After a myriad of false dawns, the TV industry is finally in the grip of an Internet-inspired revolution that is reshaping everything from content creation and delivery to the way we watch — and interact with — the medium, a development that is expected to be a big topic at DLD 2013, a conference taking place in Munich January 20-22.This isn’t a Big Bang-style revolution of the sort that sent shock waves through other sectors of the media and entertainment industries, such as publishing and music, where business models were wrecked and barriers to entry removed almost overnight. When it comes to the fragmented marketplace of television, what we are seeing is a revolution in increments.
Of the three key areas in TV — content production, delivery platforms and how we, as viewers, watch, premium content such as sport, “event TV,” first-run Hollywood movies and high-quality comedy and drama appears all but impervious to disruption. Enduring profitability of the major and heritage broadcasters is clear evidence that this is the case. In the U.S., for example, Time Warner’s cable networks division (which includes TNT, TBS and HBO) reported its best-ever quarter in November: operating income was $1.22 billion — a 12% year-on-year spike. In the UK, meanwhile, satellite broadcaster BSkyB grew its total customer base to 10.31 million Pay TV customers (adding more than 100,000 in the year), reporting pre-tax profits across its businesses of £1.22 billion in the 12 months to June 2012 — a rise of 17%. And that while investing an extra £70 million in programming.
“Anyone who’s had to get cable to watch the shows they love is familiar with the basic equation that HBO programming, for example, costs money to make and requires money to see,” says Kevin Slavin, co-founder of games-maker Area/Code (sold to Zynga) and of social TV company Starling, and a scheduled speaker at DLD 2013. “They also know that the economics of production and distribution of YouTube are easy enough to subsidize through advertising and [therefore] can be free.”
It’s at the YouTube end of the spectrum — the slipstream of “free” — where the Internet is reconfiguring the economics of content creation. Once primarily the domain of pet videos, YouTube is now empowering a new stream of production: video start-ups.
LA-based Maker Studios, which sets out “to bridge the gap between YouTube and TV,” was founded by a group of video-makers and performers to find mass audiences for their digital talent cooperative. Today its content has 200 million YouTube subscribers and two billion monthly views of more than 3,000 channels. In December, Maker closed a $36 million investment round, led by Time Warner, which plainly sees the value of low-cost/high-return programming watched by the hard-to-reach younger demographic, who spurn “traditional” TV — and its advertising. “A lot of our revenue comes through YouTube and the ads we’re selling around our content,” explains Lisa Donovan, co-founder of Maker and an actress/comedian. Her Lisa Nova YouTube channel has had more than 186 million views. “We also have all these auxiliary ways to make money, like merchandising and iTunes. What we’re trying to do is empower as many people as possible to create content [using] a low-cost production model.” And Maker is far from alone in the space. Machinima, which makes video entertainment for gamers, raised $35 million last year in a round led by Google, while in the UK, Elisabeth Murdoch’s Shine Group acquired Internet TV-maker Channel Flip for an undisclosed fee.
But if the Internet has lowered the barrier to entry for ambitious video start-ups, it’s the area of content delivery that is seeing radical change. Adoption of Smart TV sets, for example, has to date been sluggish. However, that’s about to change. Research by Strategy Analytics estimates that by the end of 2012, 21 million Smart TV sets had been installed in Japan, the world leader, 15.8 million in the U.S., 13.8 million in China, 7.1 million in Germany and 6.8 million in the UK. The reason for the relatively slow take-up, according to Lutz Schüler, CEO of Germany’s Unitymedia Kable BW, is that Smart TV, so far, simply hasn’t been smart enough. “They are like the early smartphones,” says Schüler, a scheduled speaker at DLD. “Not really ‘smart’ at all.”
So far Smart TVs have lacked “intuition,” instead putting the onus on users to make a series of decisions about what they want to watch or do — whether it’s browsing the video-on-demand library, surfing the Internet or watching “live.” And that doesn’t work, says Schüler. “The big change we have seen in the mobile business with iOS and Android is that truly smart operating systems care less about access points and more about content and context. We used to ask whether we’d be using our phones for voice or text or data. Now we know we use them for everything. And that’s exactly what we will be doing with TVs.”
In September, Unitymedia’s parent company, Liberty Global, launched Horizon, a media and entertainment platform, which, among other things, allows users to watch TV while switching seamlessly between devices and to connect to Internet apps. “Horizon allows the customer to go into the content he wants,” says Schüler. “If I’m interested in Formula One, I’ll open the Formula One app, where I can see the Grand Prix on linear TV. I can then watch a video about [World champion] Sebastian Vettel’s car in the ‘on demand’ library, see [British driver] Lewis Hamilton talking about Vettel on YouTube and chat with friends about who will win the next race.” (It’s widely predicted that both Apple and Google will enter this section of the TV market with services in 2013.)
There are other spins on content delivery, too. Stockholm based start-up Magine has created an app which streams live and on-demand TV channels (which are recorded in the cloud) over the Internet on multiple devices, allowing viewers to use the service wherever they have a Web connection. Successfully trialled by 3,000 people in Sweden last year, Magine, which is expected to do a demo at DLD 2013, is due to launch in its home country shortly. Other European territories will follow in 2013. Customers will pay a monthly subscription. A key selling point for the app with broadcasters, according to founder Mattias Hjelmstedt, is that it isn’t an attempt to disrupt the industry. On the contrary, he says, by licensing their content, Magine is helping broadcasters by taking their channels to as many users as possible. “We tell them we will never compete with you by being a broadcaster ourselves,” he explains.
The third area where the Internet is changing TV is in how it is watched. Despite predictions of the death of the “water-cooler moment” (where office-workers would discuss the previous evening’s TV viewing), social TV and interactivity are notably on the rise due to the fracturing of the audience in the multi-channel age. Data about “simultaneous TV and tablet usage” by Nielsen revealed that 37% of American tablet owners questioned in Q4 2011 look up information related to the TV program they are watching, 27% look up product information for an ad they see on TV (while watching the ad) and 47% visit a social networking site while they’re watching TV. Other surveys mirror these numbers and advertisers have cottoned on. For example, research by U.K.-based Shazam, a music discovery service that has expanded into making television advertising interactive, with clients such as Unilever, Procter & Gamble, and Coke, found that people who used their service to “tag” an ad are three times more likely to interact with the brand as those who didn’t. All nationwide television shows in the United States have now been Shazam-enabled, according to the company. By making brand ads more engaging, Shazam gets a slice of the TV ad market, which is worth $70 billion in the U.S. and $170 billion globally. The lure for broadcasters to add Shazam to programming is that integrating Shazam promises to drive engagement and ratings, turning viewers into fans.
Slavin sees deeper significance in this real-time multi-screen connectivity, significance which goes to the heart of the power of TV as a medium. “There’s a renaissance in synchronized viewing,” he says. “The evidence for that is that if you look at trending topics on Twitter, for example, around prime time you will see that they are often whatever it is that’s on television at that time. That reveals the lie that everyone is consuming whatever they want, whenever they want it, on their own terms. When people can talk about anything they want at, say, 8pm on a Thursday, what is statistically true is that they seem to be talking about the very same TV shows.
“What you see on Twitter, Facebook and Tumblr, Blackberry Messenger and Snapchat is that what is really rewarding to people, is to watch with — and be part of — a connected audience,” says Slavin. “This idea that television used to be something that we all did at the same time, but alone, shifting into something that we all do at the same time, together, is actually kind of beautiful and important and I think that is the most interesting part of this revolution.”