Online Video’s Shifting Sands and Economics

By Matt Smith, vice president and principal media evangelist at Brightcovebrightcove

The business of broadcast and video publishing continues to undergo massive change, bearing little resemblance to their business only five short years ago. Industry heavyweights like ESPN and HBO face challenges: ESPN with licensing costs and subscriber losses eating into the overall bottom line, HBO with the lack of growth of the HBO Now service. Then there’s AT&T reaping rewards from their DIRECTV investment and the launch of the DIRECTV Now service. Make no mistake, the dollars are ebbing for some and flowing for others. Winners and losers will emerge.

The medium we’ve known as television is morphing to meet the changing demands that viewers are placing on the channels, brands and publishers who provide this content. In this age of tablets, smartphones and set top devices that are forcing massive shifts in viewing, traditional broadcasters and new, ‘digital first’ networks (think Twitch, Fullscreen) are under enormous pressure to adapt their offerings and the infrastructure through which they provide them in order to reach viewers in an increasingly complex universe of screens. While the challenge is daunting, the economics must shift in order to support the shifting sands of video. Specifically, the cost of building, branding and delivering these online video products must change dramatically to effectively support the shift in viewing.

Who’s who and what’s what

When one looks at what is available from the plethora of companies offering online and traditional television service, there is no shortage of choice. Established brands like Verizon, Spectrum (formerly Time Warner) and Frontier all offer services that generally include the ability to watch those same channels (or some subset) via connected devices. These abilities are included in addition to the in-home set top box viewing and other services in order to meet the needs of those customers who have traditionally favored this model of video consumption.

More recently, we’ve seen a new trend where services are standing up with online video audiences in mind first. That is, they are looking at viewers who aren’t necessarily tethered to a fixed line or large channel lineup that many television services have offered. Some call these subscribers ‘cord nevers’ or ‘cord shavers’. I think it is safe to call them a new generation of video consumers. Dispense with comparing them to previous groups of viewers or giving them some cute nickname – simply acknowledge that there are massive audience shifts underway and those who do or seek to provide video service are sprinting to shape those offerings and meet said needs.  

Newer, online video-first services like Sling TV, Verizon’s Go90, and the aforementioned DIRECTV Now services have launched recently with mixed reviews – and success. Verizon’s Go90 has charted an app-driven strategy, fueled by a large catalogue of mobile-first content and clips that you can only see on their service. Early subscription numbers haven’t been overwhelming, but don’t expect a pass/fail grade placed on this effort yet, especially with the power of the parent company. Make no mistake, these services are just beginning to find their way and there will be much more experimentation as these ‘networks’ find more content that viewers connect with. We are at the dawn (ok, maybe early morning) of a new universe of content where ‘traditional’ television in 30- or 60-minute servings isn’t the only way of watching. As these new digital offerings and networks show, their viewers don’t play by the same rules as audiences who came before them.

Therein lies a larger licensing problem that we’ll explore in a minute.  

No stranger to providing millions of viewers with video, AT&T made a bet in 2016, announcing plans to launch DIRECTV in a variety of streaming methods to viewers. Despite some stumbles out of the gate, the service now counts 250 million subscribers and climbing. That’s significant. And Sony’s PlayStation VUE isn’t too far behind, representing another pathway for viewers to connect with the programming they seek. Now, online video behemoth YouTube enters the fray with their ‘I can play too’ offering – YouTube TV. Like those who have come before it, even the formidable YouTube comes to the soiree lacking a few party favors. Most of these services don’t have the same programming as the traditional players. In the case of YouTube TV, it lacks Turner content (CNN, TNT, TBS, etc). DirecTV Now and Sling TV are without CBS programming. So while we’ve come a long way in pairing video services and offerings with viewers willing to pay for them in new and disruptive ways, these offerings still have a lot to improve on.

Chasing audience – but at what cost?

In this analysis, there clearly are lines of demarcation between viewers, the content they want, and the amount of money they are willing to pay for it. But what about the cost of acquiring this content, establishing the infrastructure through which it is provided and the overlaps between these workflows and established broadcast pipelines? Simply put – the cost economics aren’t working for many who provide television lineups and online video.

