Pulse of Media - Welcome to CMT Apps

Pulse of Media
Navigating the
complexity of an
evolving digital world
Table of Contents
3Forward
4Introduction
5
The consumer: The golden age of video consumption
15
The industry: A new media paradigm
20
The competition: Shift from protection to innovation
25
What does this mean for you?
26
The road ahead
27Endnotes
2
Forward
I am pleased to present the 2015 Accenture Pulse of Media
study, which tracks the major trends shaping the present—and
future—of the media and entertainment industry.
Now in its third edition, Pulse of Media depicts an industry experiencing massive disruption
and rapid evolution. Video is now being consumed across all screens, and as it hits its
inflection point, the decline in viewing video on TV is pronounced and accelerating.
Consumers are more often demanding quality offerings and are increasingly influential on
the brands that succeed. As consumers dictate success and new competitors reshape the
industry, the media and entertainment industry is in continued flux. Operating models are
being reinvented to compete with disrupters unimagined just a few short years ago. The
democratization of content creation, the need to evolve content delivery and the mandate to
evolve content business models are helping drive traditional content providers to transform
into digital product distribution companies.
In this report and in other materials on the Pulse of Media site, we give an analysis of the
major trends helping drive industry disruption as well as our views on what the trends
mean for media and entertainment companies. We also present findings from the 2015
Accenture Digital Consumer Survey1 of 24,000 respondents in 24 countries, which provides
an additional level of insight into the ways consumers are selecting and viewing content and
creating their own entertainment schedules.
On the Pulse of Media site you will find discussions of relevance to media companies
of all types. You will also be able to find views on key issues and opportunities from the
perspective of a number of industry players. I hope you will join the debate, and I look
forward to a continuing conversation.
Francesco Venturini
Global Managing Director
Accenture Media & Entertainment
3
Introduction
Since its launch in 2012, Accenture’s Pulse of Media has provided a forward-looking perspective on the trends
changing the media landscape. As consumer trends have become more pronounced, delivery infrastructure has
improved and business models have taken hold, Accenture’s vision of the industry has been confirmed to be accurate.
This year the Pulse of Media has been reframed to specifically check the pulse of media and entertainment
consumers, the industry, and the competition. For each of these constituents we identify the established, in-play and
emerging trends for media and entertainment executives to watch. We have introduced this approach recognizing
that operating in a continuously evolving ecosystem requires monitoring many ongoing trends in different stages of
maturity. While the state of these trends may vary by geography, we hope that by presenting the confluence of trends
into a digestible global context we can provide new insights that are hard to identify in isolation.
THEME 1
THEME 2
THEME 3
The Golden Age of
Video Consumption
A New Media
Paradigm
Shift from Protection
to Innovation
How is the consumer relationship with
media evolving? Video consumption—anytime, anywhere—has become mainstream,
accelerating the decline of traditional TV
viewing. As consumers consume more
content, quality matters. Consumers are both
kings and kingmakers, controlling which
bundles, brands and content succeed.
What are the underlying drivers in the
industry? The democratization of content
creation, the need to evolve content delivery
and the mandate to evolve content business
models will require traditional content
providers to transform into digital product
distribution companies.
What is the competitive environment?
Disrupters are shaking up the competitive
landscape, and media companies are
challenged to innovate, evolve video services,
expand capabilities and experiment with
new monetization models.
THEME 1 TRENDS
THEME 2 TRENDS
THEME 3 TRENDS
We’re at an Inflection Point for Video
Consumption. Consumers consume all
lengths of video on all devices.
We’re Seeing a Content Renaissance in
terms of content production, financing and
overall user experience.
Service Differentiation with Digital
Obsession; media companies seek new
content, context and bundling.
Quantity Is Good, but Quality Is Better.
Content that is professionally produced is
upping the game.
Delivering Broadcast Availability with
Broadband Flexibility; content delivery
must be device agnostic.
Adopting the Way of Online Disrupters.
Companies need the right partner and right
operating model.
Consumers Are Kings and Kingmakers.
They’re bundling to get what they want. It’s
about shows, not channels.
Reaching the Digital Generation: media
companies must be “tech forward,” evolving
the media value chain.
Re-Imagined Monetization—from
advertising to bundled content—what is
the optimal mix?
4
The Consumer:
The Golden Age
of Video Consumption
Video consumption—anytime, anywhere—has become mainstream,
accelerating the decline of traditional TV viewing. As consumers
devour the exponentially growing quantity of content now
available, quality matters when it comes to paid content and
increasingly to free content. Fully in control of which bundles,
which brands and which content succeeds, consumers are now
both kings and kingmakers.
5
Consumers are choosing
video over other forms
of content, watching
all lengths of video on
all types of devices,
and seeking out video
wherever and whenever it
is convenient for them.
Inflection point for video consumption
Anytime, anywhere video viewing has
been a theme emerging for several years,
but this year it has hit an inflection point.
Consumers are choosing video over other
forms of content, watching all lengths of
video on all types of devices, and seeking
out video wherever and whenever it is
convenient for them. As they do, online
content consumption is very much
becoming a mainstream and commonplace
activity. According to the 2015 Accenture
Digital Consumer Survey, more than half
of consumers now prefer to watch video
clips on their laptops while another quarter
prefer to watch on their smartphone
(Figure 1). Younger consumers are leading
the way, but the trend toward digital video
is pervasive. Nielsen reports that consumers
aged 35 to 49 doubled their digital video
watching time between 2013 and 2014
(Figure 2). Access is now democratized, and
frequent access to digital content is more a
norm than an exception.
As consumers spend more time watching
online videos, short form video is now a
firmly entrenched content form that is here
to stay. It has developed into a sophisticated
ecosystem that rivals more traditional media
(Figure 3). YouTube continues to grow at
pace as every day people are watching
hundreds of millions of hours of video and
generating billions of views, half of which
are on mobile devices.2 Consumers continue
to seek out new ways to consume short form
video whether via clickbait on Facebook
aggregating other sites or through specific
searches on YouTube or other media outlets.
Growth in short form video consumption is
not impinging on longer form video. Viewing
of longer form video on non-TV devices,
including tablets and mobile devices, is
also growing. The 2015 Accenture Digital
Consumer Survey shows that 38 percent
of consumers prefer watching TV shows
from their laptops and nearly one-fourth of
consumers prefer their laptops for watching
sports.3
Figure 1: Preferred device when accessing different types of digital content.
% of users selecting 1 or 2 preferred devices for each form of digital content
TV Shows/Movies
Video Clips
Sports Games/Matches
Movement from last year
Computer/
Laptop
Smartphone
Globally Tablet
38%
+3%
8%
+4%
TV Screen
52% -13%
23%
54% +1%
+9%
8%
25%
15%
19%
+6%
+2%
8%
+3%
+4%
6%
+2%
-3%
43%
-10%
Movement from last year
US
Computer/
Laptop
Smartphone
Tablet
TV Screen
28%
5%
8%
51% -4%
+2%
+1%
17%
13%
3%
-3%
5%
2%
5%
2%
+3%
14%
2%
55% -11%
15%
-1%
40%
-2%
Viewing of long form video content (TV shows, movies and sports) on TV has declined dramatically in the past year with more
viewing occurring on all other connected devices but particularly on computers/laptops.
Source: 2015 Accenture Digital Consumer Survey
6
Figure 2: Digital video continues to grow across demographics with younger consumers leading the way.
Daily time spent consuming video
content: 18-34 age group
Q2 2012–Q2 2014; Hours;
by delivery method
4.8
Q2 2012-14
4.9 CAGR
4.8
0.4
Digital Video 0.3
Daily time spent consuming video
content: 35-49 age group
Q2 2012–Q2 2014; Hours;
by delivery method
5.3
0.2
Q2 2012-14
5.4 CAGR
0.4 +41%
5.3
0.2
Daily time spent consuming video
content: 50-64 age group
Q2 2012–Q2 2014; Hours;
by delivery method
Q2 2012-14
6.5 CAGR
6.5
6.3
0.2
0.3 +45%
0.2
0.6 +36%
6.3
6.1
TV Screen 4.5
5.1
4.4
Q2 2012 Q2 2013 Q2 2014
% of total daily time spent
TV Screen
93%
Digital Video 7%
92%
8%
5.0
4.3 -2%
88%
12%
5.0 -1%
Q2 2012 Q2 2013 Q2 2014
Q2 2012 Q2 2013 Q2 2014
96%
4%
6.2
96%
4%
98%
2%
92%
8%
97%
3%
95%
5%
Source: Nielsen, Accenture analysis
Figure 3: Short form media has developed into a sophisticated ecosystem that rivals more traditional media.
