limits imposed by carriers, excepting the T-mobile binge plan.
  3. The LTE-only demographic may be less desirable to advertisers than other OTT viewers, and may cause content distributors to shy from advertising models to paid subscriptions when accessed via LTE.

The study also counts 15% of Americans as “cord cutters.” Not surprisingly, this market segment skews young, so it’s reasonable to assume the cord cutting trend to accelerate as the millennials start their own households. Hold that thought.

Broadcast trends

Some have spoken about the consolidation in the broadcast industry as a parallel to what happened around the turn of of the century in the newspaper business. That’s an over simplification. Broadcasters have one significant business advantage over their print media counterparts. They hold licenses for access to a very valuable and finite resource, spectrum. Local broadcasters have also fared better than print brethren at stemming the tide of disintermediation by the Internet. Broadcast TV, even when delivered via cable, is less expensive to the consumer than streaming services on a per minute basis. Further, broadcasters have done a very good job of maintaining their brands on the Internet, breaking the story online and adding depth (to the extent one can in two minutes thirty seconds or less) on air at 6 PM.

Rather than a pure play for synergies and operational efficiency, broadcast consolidation in the US is mostly a spectrum grab. Now that the FCC is planning the first Incentive Auction permitting channel sharing among broadcasters and wireless Internet providers, that spectrum is only likely to go up in value.

Make no mistake. The broadcast industry is experiencing a sea change. Less emphasis will be placed on traditional broadcast operations with more emphasis on multi-platform distribution. Everyone participating in the value chain will need to adapt.

The irony is that although more bandwidth will be available to consumers for broadband, enabling them to cut the cord, less over the air content will be there for free.

 

Aereo is not a Betamax moment

But pro wrestling could give us one

vcr-displayAll eyes were on the US Supreme Court this week when arguments were heard in American Broadcasting Companies, Inc. v. Aereo, Inc.  While an interesting legal exercise, it’s hard to imagine any outcome that would upend the broadcast television industry as we know it is highly unlikely. The court that gave us the Citizen’s United ruling is not predisposed to ruling against large business interests. The justices’ questions hinted they were looking for a way to rule against Aereo without affecting other cloud business models, and they appeared to find it. Don’t expect the vote will be close. It might even be unanimous.

In the unlikely event the court were to rule in favor of Aereo, the broadcasters have threatened to power down their transmitters and morph into cable networks. Virtually no one watches television over the air these days, so few prime time viewers would notice. David Carr of the New York Times explains the numbers and the disruption to local broadcasters’ business models. For viewers tuning in to local broadcasters for news, weather, and sports, the TV world will look very different. But no one seems to be concerned about that right now, though they should. Do we really want the large swaths of the populace being informed solely by cable news outlets?

Even assuming Aereo goes away, for broadcast and cable television the status quo remains untenable. The sea change has begun. “Cord cutting” and “binge viewing” are now part of the vernacular. Netflix and Amazon Prime are established players already going at it for top spot in the post cable universe, but unless each becomes a content owner in its own right, they are fighting today’s war with yesterday’s weapons. You either own the content or the infrastructure that delivers it to the end consumer, or you are relegated to a shrinking role.  This is because content owners like Major League Baseball (MLB.tv) and the WWE Network (soon to be launched)  have decided to cut out the middle man and go directly to customer.

After seriously considering launching its own cable network, WWE changed course.

From Forbes April 14, 2014:

[WWE CEO Vince McMahon] roostered onto the stage at Las Vegas’ Consumer Electronics Show in January to announce a bold new venture: the WWE Network. McMahon told the cheering audience that the WWE Network would not be broadcast on cable television, where Monday Night RAW has consistently been a top-rated program each week, nor would it be another pay-per-view (PPV) play. Rather, the WWE network will stream content 24/7 directly to viewers on the Internet or what’s known in the entertainment industry as going over the top. It’s a move that directly endangers both WWE’s PPV revenues ($82.5 million) and its potential new TV deals, a huge gamble that according to some estimates could double the size of the WWE’s business in two years–or fall flat on its face…

WWE estimates it needs a million subscribers at $10/month to reach breakeven. Considering that watching all 12 WWE pay-per-view events each year costs over $600, another $120 per year for the complete WWE archive will seem like a bargain to its rabid fanbase.

An over the top, a la carte future is what consumers have been pining for. Content owners salivate over the opportunity to sell directly to customer, letting the customer pick up the tab for a good portion of the delivery costs through wireless and broadband access fees. What’s not to like? Well, for both the content owner and the consumer it can start with the FCC’s decision to abandon the concept of net neutrality. With so many Americans receiving broadband services from the cable providers, the cable providers will have the pricing power to keep themselves in the game for a while to come. If they have to pony up for access to the Internet’s express lane, the barrier to entry into the new over the top world will be prohibitive to all but the largest content owners. Plus ça change…

Rethinking Ratings

Last week the NY Times reported in its Media Decoder blog that Nielsen is rejiggering the way it tabulates ratings to include Internet connected TVs. Of course media executives are in favor of any upwards pointing tweak to the algorithm, but how much closer to reality is this making the ever dubious ratings game?

I think not much. Nielsen still isn’t counting laptops, tablets, and phones. Just big, old flat screen TVs.

The new definition “will include those households who are receiving broadband Internet and putting it onto a television set,” said Pat McDonough, the senior vice president for insights and analysis at Nielsen. Currently a “television set” is the flat-screen kind…

…just 0.6 percent of households in the United States meet the new description.

It’s a start, but for how long are advertisers going to care about the aggregate? If everyone isn’t seeing the same ads, what good is the data? And don’t we already have good numbers on ads that reach viewers via IP?

To an advertiser a ratings point equals 1.1 million or so households viewing its ad. Advertisers don’t really care about who viewing the surrounding content. In the age of the DVR, VOD, and TV over IP, that’s not just semantics. The discrepancy between eyes on the content and eyes on the ad can be significant.

According to Wikipedia, the number of homes with televisions dropped by 500,000 form the previous year. A cynic might argue that a mere 0.6% upwards adjustment was concocted to maintain the value of a rating point, not the value of the data. It’s time for a fundamental overhaul of the ratings system. Television might be the first case in the modern media era where the IP-delivered ad has greater value than the traditionally delivered ad due to targeting and mandatory viewing through technologies like fast forward disabling in VOD.

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