After several false dawns, we are finally entering the era of the Connected TV. In this exclusive piece for the Leader, William Field from Prospero examines how the “TV industry” is changing and what this means for sports rights holders.
Three billion hours of video are now watched every month on YouTube, much of it in High Definition. Around the world, people watch this video on desktop PCs, laptops, tablets and smartphones. Increasingly, it is also being watched on television but still only to a small extent. On the face of it, it is remarkable that the device used by the whole world for enjoying video content is almost certainly the one least used for watching the ever-increasing quantity of video available on the web today. The separation between the TV and the web remains vast. Most of our phones may have become web-enabled but not our televisions. However, a change has begun and is about to accelerate. Its impact will be profound for consumers, for the “television” industry and for online businesses. For sports rights holders, the resulting changes in the way video rights are exploited are potentially as great as those they faced with the development of pay-TV in the 1990s.
What is happening to the TV?
After several false dawns, we are finally entering the era of the Connected TV – in other words, a TV that is connected to the internet, offering the viewer a high-quality, easy-to-use experience, equal to that of broadcast content. There are various ways of achieving this. The connectivity and intelligence can be built into the TV set; incorporated in a separate device such as receiver set-top-box (cable, satellite, IPTV, terrestrial), digital recorder, games console, blu-ray player; or attached separately (e.g. an Apple TV palm-sized box). “Over-The-Top TV” (OTT-TV) is often used to mean the same thing as Connected TV, and is so-named because content can be delivered using the internet, by-passing the more traditional, proprietary, broadcast platforms.
One of the important aspects of going “over-the-top” is the ability to circumvent the “walled gardens” created by pay-TV operators. This means that instead of having only one provider or retailer of content (e.g. Sky for most UK satellite homes, Virgin Media for most UK cable satellite homes) new players can be involved. The biggest area of new opportunity so far has been in movies, with companies like Netflix, Lovefilm (owned by Amazon), and Apple’s own iTunes all offering on-demand feature films as well as other programming.
The major television manufacturers are seizing the opportunity for incorporating a new enhancement: the proportion of Connected TVs will rise from about 25% of all TVs produced globally in 2011 to 70% by 2016 . Given that cheaper, lower-specification sets will be aimed at emerging markets, almost all large-screen televisions sold in North America and Western Europe will be Connected TVs by this date. At present, the operating systems used are those of the manufacturer but this will change, with Google’s Android likely to be a market leader. There has been much speculation on whether Apple will launch an Apple television set (i.e. going beyond just a separate box) and Microsoft see television as a must-have platform (they already offer Xbox Live as a connected TV service through their games console). The major online operating system players increasingly see television as part of their realm. It may have taken a lot longer than with the mobile phone but, finally, the television is becoming just another device attached to the internet.
However, the arrival of these heavyweights of the online world is only part of the story. We must not forget the broadcasters who, understandably, have a rather substantial interest in all of this. One should also not assume that simply connecting the television to the web means consumers will have unfettered access to the vast range of content out there. After all, Apple wants to be THE retailer of content to its device users; so does Google (with Android), and Microsoft (though it is only a beginner at this). Acting as the gatekeeper to content is where the value is and, although the technology is evolving, the commercial incentives remain fundamentally the same.
How is the “TV industry” changing?
Consumers love the vastness of the web, its enormous range of entertainment, information and services. The video that they have enjoyed in recent years on the web has also expanded their horizons beyond the standard televisual experience. Whether it is user-generated content on YouTube, coverage of less popular sports not covered by broadcasters, or television programmes that they’ve just missed (most significantly on the BBC’s iPlayer), the web has improved consumers’ opportunity to watch content in a way they find convenient. One of the reasons for this is that, on the web, there are no constraints on capacity and relatively few restrictions on the content that can be provided (which is one of the reasons it is home to so much pirated material). In comparison, television networks are closed and tightly managed. Terrestrial broadcasting uses scarce radio spectrum so is allocated by governments; Virgin Media controls the cable into the home and the set-top box on the end of it; Sky manages the encryption of the satellite signals that their set-top boxes decode; and consumers rely on their BT Vision’s box for access to BT’s internet television network.