Vertical Producers
Video Games
Vertical MCNs
Lifestyle
Comedy
Music
Animation
Comedy
Food
Distribution
Players
Networks
Horizontal MCNs
Producer Platforms
Talent Representation
Tools for Producers, Marketers and Multichannel Networks
Player Annotation and Commerce
Social/Discovery/Curation
Distribution, Optimization,
Marketing, Analytics
Connected Device Apps
Production
Consumption
Ad Technologies
Advanced Advertising
Ad Networks
Ad Servers
RTB
Source: Accenture analysis
7
Content Syndication
+1%
According to the Ooyala Video Index, 75
percent of the time consumers spend
watching video on a tablet is content of 10
minutes or longer, up from 60 percent in
2013 (Figure 4).
Video consumption—both long and short
forms—is also happening everywhere, making
the need to understand context even more
critical than reported last year. Out-ofhome video viewing is rising, motivated by
the growth in larger screen mobile devices
(Figure 5). Ericsson data shows that 20
percent of consumers between ages 16 and
24 watch video while commuting, 10 percent
watch while out and about in the city and 28
percent watch while at work or school.4 Each
of these use cases represents very different
context that media companies will need to
understand to influence how a consumer
selects, engages with and consumes content.
Media companies will also need to figure
out how to produce and manage content
to capitalize on these engagement models
while helping drive brand and monetization.
As video consumption hits its inflection
point, the decline in viewing video on
TV is pronounced and accelerating. The
percentage of consumers preferring to
watch TV shows on a TV screen is down
13 points globally from last year, and the
preference to watch sports on a TV screen is
down 10 points.5 The trend is evident across
all ages although it is more pronounced
among younger demographics where those
preferring to watch TV shows or movies on a
TV screen dropped between 14 and 33 points
(Figure 6).
On demand, time shifting and binge
watching on all platforms are trends that
are now very much in play with consumers.
According to a Harris Poll, 78 percent of
adults, and 90 percent of those under age
39, now watch time-shifted TV.6 Of those
who watch on their own schedule, 62
percent stated they binge watch.7 While
skewed slightly to younger generations,
binge watching is evident across all
demographics.
Live linear viewing is also expected to
transform. For example, in October 2014
in the US, the FCC ruled that OTT providers
offering live linear streams online are
to be regulated as multichannel video
programming distributors (MVPDs) with the
right to get access to over the air broadcast
networks. This opens up the door for OTT
providers or online delivery to compete with
cable, satellite and IPTV just as each did in
the generation before.
Looking forward, consumer viewing of sports
and other live events on mobile devices
out of home is a trend starting to gain
momentum. To date, live viewing has been
driven by experimentation among media
companies but consumer interest is growing
as evidenced by Twitter’s recent launch of
the Periscope app, which seems to have
severely diminished the popularity of the
previous media darling Meerkat.
Figure 4: Long form viewing on mobile devices and tablets has been increasing dramatically.
Average content length by device type, Q3 2015
% of total hours watched on each device
Desktop
10%
3%
7%
18%
Mobile
4%
19%
25%
30%
5%
24%
4%
21%
30%
4%
7%
13%
15%
4%
20%
25%
65%
57%
8%
2012
2013
5%
7%
8%
5%
15%
5%
15%
3%
3%
14%
12%
7%
3%
2%
5%
10%
6%
80%
71%
60%
60%
53%
82%
75%
63%
68%
4%
4%
5%
10%
13%
2%
8%
40%
30%
25%
2011
21%
18%
6%
45%
38%
18%
6%
8%
10%
4%
10%
4%
18%
22%
3%
25%
11%
8%
16%
6%
7%
Connected TV/Game Console
Tablet
2014
Source: Ooyala, Accenture analysis
2011
2012
2013
2011
2014
<1 Min
2012
1-3 Mins
8
2013
2014
3-6 Mins
2011
2012
6-10 Mins
2013
2014
10+ Mins
Figure 5: Longer form viewing on mobile devices and tablets has been increasing dramatically.
% of users having poor internet connection on a “daily” and “weekly” basis when watching online video
When using your home Internet broadband
When using your mobile Internet broadband
2015
2015
51%
53%
68%
2015
38%
41%
North
America
Western
Europe
2015
63%
54%
Middle East
LATAM
63%
Middle East
LATAM
43%
38%
APAC
65%
57%
North
America
Western
Europe
APAC
Source: 2015 Accenture Digital Consumer Survey
Sample base: respondents with broadband at
home and accessing online video
N=21474
Sample base: respondents with broadband mobile
and accessing online video
N=18457
Figure 6: Preferred device when accessing different types of digital content.
% of users selecting 1 or 2 preferred devices for each form of digital content
Movement from last year
TV Shows/
14-17 years
Movies
Computer/Laptop
18-34 years
35-54 years
44% 16%
47%
55+ years
34%
10%
Smartphone
16%
9%
11%
3%
5%
1%
Tablet
16%
12%
9%
4%
7%
4%
TV Screen
29%
46%
-33%
23%
11%
8%
1%
0%
3%
1%
58% -11%
-14%
64% -6%
Video Clips
Computer/Laptop
45% -5%
Smartphone
38%
Tablet
TV Screen
24%
34%
4%
10%
12%
56%
15%
20%
2%
52%
1%
2%
15%
4%
18%
-9%
55%
1%
4%
-2%
22%
-2%
5%
22%
8%
7%
5%
1%
9%
2%
21%
-1%
Sport Games/Matches
Computer/Laptop
Smartphone
Tablet
TV Screen
31%
18%
16%
11%
10%
14%
26%
26%
11%
7%
-26%
38%
15%
6%
4%
6%
3%
1%
0%
3%
5%
2%
2%
1%
-12%
47%
Source: 2015 Accenture Digital Consumer Survey
Sample base: Respondents owning the specified devices N=23668
9
-9%
54%
-1%
With consumers
embracing every
screen available to
them, providers need
to think ahead about
the new connected
devices on the
horizon.
Star India recently launched hotstar, a
convergent web and mobile platform to
bring its latest and richest content to a
single online destination. Hotstar kicked off
with live coverage of the ICC Cricket World
Cup 2015. Along with starsports.com, its
digital platform counterpart, hotstar served
more than 25 million video views during an
Indian-Pakistan cricket match to make it
the leading watched sports event online of
all time.
A slow breakdown of geographic barriers is
also emerging as audiences become more
global. For example, DISH International
now offers more than 240 channels in
29 languages from Arabic to Hindi to
Cantonese.8 Netflix now reports over 57
million members in nearly 50 countries and
plans to launch into 200 countries over
the next two years. While Netflix allows its
subscribers to access services as they travel
internationally, it limits them to content
available in the geography where they
access Netflix. Nonetheless, piracy of its
original content is an indicator of its global
popularity. In the first 24 hours of its release,
“House of Cards Season 3” was illegally
downloaded more than 682,000 times, with
China, India and Australia leading the piracy
along with the US.9
With consumers embracing every screen
available to them, providers need to think
ahead about the new connected devices
on the horizon. Whether it is virtual reality
glasses (such as Oculus Rift) or connected
and driverless cars (such as the Tesla, Google
or Apple self-driving cars), these screens
represent future opportunities on which
media companies can capitalize.
Quantity is good but quality is better
The quantity and diversity of content
available to consumers continues to
skyrocket. The popularity of Twitch.tv, a
live streaming platform for watching video
games, is a great example of the diversity of
content that can be monetized. Among this
massive number of content choices, when it
comes to paying for content, quality matters.
It is even emerging as a trend in free content
and low priced subscription services.
Quality is hard to define, but common
underlying themes include good production
value, strong storylines, believable acting
and social context. In the 2015 Accenture
Digital Consumer Survey, consumers report
that the top factors that encourage them
to watch long form video content over the
Internet include availability of the most
recent cinema content, less advertising
interruptions and better video quality
(Figure 7).10
Content that is more professionally produced
is winning on a number of fronts. In the
US, one indicator is that subscriptions
to premium content networks continue
to grow at 4 percent per year (Figure 8).