For a long time, television workflows have been very specialized and have featured equipment that was specialized and expensive. Not that long ago, the cost of launching a channel (without factoring in administrative and marketing costs) was in the multi-millions. Today it can be done for orders of magnitude less. Moreover, one doesn’t need a TV transmitter or slot on a channel tier to do so. Spin up your stream, build your app and find your audience.

On that note, AT&T has gone on record recently and said that they expect streaming to power all their video offerings by 2020. That’s a mic drop statement. It’s also a significant indicator that even the largest video providers are changing their stripes.

Take ESPN, for example. They are the largest video brand in the world. Yet the cost economics they’ve aligned themselves with – expensive broadcast sports rights numbering billions of dollars, high priced on-camera talent and large, traditional video workflows – are all putting pressure on the costs of running their business. On the plus side, parent company Disney has made an investment and is being rumored to broaden that stake in streaming pioneer BAM Tech this year. Further, they say that they expect BAM Tech to power a new ESPN-branded online video service that will seek new audiences. These are moves in the right direction for a brand that I’ve maintained has to address the fact that today’s high school (and maybe college) athlete will rarely wait to watch an episode of SportsCenter for their video highlights. In both cases, these moves are indicators that even the largest brands appear to be observing trends and are responding as they see fit.    

Reducing cost and ramping up revenue

One encouraging trend I’ve seen in the past several months involves the simplification of video workflows. With destinations for content multiplying – Facebook, Twitter, YouTube – not to mention syndication deals that many brands and networks have, it means that one clip may have many variations. Consider, too, that the data descriptors for each piece of content likely vary from one destination to the next. To simplify this, video processing workflows must flatten all these paths out and build the inherent business logic into their DNA. They must also leverage the power and flexibility of the cloud, reducing the cost of specialized hardware that is costly to maintain and operate. As AT&T’s vision indicates, this directional change must eventually mean one pipeline for video suits all needs and requirements.

Lastly, but first in many minds on the video front, is monetization. Even with the most efficient workflows and reduction in cost, most video services must rely on revenue streams in order to be successful. For some I’ve mentioned in this analysis, these streams are tied to subscription revenue. Through no fault of its own, subscriptions aren’t too complicated or sexy.  

On the other hand, some revenue lies in ad replacement, or dynamic ad insertion (DAI) – which is much more complex and, depending on who you ask, fairly sexy. Because of the one-to-one nature of online video delivery, where one user watches one stream, the content and the advertisements within can be personalized. This means that advertisers can be more effective in their ad spend by reaching can reach very targeted, specific viewers. Therefore, when re-purposing broadcast channels for streaming audiences, it doesn’t always make the most economic sense to ‘pass through’ the broadcast ads to the online video audience. Instead, DAI enables replacement of these ads. In recent years, this has been done on the player client (client-side ad insertion or CSAI). Lately though, the rise of ad blockers has made this practice volatile and less effective, because the ad blockers can ‘see’ the ad request and stop the video experience altogether. With server side ad insertion (SSAI), the aforementioned targeting can be leveraged and ad blockers circumvented. This is opening up brand new revenue streams and is making more and more online video offerings profit centers where not long ago they were cost centers.

One thing is for certain when it comes to the complex world of delivering video: nothing stands still. While it may on the surface feel like these trends could wreak havoc on your business, they are the lifeblood of the online video space – a constantly evolving and adaptive technology. For programmers, this is a very good thing. The future of television is changing before our eyes, and the adaptive (not in a technical sense) nature of online video is such that experimentation and true success of new services is a reality today. The audience is waiting for more like services to help shepherd these consumers toward content in the months and years ahead.      

The Cynsiders column is a platform for industry leaders to reach out to colleagues, followers, and the public at large. In their own words and in targeted Q&As, columnists address breaking news, issues of the day, and the larger changes going on in the ever-evolving world of television, video and digital. Cynsiders columns live on Cynopsis’ main page and are promoted across all daily newsletters. We welcome readers’ comments, queries, and column ideas at Lynn@Cynopsis.com.

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