The services available via set-top boxes have become steadily more sophisticated. It is over ten years since the Sky+ box was launched, allowing viewers to record and pause live television. Sky Anytime was launched in 2007 to “push” additional content to Sky+ boxes, selecting material that it thinks fits the tastes of the consumer. Virgin Media first integrated the BBC iPlayer into their service four years ago and announced on-demand programming seven years ago.
The UK’s terrestrial broadcasters all have their own on-demand web services: BBC’s iPlayer, ITV Player, 4OD and Demand5; all of which are available (or will be soon) via the set-top boxes of some of the pay-TV operators. The BBC’s recently-launched Olympic app is available on both mobile devices and Connected TVs. Many, but not all, of the world’s largest channel providers and content producers (Disney, Time Warner/Turner, Sony, Discovery, Viacom) also see a role for their own on-demand service as they look towards a rather different future marketplace.
The next step in the development of the market is this month’s long-anticipated launch of YouView (backed by the BBC, ITV, Channel 4, Channel 5, BT, TalkTalk and Arqiva). The YouView box will be targeted at homes that do not currently have pay-TV and combine digital terrestrial channel reception with on-demand content and a digital recorder, all seamlessly presented through a user interface/EPG specially developed for the task. By tying together the players of each terrestrial broadcaster, some of their archives and content from other providers, the aim is to provide a very user-friendly approach. This means presenting content that the viewer has as much control as possible over when to watch, regardless of how and when it has been sent to the YouView box.
The other divide that YouView breaks down is that between free and pay TV. While most of the content (at least initially) will be free, an increasing amount will be offered on a pay-to-view basis. Importantly, this paid content will not be subscription-based and, in this way, the organisations behind YouView hope it will be seen as a more flexible and less financially onerous way of having access to a wide range of content.
Sky is not part of the YouView consortium but understands the changing nature of the market and so has announced the launch (later this summer) of NOW TV. This will be its means of making Sky content available to non-subscribers across a wide range of devices, including television. By including NOW TV in its service line-up, YouView will be carrying Sky content, just not as part of a Sky-branded proposition.
All this activity may seem confusing but the trend is relatively simple to understand. The control over content and customer relationships that has so long been the preserve of the pay-TV operators is threatened by the new route into the home provided by the internet. True, we’ve long had broadband connections in our homes but only now are there mass market devices which can use this to provide a high-quality television experience and a vast range of content providers vying for us to choose their programming. The content has been assembled, the user interfaces designed, the hardware manufactured and the marketing launched. In time, the majority of viewers will have their expectations about how they can consume content expanded dramatically. They will gain experience of buying more content on a pay-as-you-go basis and will have payment accounts and purses set up to facilitate this. Within the industry, there will be winners and losers, and many lessons will be learned, but there is no going back.
What are the implications for sports rights holders?
Much of this may feel a bit distant for the sports industry. After all, the genre that has benefited most from the rise of on-demand so far has been movies. The thing about sport, as we all know, is that its greatest value is around the live experience, so having choice over when to watch is less important than for other types of programming. However, I think that, in time, the changes in the television market will have a profound effect on the value of sports rights and the way in which they are bought and sold. The basis for this will be the way in which mass market consumers become used to being able to watch a wider range of content (some free, some pay, some subscription); not based on which physical network they are connected to but simply on the basis of which distribution/retail brands they choose to buy from. It is the opening up of the video content market to greater competition.
Of course, some huge beasts will dominate this jungle: using brand power, exclusive rights contracts and range of services (bundling and packaging to offer discounts) to get ahead. But we will see changes in the identity of the major players in the Connected TV era compared to the days of broadcasting and we will also see greater opportunities for smaller, niche offerings. It will be more like the web where Amazon and iTunes may dominate in some categories but there are hundreds of other places to buy from too.