The vast success of original programming
such as “Mad Men,” “Orange Is the New
Black” and more is another clear signal of
the importance of production quality and
storytelling. Amazon and Netflix both earned
Emmy and Golden Globe awards for original
programming, and professionally produced
content on YouTube is garnering greater
success than amateur content. Disney/
Maker Studios, Warner Music and Sony
BMG all rank in the top 10 multichannel
networks worldwide based on unique views
(Figure 9).11 Subscription video on demand
(SVOD) services are contributing to the
quality trend, providing a channel for quality
content discovery. “Breaking Bad” viewership
increased 184 percent between 2011 and
2014 thanks to Netflix.12
To help consumers find quality content,
leading OTT providers are improving their
ability to optimize content, displaying
content options and recommendations most
relevant to consumers. By tracking consumer
10
interest and behavior, OTT services are
optimizing massive libraries of content based
on what appeals to the consumer, improving
consumer access to the content they want
most while optimizing cost.
New market entrants are increasing
competition for premium content and
helping drive the cost of content rights
to record highs. In the UK, for example,
competition with BT Sport drove Sky to pay
a record 4.2 billion pounds for top Premier
League rights.13 As this type of competition
continues, it is even more complex for media
companies to maintain sustainable business
models.
Looking ahead, as consumers gravitate more
and more toward quality, short form video
is upping the game. The launch of Vessel,
a premium version of YouTube at $2.99
per month, suggests that there is demand
for better quality content even in shorter
formats. As content providers push to
capitalize on the quality trend, they will they
will leverage crowdsourcing more and more,
asking consumers to provide feedback on
scripts and pilots to ensure perceived quality
before investments are made. Amazon has
provided the blueprint on this to date with
its selection process for original content.
Amazon also announced in January that it
plans to release 12 movies a year at a cost
of $25 million per film. Amazon plans shorter
content windows with theatrical release to
DVD and Prime Instant Video within 30 to 60
days while the buzz is still fresh.14
Competition will only intensify as new
players enter into the original content
production space and media companies
support their multichannel networks in
moving from being pure aggregators to
both aggregators and original content
producers. Vimeo’s recent commitment of
at least $500,000 to Warner Bros.-backed
multichannel network Machinima for
original content that will be distributed
exclusively on Vimeo is just one example of
this emerging trend.15
Figure 7: Top 5 facts that will encourage users to pay for a
long form video content service over the Internet.
Availability of most recent popular
cinema-TV series releases
29%
Less advertising interruptions
28%
Guaranteed experience in terms of
quality of video and audio
21%
Availability of High Definition
programs
19%
Larger range of video on demand
content
18%
Source: 2015 Accenture Digital Consumer Survey
Sample base: respondents over 18 years old accessing long form video content
N=20268
Figure 8: Consumers continue to subscribe to premium networks indicating a desire for premium content.
Premium Networks in the US
2009-2014, Millions of Subscribers
151.0
Epix Drive In
Encore
Flix
The Movie Channel
Epix
Starz
Showtime
Cinemax
HBO
31.2
25.6
161.3
4.4
32.0
27.0
172.3
4.4
180.0
4.3
34.2
33.1
31.6
29.7
CAGR
09-14
4%
-1%
185.9
4.3
188.0
4.0
35.0
34.2
2%
32.2
32.0
5%
21.3
5.5
20.7
21.5
5.7
21.9
21.5
5.8
22.6
4%
88%
5%
18.0
0.3
17.5
19.1
2.3
17.6
20.6
4.9
19.2
17.4
18.8
20.8
21.8
22.8
22.8
6%
12.1
11.7
11.2
12.0
13.6
14.7
4%
29.0
28.4
28.3
28.6
29.0
30.4
1%
2009
2010
2011
2012
2013
2014
Source: SNL Kagan, Accenture analysis
11
Figure 9: Multichannel networks—Top MCNs on YouTube
February 2015, Millions of unique visitors
42.46
40.72
33.22
25.66
Vevo
Disney/
Maker
Studios
FullScreen
25.11
Warner
Music
24.56
Machinima
24.29
QuizGroup
BroadbandTV
21.09
21
ZEFR
NBC
Entertainment
18.54
Rightster
Source: YouTube, comScore, Accenture Analysis
Figure 10: Most trusted providers for a quality video over the Internet service on TV screen—by geography
% of users selecting one preferred provider from the below options
What company would you trust most (i.e., to provide quality content and support) to offer you a video over the Internet
service on your TV screen ?
TV broadcaster/
satellite operator
Overall
North America
Cable
TV company
31%
Telecommunications/
broadband provider
22%
26%
21%
37%
Internet video
providers
15%
14%
33%
24%
25%
15%
APAC
32%
23%
26%
13%
39%
Middle East
LATAM
15%
27%
23%
30%
15%
Source: 2015 Accenture Digital Consumer Survey
Sample base: TV owners who access digital content. N=17637
12
5%
26%
Western Europe
Social media
service providers
2%
3%
6%
13%
10%
24%
4%
Consumer kings and kingmakers
We have been tracking the trend toward
consumers becoming “kings” of content
since our first Pulse of Media publication.
The consumers’ role as king, fully in
control of their media and entertainment
experiences, is now well established.
Today, not only are consumers in control
of their experience, they are also becoming
“kingmakers,” increasingly in control of
which brands and which content succeed.
Consumers are drawn to shows far more
than to channels or production networks. By
going through online content aggregators,
they are consuming content in ways that
disengage them from the network. The
reduced engagement of the millennial
generation in traditional TV in favor of
OTTs is a leading indicator of this trend.
Consumers are building their own bundles
to get the content they want, patching
together various OTT offerings (such as
Netflix, Hulu, YouTube and HBO Go/NOW)
and sharing their wallets across multiple
providers in ways that didn’t happen just a
year ago. Providers such as Dish Network
Corp. and Sony are responding with new
skinny bundles like Sling TV and Sony Vue,
or web services that offer just a few popular
channels at a lower price.
Cord Cutting and Cord Shaving
Cord cutting and shaving has been getting
a lot of buzz over the past few years and
continues to pose a challenge for the
industry. Consumers are enticed by the idea
of reducing a seemingly ever-increasing
Pay TV bill. For those never using a cord or
consumers who watch little TV content,
the decision is fairly straightforward.
However, the number of consumers in this
segment is about 10.9 million households or
approximately 10 percent of the US Pay TV
consumer base according to SNL Kagan.16
The number is far lower if we look to the
European market. For consumers who watch
a lot of TV or are interested in sports, the
decision is a little harder. In Europe, Netflix
subscribers are estimated to represent onefifth of total Netflix subscribers in 2015,
almost five to six million new subscribers.
According to IHS projections, this will grow
to eight million by 2018.
Before discussing the economics of “cord
decisions” it is important to understand
what cord shaving or cord cutting entails. It
requires a deeper consumer understanding
of the services that they have, how much
they cost and the type of content available.
Consumers also need to be prepared to
wait for content and be comfortable with
micro-transactions to keep up with content
they truly can’t do without. And for cord
cutters who really want it all, it depends
on their comfort with piracy whether that
be downloading the latest and greatest via
BitTorrent or sharing IDs with friends and
family. Consumers also need to be prepared
to manage their own quality of service as
they are now dependent on broadband to get
access. Hence, the calculations in Figure 11
factor in a $20 premium on broadband that
consumers would be willing to pay to move
to OTT as their primary form of viewing.
Figure 11: For heavy consumers of content and sports fans, cord cutting and cord shaving
doesn’t save as much as one might expect.
Broadband Premium $84
iTunes
$20
Hulu
$32
HBO NOW
$8
Netflix
$15
Linear Package
$9
Cord Cutter
$24
$8
$15
$9
Cord Shaver
Content:
Catalog/past seasons
On Demand
HBO current season
Current seasons (paid)
Access:
Primarily device agnostic
Key Challenges:
Tracking availability of
content on services
$119
$9
$110
$110
Cord Keeper
without Netflix
Cord Keeper
with Netflix
$50
$35
Cord Cutter
Cost Reduction/Savings: $26-$35
$110
$113
$10
$16
$8
$15
$14
$111
$20
Cord Shaver 2
Cord Shaver
Cord Shaver 2
None
None
Same as Cord Cutter
Live linear
No sports
More catalog via
TVE/VOD
Primarily device agnostic
Same as Cord Shaver
1 plus sports and
additional channels
More catalog via
TVE/VOD
Live linear
HBO GO
TVE
VOD
Primarily device agnostic
Tracking availability of
content on services
Authentication
Tracking availability of
content on services
Authentication
Increasingly device
agnostic
Authentication
Source: DIRECTV, SNL Kagan, Netflix, Hulu, HBO, iTunes, Accenture analysis
13
Cord Keeper
The example illustrates five types of
consumers: the cord cutter, cord shaver and
cord keeper with some nuances. Should cord
cutters try to keep up with their viewing
behavior by creating their own bundle
they could generate $16-$25 in savings.
Cord shavers simply drop down to smaller,
skinnier Pay TV packages. Cord shaver 1
could sign up for a package without sports
such as DIRECTV’s Select package with a
two year average price of $35 per month
after factoring in the introductory price for
12 months and the subsequent increase. The
second cord shaver could sign up for a $50
per month package that includes sports. The
two end up costing approximately the same
based on an assumed increased propensity to
watch one additional show via iTunes for the
second cord shaver.
Cord shavers really don’t end up saving
much once they build their own bundles.
However, they have limited access to live
linear content and have to constantly know
where to find content. And we haven’t
even factored in the cord shaver’s potential
subscription to Amazon Prime.
This analysis shows that the decision
around cord cutting and shaving really
depends on the type of consumer one might
be. For heavy consumers of content, Pay
TV still holds a strong value proposition.
However, those providers that don’t offer
the convenience of TV Everywhere or have
limited VOD catalogs are at risk. But having
TVE and VOD isn’t enough. Consumers
need to know about these incremental free
services and must be able to access them
easily to perceive the value of them. Pay
TV providers aren’t out of the game yet but
they have some work to do. There is also
a broader opportunity for aggregators to
aggregate across OTT services to simplify
the overall cord shaving or cord cutting
experience by making it easier to search and
discover content across services.
As they gain control of their experience,
consumers are establishing brands by talking,
liking, following, sharing and tweeting about
content on social media competing with
traditional content promotion. Many credit
the billions of consumer views on YouTube
as a key influence on Disney’s landmark
$500 million acquisition of short form video
content producer Maker Studios in 2014.17
The consumer’s role as kingmaker is
extending into non-traditional channels
and content. Consumers are beginning
to have more diverse associations with
content experiences that are increasingly
defined by more new celebrities and new
next-generation channels. This represents
an emerging opportunity for providers to
monetize content in niche channels and
markets including those not yet conceived.
For example, the massive consumer trend
of watching others play video games has
motivated Amazon’s acquisition of Twitch for
$970 million.18 Whilst PewDiePie is making
an estimated $4 million from advertising to
over 34 million subscribers on YouTube.19
14
QUESTIONS TO CONSIDER
• Is your company positioned to capitalize
on multiscreen viewing in and out of
home?
• What is the appropriate content strategy
for your company to embrace increasing
consumer preference for quality content
in all forms of video?
• What is your innovation roadmap to
monetize nontraditional channels and
content in response to diverse consumer
interest?
The Industry:
A New Media
Paradigm
The media and entertainment industry is facing a
completely new content paradigm. The democratization
of content creation, the need to evolve content delivery
and the mandate to evolve content business models will
require traditional content providers to take greater
control of consumer experiences.
15
Amid this creative
explosion we
are witnessing a
second generation
of OTT services,
commissioning
their own original
content and breaking
established content
procurement rules.
The content “renaissance”
The democratization of content production,
new financing mechanisms and alternative
channels are spurring a content renaissance.
Democratization of content is an established
trend. Better capture and editing technology
from smartphones to professional
cameras and the availability of more
distribution channels have enabled further
democratization, allowing content producers
new ways to tell stories, and shortening time
to production. More than 300 hours of video
are now uploaded to YouTube every minute
and more than a million channels in dozens
of countries are earning revenue through
YouTube’s partner program.20 One of the
highest earners on YouTube is the woman
behind the “unboxing” videos phenomenon
in which she opens up boxes, from Disney
toys to shoes. Her revenue from advertising
on YouTube was a reported $4.9 million in
2014.21
New financing mechanisms such as
Kickstarter and non-ratings-driven OTT
distribution channels such as Netflix
and Amazon Prime are offering content
producers greater creative license to address
the demand for quality content. This year
marks a growing trend toward celebrities
developing content directly on alternative
channels and gravitating toward OTT
platforms that provide greater freedom for
creativity. For example, Amazon contracted
with Woody Allen to write and direct a full
season of 30-minute shows, which will be
his first attempt at TV.22 Aziz Ansari launched
his latest stand-up show exclusively on
Netflix,23 and Jerry Seinfeld has revived his
comedic talents with exclusives on Crackle
with “Comedians in Cars Getting Coffee.”24
Amid this creative explosion we are
witnessing a second generation of OTT
services, commissioning their own original
content and breaking established content
procurement rules. For example, instead of
offering to buy only a pilot episode or to
produce one season of “House of Cards,”
Netflix ordered two seasons, with twotime Oscar winner Kevin Spacey cast in the
central role. It just renewed this series for a
fourth season.25 In fact, OTT leader Netflix is
now a major investor in content: 20 percent
16
of Netflix’s content spend is on original
content. The company outspends the BBC on
content overall, and spends more than HBO
and Discovery.26
As the content renaissance unfolds, rights
holders are trying new monetization models
and continue to experiment with content
windows. Global first run shows like “Zoo,”
“Gotham,” “Under the Dome” and “Extant”
are now on Netflix and Amazon. Tina Fey’s
new show “Unbreakable Kimmy Schmidt”
was originally made for NBC, but as NBC
executives struggled to find a fit the show
was given the opportunity to talk with
Netflix, which signed a deal and committed
to a second season within a matter of
days.27 Hulu is taking on the final six unaired
episodes of ABC’s “Selfie.”28
The trend of using original content to
differentiate OTT subscriptions has expanded
beyond North America and is emerging in
APAC. Chinese OTT players like Youku Tudou
and iQiyi are developing original content as
the trend emerges in the Asia Pacific region.
Youku is placing its bets on original content
development, with its announcement of
a major reorganization to launch a new
business unit, Heiyi Studios, to produce TV
dramas and content just for the web.29
Looking forward, the possibilities for
creative content are endless. New forms of
storytelling, such as augmented experiences,
and a world of connected devices will open
up whole new outlets for creativity and ways
to distribute and consume content. Samsung
Project Beyond, multi-angle video capture
paired with an Oculus-like viewing device
for a more immersive viewing experience,
is an example of where entertainment is
headed. YouTube is experimenting with
multi-angle video30 and Microsoft HoloLens
with holograms (Figure 12). Virtual reality,
immersive and augmented experiences
were high profile at this year’s Sundance
Film Festival, indicating the collision of
technology and entertainment has more
than begun.31 There has never been a better
time to create content with the number of
ways to express oneself and the number of
ways to reach consumers.
Figure 12: HoloLens creates new use paradigms for hologram technology targeted at both consumers and businesses.
Consumer
Business/
Industrial
Design
Record
Interact
HoloLens allows users to
extend their creations beyond
the scope of a screen.
HoloLens allows users to
record, watch, annotate
and ultimately share their
environment with others.
HoloLens allows users to
simulate an interactive, virtual
environment that can both
augment or change their
current space.
• Creatives can easily build and
model their creations in 3-D
space.
• HoloLens has the potential to
dramatically change the way
in which consumers learn and
communicate.
• Home uses include interacting
with appliances or accessing
games, photos or other forms of
media anywhere in the home.
• HoloLens will allow for more
efficient and cost effective
prototyping and product creation.
• HoloLens has heavy implications
in the education, medical, support
and customer service spheres.
• Implications include new forms of
field research and simulations for
scientific or business gain.
Delivering broadcast availability with
broadband flexibility
Content delivery is no longer synonymous
with customers having a set top box
(STB). Supporting an STB installed base
is becoming comparatively expensive
as portable devices (such as Roku or
Chromecast) and apps downloaded on a
customer’s device are providing the same
access. Apps are functioning as the new TV
channels and content aggregators, reaching
the digital generation. As this occurs, an
evolution is underway from the legacy of a
proprietary STB to safeguard Pay TV access
at a single point of entry to the delivery of
content to any screen through the provision
of bandwidth and apps.
The need is great for media companies
to continually improve and evolve
infrastructure to keep up with consumers
and the competition. Consumer perception
of media company apps on the Apple
App Store varies across media company
providers with many receiving poor customer
experience ratings. Historically slow to
innovate due to heavy capital investments
required, media companies are gradually
improving the agility, capacity, efficiency
and sustainability of their technological
services and components.