The recent Premier League live rights deal with Sky and BT is a good example of the new battles taking place over premium content. The astonishing 70% increase in value was driven by BT’s determination to win sufficient rights to promote BT Vision, its internet TV service. The logic behind this is not simply to make money by selling the football matches but to sell BT’s bundled “triple-play” proposition: telephone, broadband and television . BT recognises that the arrival of YouTube and other similar services marks a once-in-a-decade opportunity to shape consumers’ attitudes about from whom they buy television and in what form. From Sky’s perspective, it sees both a threat to its already powerful position in television and as an opportunity to further push its own triple-play proposition.
Here are three ways in which sports rights will be affected in the era of Connected TV:
1. New buyers of rights: for well over a decade, there has been speculation about major online companies buying premium sports rights. Ten years ago, people were talking about Yahoo or AOL buying Premier League rights, this year there were rumours of Google/YouTube and Apple being interested. I still think we are a few years away from seeing major rights go in this direction but I am sure that both Google and Apple will be doing more pay sports content in the future. And as mentioned above, we will see other companies focusing on this market, including telcos, content companies and new start-ups.
Just as we saw in the early days of pay-TV, where several operators fought for dominance, many players will fall along the way. But, for sports rights holders, the news is positive: the companies competing for distribution and retail will be trying to use sport as market leverage and will have to pay for the privilege of doing so.
Furthermore, it will become far easier for sports bodies to go directly to consumers if they choose to do so. In principle, leagues, clubs and federations will be able to distribute their content directly to consumers’ televisions. For football leagues like the Dutch Eredivisie which has its own channel (and for the proposed Russian Premier League channel), additional new distribution options come into play as the Connected TV market develops.
2. Better distribution for lesser-known sports: many lesser-known sports currently make their content available on the web but have trouble getting good television distribution. Traditional channel-based television broadcasting needs to schedule the most popular sports at peak times and, even with several sports channels in a package, it is not always easy to find space for live coverage. However, in the on-demand world of the Connected TV, sports content does not need to sit inside a linear channel. For the first time, the opportunity exists to combine the access benefits of the web with the big screen, “sitting on the sofa”, entertainment format of television.
Nevertheless, the challenge of gaining prominence for content will not go away. The fight will be on for control of the home screen, recommendations, “likes” and search engines (to use the concepts we all know from the web) as they are combined with the listings (the EPG or “Electronic Programme Guide”) that we are familiar with from our television experience. The companies that control this domain will be the new gatekeepers.
3. More data, better information: in the traditional broadcast world, data on who is watching what is relatively hard to come by. Today, UK viewer measurement is undertaken by BARB (the Broadcasters Audience Research Board) in order to give broadcasters and their advertisers an objective sense of how popular different programmes are. Pay-TV operators can also tell what is being watched through their set-top-boxes – but they don’t generally share this information with anyone else. However, in the fully connected world, the ability of the web to gather precise data on user behaviour starts to transfer to what we are watching on our televisions. And, as viewers start to buy more on-demand content, provide reviews, feedback and recommendations on what they have watched, we will be able to gather a far more sophisticated picture of viewing (and buying) habits and responses than has ever been possible.
The caveat above also applies here – just because this data will exist doesn’t mean it won’t be jealously guarded by gatekeepers. But the data genie will be out of the bottle and far more will seep into the market. For sport, this provides an excellent opportunity to build fan bases, engage directly with viewers and provide sponsors with precise information on reach and response. For big and small rights holders alike, this data revolution is to be welcomed.
In conclusion, the era of the Connected TV will bring profound changes to the television and sports industries. It will not happen overnight though: it has already taken a long time to get to this point and there is still a lot of new hardware to sell to consumers, software to fine-tune for the TV platform and some fierce battles to take place between the prospective market leading companies. However, in starting to think about media rights strategies over the next five years, sports rights holders should understand the industry’s direction of travel and the exciting opportunities that will emerge.
William Field is a Partner at Prospero Strategy. Prospero is a strategic advisory firm, specialising in media and sports. We work closely with our clients to help them improve performance and make informed decisions about the future.
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