This is evidenced
by the ubiquity of Internet services capable
of delivering SD quality video in and out of
home
and the OTT infrastructure capable of
efficiently delivering SD and HD content. It
is also evidenced by the seven point increase
from 2014 to 2015 in the percentage of
consumers strongly agreeing they have
enough bandwidth in the broadband
Internet connection they currently use at
home.32
Looking ahead, three trends are in play. First,
convergence of the distribution networks
is shifting the focus from standard delivery
to providing the best content for the device
being used. Second, as media companies
move toward IP delivery it is critical that
they are able to manage consumption at
scale. HBO GO’s crashing during the “True
Detective” finale and “Game of Thrones”
premiere illustrated the need to improve
unicast delivery to account for simultaneous
viewing at scale. Third, is the increasing
prominence of infrastructures capable of
delivering content at 4K resolution. Netflix
offers some shows—primarily original
content—in 4K. Amazon launched 4K
streaming in December 2014, again primarily
focusing on Amazon original content plus
movies. And with OTT providers supporting
4K, MVPDs such as Comcast and DIRECTV
are now delivering 4K content.33
17
In the midst of these trends is an evolving
regulatory environment. In both the US and
the EU net neutrality has been in focus.
The FCC in the US recently ruled in favor
of net neutrality with a new classification
for broadband companies as utilities. The
new regulations are currently undergoing
comments and will be subject to lawsuits
from Internet service providers. In March
2014, the European Parliament voted
to write net neutrality into law but this
is currently undergoing scrutiny by the
European Commission.34 These rulings have
implications on how broadband companies
monetize their pipes in the future.
Among emerging trends is the impact of
gigabit Internet driven by disruptive new
entrants like Google Fiber and reinforced
by AT&T and other traditional broadband
providers. This changes the game to
allow for more high fidelity or interactive
consumption of video such as virtual reality.
Companies are determining expansion plans
for new delivery methods including LTE
broadcast, Wi-Fi mesh networks and p-cell
technology, not just to deliver content over
the top but to do so at scale. Winners will
have the infrastructure they need and will
continuously evolve their network as they
reinvent themselves.
Figure 13: There is a need to push for industry change on how many days viewership is measured across to
more accurately value ad slots.
Measuring “Live + 7 Days” versus “Live + Same Day” significantly increases total viewership for
broadcast TV shows, US, February 9–February 15, 2015
49%
Modern Family
9772
14558
Blacklist
8192
14187
Elementary
7908
11816
49%
Grey’s Anatomy
7809
11275
44%
73%
45%
CSI: Crime Scene 7119
10307
Live + Same Day Viewership* (000)
Live + 7 Days Viewership* (000)
*Note: One episode for each title in February 15; Adults 18-49
Source: Tribune Digital Ventures, Deadline, Accenture analysis
Reaching the digital generation
Traditional media companies can no
longer think of themselves as just media
companies if they wish to address the digital
generation’s need for content anywhere,
anytime on any device. Technologycentered media companies such as Netflix,
YouTube and Amazon are forcing traditional
players to become more tech savvy. These
new business models—for example, HBO
launching HBO GO/NOW and Foxtel’s Presto
OTT service in Australia delivering content
via apps—are dependent on technology
from creation to monetization. Different
economics drive decision-making as
companies work to manage margins in techforward business models.
New entrants are leveraging technology
to their advantage. For example, as more
consumers view videos on social media,
networks are forging partnerships with
content providers, such as that of Twitter
and the National Football League. While
social media is certainly a trend in play, it’s
still early in its evolution, signaling there is
still time for content providers to address
social media in a meaningful way. This
includes managing and putting into action
the enormous influx of unstructured data
that will become the fuel for the engine of
next-generation media marketing.
Indeed, the evolving media value chain will
require traditional content providers to
act more like digital product distribution
companies, driven by enhanced intelligence
to effectively reach the digital generation.
As context becomes more critical to staying
relevant with this generation, data holds the
key to differentiation. The ability to measure,
analyze and take action based on viewing
behavior and contextual data will determine
tomorrow’s winners.
18
While data analytics have long been used to
improve sales and marketing performance,
media companies can leverage big data in
larger ways to adapt content to evolving
customer requirements across the entire
content life cycle and commission and tailor
content based on detailed insights about their
audience. This will help reduce the number of
pilots and will help increase the likelihood of
investing in successful content. For example,
Netflix collects big data to understand how
its users behave on the site and what their
preferences are. The company takes into
consideration what their subscribers watch,
when they watch, where they watch, what
they search for, the ratings they give and
more. Based on this data, Netflix could safely
determine that certain ingredients would
lead to the phenomenal success of “House of
Cards.”35 Looking forward, data available to
media companies for personalization at scale
will be enriched by new devices and sensors,
capturing information as specific as eye
movements and consumer mood.
Figure 14: US programming digital display ad spending, 2013-2016
% of change and % of total digital display ad spending in billions*
$20.41
137.1%
108.7%
$14.88
$10.06
63.0%
55.0%
$4.24
47.9%
45.0%
37.2%
24.0%
2013
2014
Programmatic digital display ad spending
Percent change
2015
2016
Percent of total digital display ad spending*
*Note: Digital display ads transacted via an API, including everything from publisher-erected APIs to more
standardized RTB technology; includes advertising that appears on desktop/laptop computers as well as mobile
phones and tablets; includes banners, rich media, sponsorship, video and other.
Source: eMarketer, October 2014
The ability of companies to use data and
analytics to help consumers search for
and discover content is also becoming
increasingly important, particularly in ways
that enable discovery across platforms.
While search and discovery has significantly
improved, it still poses a challenge as the
volume of content continues to grow, driving
the need for new forms of aggregation.
To help achieve a level of personalization
at scale, media companies know the race
is on to effectively track and measure what
the consumer is doing across multiple
devices and modes of engagement. Being
able to connect user behavior across PC,
mobile, TV and future platforms will not
only help personalize content but also
optimize monetization. As viewership
patterns evolve, adjustments to how
viewership is measured are also needed to
accurately value advertising opportunities.
For example, viewership over seven days can
be substantially greater than viewership the
same day of content release as consumers
increasingly time delay their video
watching (Figure 13). The challenge is in
standardization and industry adoption of a
new measurement to which everyone agrees.
In the absence of a strong value proposition
for advertising within specific content
windows, advertisers are increasingly
depending on programmatic ad buying.
eMarketer predicts that by 2016 US
advertisers will spend more than $20 billion
on programmatic ad buying (Figure 14).
19
QUESTIONS TO CONSIDER
• With the abundance of content, how
is your company leveraging data and
analytics to align content spend with
content viewership?
• Is your company developing the capacity,
agility, efficiency and sustainability of its
technology services and infrastructure
to keep pace with tech and consumer
trends?
• Is your company investing in the analytics
needed to effectively reach the digital
generation and help drive personalization
at scale?
The Competition:
Shift from Protection
to Innovation
As disrupters shake up the competitive landscape, media
companies are challenged to go on the offensive, and shift
from protection to innovation. To do so they are faced
with the need to evolve and differentiate service, expand
capabilities, and experiment with new monetization models.
20
Service differentiation with
digital obsession
Traditional video
providers have
managed to stave
off the fate of the
music and publishing
sectors by adopting
multiscreen digital
initiatives such as TV
Everywhere strategies,
but the competitive
dimensions are
evolving.
To differentiate, MVPDs such as Bouygues
Telecom, Orange and Belgacom
are including
OTT services on their set top boxes. But as
MVPDs evolve, the pool of stand-alone OTT
players continues to grow. Even disrupters
such as YouTube are not immune to
competition, constantly experimenting to
stay ahead of Facebook, Twitter and new
entrant Vessel.
In the past, traditional media companies
have also used picture quality of content
as a differentiator. Today better video
resolution is no longer enough to address
the requirements of a more sophisticated,
media-hungry consumer.
High-definition content delivered on all
devices
is now a routine practice. While the
delivery method for video on-demand has
been established, MVPD on demand offerings
have yet to experience the viewership of
OTT services that offer better search and
discovery of content.
Leading MVPDs are innovating their
platforms to differentiate from both
competing MVPDs and OTT players. Delivery
of 4K content is one means to this objective.
MVPDs also continue to expand live linear
rights in and out of home.
Traditional video providers have managed
to stave off the fate of the music and
publishing sectors by adopting multiscreen
digital initiatives such as TV Everywhere
strategies, but the competitive dimensions
are evolving (Figure 15). There are now
personal streaming services such as Sling TV
and Sky disrupting competition.
Ultimately, winners will use context to
enable better consumer engagement,
easier search and discovery, and multiple
monetization methods. They will capture
behavior and consumption to help improve
service through recommendations, reduce
the clicks to get to content, improve search
and take other actions to engage consumers.
Figure 15: Western Europe TV everywhere average adoption by all platforms, as of February 14, 2014
62%
71%
77%
60%
73%
79%
68%
77%
53%
12% 15%
Total 2013
69%
76%
75%
80%
62%
70%
58% 59%
40%
44%
23% 24% 26%
16%
Smartphone Tablet Control
Tablet
Game Console
App
Video App
Total 2012
62%
45%
22% 25% 23%
Smart TV
72% 75% 75%
PCTV
TVE VOD Titles
Live TV
Channels
Out of Home Public Wi-Fi
Access to TVE
Hotspot
Network
Total 2014 Note: 60 operators surveyed in 2012, 59 in 2013 and 61 in 2014.
© 2014 SNL Kagan, a division of SNL Financial LC, estimates. All rights reserved.
North America TV everywhere average adoption by
all platforms, as of February 2014
Asia Pacific TV everywhere device adoption 2014
100%
100% 100%
79%
79%
74%
78%
33%
32%
11%
94%
74%
11%
0%
Smart Smart- Tablet Tablet Game PCTV TVE Live TV CI Plus
TV phone Video Con- ConVOD ChanApp trol sole
Titles nels
App
Note: 19 operators surveyed. © 2014 SNL Kagan, a division of SNL
Financial LC, estimates. All rights reserved.
Smart TV Smartphone
Tablet
Game
Console
PC/Mac
© 2014 SNL Kagan, a division of SNL Financial LC, estimates. All
rights reserved. Cable operators surveyed: 5 in 2012, 2013 and 2014.
DTH operators surveyed: 4 in 2012, 6 in 2013 and 9 in 2014. IPTV
operators surveyed: 4 in 2012, 2013 and 2014.
21
CI Plus
Adopting the ways of online disrupters
It is well established that companies have to
invest to keep subscribers. Some are laying
fiber to accelerate their reach across the
country. Others are improving their cellular
networks. Still others are improving service
delivery. However, online disrupters that are
unencumbered by old business models are
challenging traditional players to find new
strategies to compete in this new world.
More and more organizations are turning
to the cloud to create an agile, scalable and
flexible infrastructure. They need computer
models that rapidly provide resources across
a spectrum of legacy and cloud platforms.
The success of OTT players like Netflix and
web players like Google have provided
traditional media companies a glimpse into
what is necessary to succeed in the world
of digital media and to operate as a web
company. The use of DevOps, centralized
developer tools, cloud computing and
everything as a service are core capabilities
that allow online disrupters to achieve
greater agility and faster time to market.
Netflix’s investment in DevOps allows it
to deploy code hundreds of times a day.
Netflix’s in-house platform-as-a-service
(PaaS) allows each development team to
deploy their own part of the system without
impacting others or the overall service.
Google’s creation of a central tools team
helps improve developer agility through
faster feedback cycles. Online disrupters
have shifted storage, intelligence and
computing power to the cloud allowing for
greater device support and ubiquitous access
to content. Amazon, Facebook, Google and
Netflix all leverage PaaS and the cloud to
help scale their services while providing a
compelling value proposition for consumers
viewing on all types of devices or screens.
The new digital core media technology
is evolving from hardware-centric and
vertically integrated architecture to open,
standards-based and IT/workflow based.
Consequently this is facilitating the
integration of core media and IT operations
into a unique department that provides
another element to meet rapidly changing
consumer demand.
Online disrupters also continuously evolve
products and services. Beta testing has
become commonplace for OTT players
to experiment and test new concepts to
improve delivery of content and experiences.
Facebook constantly beta tests products on
control groups before releasing features to
the broader user base. Google runs hundreds
of beta tests daily on its search services to
optimize its ad revenue stream. Beta testing
coupled with data analytics helps online
disrupters extract incremental value from
services with both subtle and major changes
to their services. Delivery agility and an
existing digital culture in online disrupters
help them achieve fast product cycles driven
by insights from data.
Hardware and software are becoming more
decoupled as companies like Apple and
Google seek to own end-to-end consumer
experiences. Apple and Google are able to
offer most of their services on many devices.
Netflix is the ultimate example of the
decoupling of hardware and service to reach
device ubiquity and massive scale.36 Netflix
started with a device strategy, the Netflix
Player, under Project Griffin led by Anthony
Wood, now current CEO of Roku. However in
2007, just before the hardware release, Reed
Hastings, CEO of Netflix, abandoned the
project in favor of a device agnostic strategy,
which has proved telling as the price point
for OTT devices such as Google Chromecast
and Roku has declined and there is increased
intelligence in the cloud.37 As the price
of streaming devices with intelligence in
the cloud falls and the availability of OTT
content increases, STBs are being displaced
as gatekeepers to quality content.
Others are investing in advertising to
help optimize revenue streams such as
Comcast’s acquisition of FreeWheel,38 a
technology platform for ad management,
and its investment in Black Arrow for
dynamic ad insertion.39 Both innovation
and consolidation are happening at every
level of the value chain, from infrastructure
to delivery to content, devices, audience
segmentation, consumption and data
monitoring. The innovation occurring
is intended to drive a better consumer
experience while optimizing operations to
maintain agility to address future trends.
On the near-term horizon, vertical
integration of media companies will prove
to be too slow to be effective and building
from scratch will not provide the agility they
need. Media companies will have to have
the appropriate business partners in place
whether through joint venture or acquisition
to reach new consumers. They will need a
modular, interoperable operating model that
is able to adjust to whichever direction video
viewership heads. Overall, media companies
need to reshape their DNA to become
increasingly like online disrupters.
Re-imagined monetization
As disrupters increase competition,
traditional players are forced to innovate
with new data and content bundles, new
abilities to measure impact and as yet
unimagined ways to monetize advertising.
For years, double and triple plays with
broadband services have been an important
driver in consumer selection of providers.
Now there is a massive need for new bundles
to offer consumers variety, content and
With the fall of the STB as a barrier to
flexibility in price points they haven’t had in
entry, some MVPDs are taking on a web-like
the past. Media companies are starting to
approach to Pay TV services with cloud-based innovate with new data bundles—whether
user interfaces and increased cloud-based
they are wireless providers with rollover
functionality. Comcast is doing this with its
data bundles, data bundles across devices
latest X1 set top boxes. Telecommunications or emerging disruptive players like Google
and cable companies are adopting new set
offering simplified pay-as-you-go data
top box strategies and are building out all
plans with its recently announced Project
the needed assets to deliver an IP-enabled
Fi.40 New content bundles are also being
multichannel video service.
offered by MVPDs, like Verizon, as they try
to work around the significant contractual
22
Figure 16: HBO and Time Warner: balancing the economics of OTT and Pay TV
HBO NOW is net positive for HBO but needs over 20% uptake in broadband only subs and other revenue
streams to be positive for Time Warner.
Revenue Impact of HBO NOW on HBO and Time Warner
Units in
$M
Impact

HBO MVPD
Revenue

Turner MVPD
Revenue

Turner Ad
Revenue*

HBO NOW
Revenue
MVPD
Subs
@$8.50 HBO Rev.
/ sub =
Impact
$3,400M
5% or
1.68M
10%
or
3.35M
($171)
($342) ($513)
15%
or
5.03M
Combined Economics for Time Warner on
$15 HBO NOW Subscription
Assuming Apple negotiated same deal as
MVPDs for HBO carriage
$8.50 / sub
Turner
Rev.
Impact
($87)
($174) ($260)
MVPD Subs
 BB Only Subs
5%
10%
15%
5% ($97)
($250) ($403)
10% ($42)
($194) ($347)
20% $70
($83)
($66)
($132) ($198)
HBO NOW $10.49/sub
Rev.
$8.50/sub
$211
$422
$633
$171
$342
$513
 BB Only Subs
5% or
0.55M
10%
or
1.09M
20%
or
2.18M
$69
$137
$274
10% ($24)
($88)
($201)
$222
20% $162
$49
($64)
HBO NOW $10.49/sub
Rev. from
$8.50/sub
BB
$56
$111
($236)
Assuming HBO got the same deal as other
apps in Apple Ecosystems (i.e., 70/30 split)
$10.49 / sub
MVPD Subs
 BB Only Subs
5%
5% ($44)
10%
15%
($157) ($270)
*Note: Advertising impact is calculated as a straight percentage difference based on the decline in MVPD subscribers.
Source: SNL Kagan, Variety, HBO, TechCrunch, Apple, Accenture analysis
requirements preventing them from
unbundling.41 This is resulting in bundles
comprised of a variety of channels at
multiple price points based on contractual
agreements. OTT players trying to offer
stand-alone packages are running into
the same challenges, resulting in higher
than expected package bundle costs with
suboptimal content. Despite the challenges,
it is clear that the migration to IP-delivered
video is well underway.
HBO and Time Warner: Balancing the
economics of OTT and Pay TV
HBO’s recently launched HBO NOW with its
initial exclusive availability on Apple TV and
Cablevision has caused quite a stir in the
industry. There has been much talk about
this being the first step in the disaggregation
of the Pay TV bundle. Before we call the
demise of the Pay TV bundle, it is important
to understand the fundamental economics of
the direct to consumer decision.
As programmers weigh the benefits and
costs of launching OTT services, the impact
on ancillary revenue streams must be a
major consideration. For example, tempting
Pay TV subscribers to move to HBO NOW is
a risky proposition for Time Warner. While
the parent may potentially earn more per
HBO subscriber ($2/month according to SNL
Kagan), that wouldn’t offset the lost carriage
fees from Time Warner-owned Turner
Networks. Losing a single Pay TV subscriber
could cost Time Warner over $4/month from
sister networks TNT, TBS and CNN (Figure
16). Even with HBO earning more revenue
per subscriber for those customers shifting
from traditional MVPD HBO subscriptions
to HBO NOW, the parent company would
likely see a net loss in revenue from the
lost carriage fees and ad viewership for
Turner networks, its other corporate division
dependent on the Pay TV ecosystem.
However, Time Warner may be uniquely
positioned in the market to be able to
consider launching a single network OTT, due
to HBO’s proven track record of maintaining
23
a large customer base willing to consistently
pay, by far, the largest carriage fees in
the industry. A similar analysis for other
networks would likely show the lost revenue
from sister networks far outweighing
the additional revenue opportunity from
launching the OTT net.
Offering content à la carte reduces
programmers’ ability to subsidize new and
unproven services or networks. If customers
choose to pay for individual services over a
larger bundle, their ability to “try out” new
content becomes more expensive, making it
more difficult for the programmer to convert
new fans.
As MVPDs reformulate bundles they need
to reimagine how they monetize content
to address the requirements of consumers.
Advertising is a massively important part
of this equation. Attempts are underway
to expand ad viewership windows to more
accurately value ad slots, improve ratings
and increase monetization for content
owners. Dynamic ad insertion on Pay TV
Figure 17: À la carte OTT economics
A decision to launch OTT would require AMC to charge significantly more per subscriber,
likely 12x or more, to maintain current carriage revenues
AMC 2015 Pay TV Economics
AMC OTT Opportunity
Networks
AMC, IFC, We.tv,
Sundance
Monthly Carriage
$0.42 (AMC)
$0.87 (All)
Est. Affiliate Revenue
$485 M
Top Series Season Average Viewers
Mad Men S6
(mid-season premiere)
3.6 M (Live+3)
Better Call Saul S1
(season finale)
5.1 M (Live+3)
Subs
Monthly Sub Fee
Rationale
8.1 M
$5.00
Required subs at likely price to
recoup 100% of Pay TV revenue
6.0 M
$6.74
Assumes significant potential
viewers outside C7 tracking
4.5 M
$8.98
Best case w/ frequent viewers
of top shows
3.0 M
$13.47
Worst case
Source: TV by the Numbers, SNL Kagan, Variety, Accenture analysis
video on demand and TV Everywhere video
on demand are emerging but not yet
perfected or effectively measured. MVPDs are
working to get it right and investing in new
technology to enable it.
The monetization challenge will continue
as media companies combat new disrupters
willing to make highly sought after content
available to consumers for free when it is
contextually right.
Star India’s commitment to using an adbased model that enables it to deliver free
live streaming of events such as World Cup
Cricket is just one example. We will likely
see more of this in the future.
Advertising models will continue to be a
large part of the monetization equation
particularly as consumers gravitate to
content that “feels free.” But advertising
models will need to evolve to incorporate
new forms of media and new ways to
track and measure eyeballs. Leveraging
new technology similar to Google’s Object
recognition or Facebook’s DeepFace
technology can help content owners track
the power of brands on social media.
Companies like Ditto Labs, Kuznech and
Blinkfire offer ways to track brand images
in social media and help track and monetize
currently lost impressions. These companies
scan images on Twitter, Instagram and
other social media and leverage object
recognition to track brand impression
in those shared images. With every new
innovation, content owners and advertisers
have an opportunity to reimagine how
they monetize content to keep up with
consumer behavior and preferences.42
With increasing competition, companies
are pushed to experiment with different
services to address distinct consumer
segments. Many of the OTT packages
being delivered today are not established
enough to provide a real alternative to Pay
TV, and direct to consumer OTT services
don’t make sense for all content providers.
And many content providers are either
sitting on the sidelines or approaching
digital as an experimentation or additional
revenue stream trying to manage the
delicate product mix of traditional and new
distribution channels. Accenture analysis
shows that, for example, a decision to
launch OTT would require AMC to charge
significantly more per subscriber, likely
12x or more, to maintain current carriage
revenues (Figure 17). However, the wheels
are in motion and at some point the right
service will be achieved. Meanwhile, Pay TV
bundles will remain relevant as the move to
à la carte offerings will be constrained by
long-term, intertwined content contracts.
24
QUESTIONS TO CONSIDER
• Is your company innovating its platform
to stave off competition and effectively
using context to help drive content
delivery and business model decisions?
• Do you have the appropriate business
partners in place whether through joint
venture or acquisition to reach the digital
consumers?
• How will the monetization of content and
services shift in response to trends, and do
you have the business model in place to
increase profit from these changes?
What does this mean for you?
The golden age of video consumption has
implications for how media companies think
about content, which consumers they target,
and how they manage content windows and
rights more broadly. As consumers watch
video on all devices—and often use two
devices at once—their preference for mobile
devices must be addressed in some way by
all media companies.
Data becomes increasingly important when
trying to reach the digital generation.
Understanding target consumers and
the viewing context can help providers
personalize the interaction and help optimize
the quality-monetization equation. Customer
data, including a holistic view of video
viewing across screens and content types,
is key to defining the appropriate content
from strategy to production. New models
of crowdsourcing content development can
help minimize risk.
Media companies have moved from a first
OTT generation, an experimentation phase
leveraging controlled rights in conjunction
with linear broadcast, to a more mature
second OTT generation. This second
generation leverages a standalone OTT offer
to capture new audiences and noteworthy
brands from digital native companies already
exploiting the use of analytics throughout
the customer’s interaction to determine
everything from programming
to churn.
To exploit digital opportunities, media
players need to transform into data-driven
organizations, with the ability to leverage
customer insights across the full content
life cycle.
Winning media companies will keep an
eye on emerging modes of entertainment
such as augmented and virtual reality and
develop partnerships early to ensure that
they have access to talent and content.
For content producers, it is important to
leverage emerging talent pools and develop
partnerships for content creation. Studio
systems will need to find a way to retain
talent in their system as talent looks to other
avenues for less constrained creative outlets.
Access to faster broadband will continue
to be a decision factor for consumers as
they seek to fulfill their desire for content
anywhere, anytime, on any device. In
the case of 4K, it is imperative for media
companies to determine ways to optimize
delivery for varying bandwidths and bitrates
based on where, when and how consumers
choose to access the content.
Winning media companies will be strategic
in how they invest in infrastructure, either
investing with a “refresh every three to
four years” philosophy or a “future proof”
approach to infrastructure investment.
Based on the investment approach, they
will put the appropriate operating model in
place to succeed. As companies make these
decisions it is important to understand
what should be a core capability kept
in house and what can be achieved via
partnerships or managed services.
A critical success factor will be the ability
to build the scale needed for a sustainable
business model. The increasing cost for rights
and high quality programming requires
media companies reach a global audience
to monetize their investment in content and
to sustain investment in quality content.
Given these economics, there is little
benefit to vertically integrated media and
distribution given the former needs as many
distribution channels as possible to increase
return on content investments. As a result,
polarization of the value chain is occurring
between control of access and control of
content. Those seeking control of access are
building huge business-to-consumer (B2C)
skills organizations focused on consumer
25
services, owning a distribution platform
and potentially being incorporated by
telcos. Those wishing to control content are
investing accordingly, such as Fox targeting
HBO as an acquisition or Yahoo negotiating
content rights at a global level.
Media companies of all roles in the value
chain will need to adopt a more direct-toconsumer approach, focusing on building a
variety of B2C skills.
As competitors experiment with new
forms of monetization it changes
consumer expectations of the value
of content and what they should be
paying for it. It will become increasingly
important for media companies to have
diversified revenue streams beyond just
advertising to compete with others that
have the flexibility of additional revenue
from subscriptions or commerce.
Finally, to operate in the evolving media
ecosystem, winning companies will develop
the agility to be able to immediately turn
decisions into actions with minimal IT
intervention, adopting a test and learn
approach to quickly react to customer
feedback and competitor moves.
Technology is a key competitive enabler. To
take advantage of technology’s potential,
winning media companies will evolve
from organizational silos and codified
processes, standard-driven and hardwarebased vertically integrated technology, and
inflexible and proprietary architectures.
Instead, they will embrace agile delivery
(running not walking), DevOps (automating
everything), cloud and multispeed IT.
The road ahead
In this rapidly evolving environment it
is impossible to address every change
underway. Disruption is the new normal, and
traditional drivers of competitive advantage
are becoming less relevant.
The trends presented in this Pulse of Media
have implications for how media companies
target consumers; how they develop,
distribute and monetize content; and how
they invest in infrastructure and services.
Winners will use advanced intelligence to
deliver personalized, contextual interactions
via evolved content creation, delivery and
business models. This could involve reevaluating existing content relationships,
identifying emerging content formats,
getting closer to consumers and developing
teaming relationships or ownership models
to position for the future.
26
As media and entertainment companies
navigate the complexity of an evolving
digital world, the right operating model can
help them be nimble enough to adapt to
change. For distribution, advantage lies in
the ability to scale and operate as a service
provider. For content creation and control,
new digital capabilities are required from
strategy through service delivery. For all,
continuous reinvention is required.
Endnotes
1. http://www.accenture.com/us-en/
Pages/insight-digital-consumer-surveycommunications-media-technology.aspx
20. YouTube.com
32. 2015 Accenture Digital Consumer Survey
3. 2015 Accenture Digital Consumer Survey
21. “YouTube’s highest paid star is a woman
who unboxes Disney toys”, Yahoo Finance,
January 2015, http://finance.yahoo.com/news/
youtube-s-highest-paid-star-is-a-woman-whounboxes-disney-toys-062606350.html
4. TV and Media 2014: An Ericsson Consumer
Insight Summary Report”, September 2014,
http://www.ericsson.com/bo/res/docs/2014/
consumerlab/tv-media-2014-ericssonconsumerlab.pdf
22. “Amazon Signs Woody Allen to Write and
Direct TV Series”, New York Times, January 13,
2015, http://www.nytimes.com/2015/01/14/
business/amazon-signs-woody-allen-to-writeand-direct-tv-series.html?_r=0
33. Comcast launched an UltraHD app on
Samsung TVs, Comcast, December 2014;
“DIRECTV launches 4K Ultra HD Video-ondemand with 19 titles”, Variety, November 2014,
http://variety.com/2014/digital/news/directvlaunches-4k-ultrahd-video-on-demand-with-19titles-1201355729/
5. 2015 Accenture Digital Consumer Survey
23. “Aziz Ansari brings his newest stand-up
special exclusively to Netflix”, The Verge,
January 30, 2015, http://www.theverge.
com/2015/1/30/7953401/aziz-ansari-netflixnew-standup-special
2. YouTube.com
6. Harris Poll, 2013; Accenture analysis
7. Harris Poll, 2013; Accenture analysis
8. www.dish.com
9. “Is Piracy a Serious Threat to Netflix?” Forbes,
March 17, 2015, http://www.forbes.com/sites/
greatspeculations/2015/03/17/is-piracy-aserious-threat-to-netflix/
10. 2015 Accenture Digital Consumer Survey
11. Enders Analysis based on Comscore
12. http://variety.com/2013/tv/news/breakingbad-finale-ratings-1200681920/#
13. “Sky pays record 4.2 billion pounds for
top Premier League rights, BT takes the rest”,
Reuters, February 10, 2015, http://uk.reuters.
com/article/2015/02/10/uk-soccer-britain-rightsidUKKBN0LE2A320150210
14. “Boss of Amazon Studios’ TV-movie venture
‘a little unconventional’”, Seattle Times, April 13,
2015, http://www.seattletimes.com/business/
amazon/boss-of-amazon-studios-tv-movieventure-a-little-unconventional/
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16. http://blogs.wsj.com/briefly/2015/04/12/5things-to-know-about-cord-cutters/
17. “Deal of the Year: Disney’s Nearly $1B
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hollywoodreporter.com/news/deal-year-disneys1b-acquisition-758424
18. “Amazon’s Twitch Acquisition Is Too Big
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24. “Jerry Seinfeld explains why he left TV for
Sony’s online streaming platform Crackle”,
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businessinsider.com/jerry-seinfeld-explains-whyhe-left-tv-for-sonys-online-streaming-platformcrackle-2015-4
25. “House of Cards Renewed for Season 4 by
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com/2015/digital/news/house-of-cards-renewedfor-season-4-by-netflix-1201465561/#
26. “Netflix Has Revolutionized the TV Industry
Several Times in Just 17 Years”, Business Insider,
September 12, 2014, http://www.businessinsider.
com/afp-netflix-the-revolution-that-changedthe-us-tv-landscape-2014-9; “OTT to Grow
Massively; Netflix now outspending BBC on
content”, Digital TV Europe, March 13, 2015,
http://www.digitaltveurope.net/336561/ott-togrow-massively-netflix-now-outspending-bbcon-content/#.VQLjaN0y2uw.twitter
27. “‘Unbreakable Kimmy Schmidt’: Tina Fey
and Ellie Kemper Dish on Their Hilarious Netflix
Series!” Entertainment Tonight, March 6, 2015,
https://www.youtube.com/watch?v=xIchN2gC9vA
28. “ABC’s Selfie Headed to Hulu”, The Hollywood
Reporter, November 24, 2014, http://www.
hollywoodreporter.com/live-feed/abcs-selfieheaded-hulu-752193
29. http://seekingalpha.com/article/2986276youku-tudou-bets-big-on-content-production
30. “YouTube Launches Multi-Angle Video
Experiment”, TechCrunch, February 4, 2015,
http://techcrunch.com/2015/02/04/youtubelaunches-multi-angle-video-experiment/
31. “Technology Stole the Show at Sundance”,
TechCrunch, February 20, 2015, http://techcrunch.
com/2015/02/20/silicon-valley-or-sundancetechnology-was-the-surprise-star-of-thefestival/
27
34. “Europe reverses course on net neutrality
legislation”, ars technica, March 7, 2015, http://
arstechnica.com/business/2015/03/europereverses-course-on-net-neutrality-legislation/
35. “The Success of Netflix through Big Data”,
MintTwist, February 25, 2015, http://www.
minttwist.com/blog/2015/02/25/the-success-ofnetflix-through-big-data/
36. Netflix website, http://ir.netflix.com/results.
cfm
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History of Roku Under Reed Hastings”, Fast
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fastcompany.com/3004709/inside-netflixsproject-griffin-forgotten-history-roku-underreed-hastings
38. “Announcing Sale of FreeWheel to Comcast”,
FreeWheel, March 6, 2014, http://www.freewheel.
tv/theroundup/blog/announcing_sale_of_
freewheel_to_comcast/
39. “Comcast and NBCUniversal Partner to
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blackarrow.tv/about-us/news-archives/clientrelease-comcast-and-nbcuniversal-partnerto-use-dynamic-ad-insertion-for-on-demandprogramming/
40. http://www.wsj.com/articles/google-unveilswireless-service-called-project-fi-1429725928
41. http://www.wsj.com/articles/verizonbreaks-pay-tv-bundle-as-competitionmounts-1429240054
42. “The Power of Earned Media in Social Images”,
TechCrunch, April 12, 2015, http://techcrunch.
com/2015/04/12/the-power-of-earned-media-insocial-images/
Authors
About Accenture
Francesco Venturini
Global Managing Director,
Accenture Media & Entertainment
Accenture is a global management
consulting, technology services and
outsourcing company, with more than
323,000 people serving clients in more
than 120 countries. Combining unparalleled
experience, comprehensive capabilities
across all industries and business functions,
and extensive research on the world’s
most successful companies, Accenture
collaborates with clients to help them
become high-performance businesses and
governments. The company generated net
revenues of US$30.0 billion for the fiscal
year ended Aug. 31, 2014. Its home page
is www.accenture.com.
Robin Murdoch
Global Managing Director,
Accenture Internet & Social
Bikash Mishra
Senior Manager,
Accenture Strategy
Raffaella Masoero
Senior Manager,
Media & Entertainment
Bouchra Carlier
Senior Manager,
Accenture Research
Contributors
Samantha Friedman
Consultant, CMT Strategy
Dwight Lee
Manager, CMT Strategy
This document is produced by consultants at Accenture
as general guidance. It is not intended to provide
specific advice on your circumstances. If you require
advice or further details on any matters referred to,
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