Speech made at the Apppli Connected TV event, 10th May 2012
Connectivity is radically changing the way in which we as consumers access content and services via the TV. Much has been written about the new consumer behaviours as viewing shifts on demand and cross-platform, broadening access to traditional television content and in some cases allowing new content to reach the TV screen. Connected TV is fundamentally changing the model across the entire value chain.
Some definitional housekeeping before I start; I should explain the parameters of what I mean by “Connected TV”. At Redshift, we define connected TV as any device linked to the TV screen that can offer internet-delivered content that enhances or in some cases substitutes broadcast TV. These devices include smart TV sets and blu-ray players, connected set-top-boxes, games consoles, standalone VOD devices such as Boxee and Roku, and second screen devices (smartphones, tablets and PCs/laptops) used in conjunction with the television.
It seems somewhat alien to talk about second screens and games consoles as offering TV experiences, but such has been the pace of technology innovation over the past 10 years. So far, TV innovation has focused on delivering primarily functional benefits for the consumer. The PVR, catch up VOD and now cloud storage are enabling viewers to access the same traditional long form broadcast content with greater ease and flexibility, both in terms of time of day and location. This de-linearisation of content has proven incredibly successful: catch up VOD services are the most popular apps on connected TVs today (a recent survey by Rovi and Decipher suggested that over half of all smart TV owners bought the device for catch up VOD) and in Virgin Media households, VOD services are the third most watched “channel” on TV after BBC One and ITV1.
Catch up will always remain a major driver of adoption of connected TV services. But for content providers, the opportunities of connectivity can go far beyond pure functional innovations.
Firstly, the range and depth of content supplied to the TV screen will multiply in a connected world, not just for broadcasters but across the whole media industry. The pence per gigabyte charging model of broadband distribution means that the cost of accessing the TV screen is significantly lower than the traditional broadcast model. A recent study presented at the Connected TV Summit last week suggested that for DTH providers with less than 1 million subscribers, it is now cheaper to distribute via broadband than broadcast. And as CDN prices continue to commoditise, broadband delivery will increasingly outweigh the costs of broadcast.
The cost of production is also far lower in a broadband environment compared to broadcast. It is now possible to create a highly compelling user experience using a limited number of hours of video production, far less than that required for a linear channel schedule. For radio stations, publishers and other media practitioners, the TV screen is now within their grasp, both technically and economically.
For example, the New York Times (http://www.nytimes.com/gtv/) has launched an app on Google TV, which presents itself as a series of videos comprising the headline stories of the day together with some additional editorial content. The videos range from between three and fifteen minutes each and in total the app can’t have more than a few hours of content. But it presents as if it were a TV news channel, competing with the likes of Sky News or CNN.
Secondly, connected TV allows the content itself to evolve into a more complex product, driving deeper engagement from the viewer and the potential for interactivity. In effect, connectivity allows the television to replicate what has happened online where the broadband return path has combined traditional video and audio content with user navigation, gamification, ecommerce, communication and social media. Connected TV facilitates a shift from “programmes to products”, enabling content providers to develop highly compelling “experiences” that immerse the viewer.
These changes have the potential to significantly benefit advertising and the brands, retailers and other services it promotes. TV has long been the centrepiece for high budget above-the-line advertising campaigns, once described to me as the only medium that can evoke a true emotional response from the audience. Yet for the vast majority of businesses wishing to advertise their wares, linear broadcast TV remains expensive and restricts the brand to less than 30 seconds of exposure at a time.
Combining the opportunities of lower cost of access and the potential for interactivity, connected TV allows advertisers to build out their own app environments, on the TV or on a second screen, that can deliver additional branded content and evoke a response from the consumer.
I’m not suggesting that connected TV can substitute broadcast advertising – far from it. Broadcasters have the unique ability to deliver 10 million households on a Saturday night and there is no better way to achieve that scale today. Even as the market evolves and presents greater opportunity for audience fragmentation, I fully expect broadcasters to focus their programming investment towards “live” shows like XFactor and American Idol, driving the mass simultaneous viewing numbers that makes TV unique. As Peter Bale, Head of CNN Digital said last week at the Connected TV Summit, “even with the largest connected portal you end up with a tiny audience compared to broadcast TV”. The structure of media buying also means that advertisers only pay for the specific audience they are targeting, so for a show that reaches 10 million households, the brand may only pay for the 3 million households in the “18-34 male” demographic, effectively getting the remaining 7 million households for free. So that’s 7 million households who may not be the immediate target market today but will still see the aspirational message and brand recognition.
Where connected TV adds value is in its role as supportive inventory to drive home marketing messages following brand discovery on broadcast TV and in particular to trigger an immediate consumer response. Imagine watching a TV ad for Adidas and clicking through to Messi’s top 10 goals for Argentina and a chance to win the boots he wore, or a Jaguar ad clicking through to find your nearest dealer and book a test drive. It even works within product placement, watching a Jamie Oliver recipe show and pressing Red to add the ingredients to your shopping basket, or watching American Idol and clicking through to find the high street knock off of that Jennifer Lopez dress. And all the while, the consumer could opt-in to allow better analytics and targeting.
Net-a-Porter (http://www.net-a-porter.com/nap/content/generic/pages/naplabs/gtv/) the high end fashion retailer has achieved this to good effect on Google TV, combining a video catalogue, interviews with designers and other editorial content to develop a rounded fashion ecommerce experience. It presents as a TV channel for fashion enthusiasts, but the viewer can click through from any video to add the clothing to their shopping basket for purchase online.
EBay in the US has gone one step further by linking the retail experience to live broadcast TV through its second screen app, “Watch with eBay” (http://www.youtube.com/watch?v=MntsehSdNfY). The app registers the programme you are watching and searches the eBay listings to pull up related items to purchase, such as merchandise from the basketball game you’re watching or similar dresses to those worn by celebrities attending that red carpet event.
The strategic opportunities of connected TV are compelling:
- Provides access to a potentially global audience. Where traditional TV platforms tend to be geographically focused to an individual country (e.g. BSkyB, Virgin Media, YouView), many of the new connected TV platforms are global players (e.g. Samsung, Sony, Google, Apple). They offer content partners, advertisers and brands the potential to achieve global coverage while minimising the level of customisation to individual markets;
- Enables brands, retailers and other service providers to enter into direct relationships with consumers, driving deeper engagement, analytics andnew transaction and freemium business models driving towards a retail or “t-commerce” experience;
- Offers a significant advantage by driving engagement off the marketing power of linear broadcasting, where the traditional advertising message is strongest and the majority of viewing takes place.
So why isn’t the market tearing its hair out trying to make this work? Well there’s plenty of companies who are, but disrupting such an established and complex industry is not without its challenges:
No clear access point
Take up of connected TV devices remains limited today, and while the number of smart TVs is expected to double in 2012 (approaching 50% of all TV sales in the UK) the opportunities for advertisers become less appealing when only a small proportion of the audience can use them. Second screens present the most immediate opportunity with 46% UK smartphone penetration and over 3.6 million tablets according to Ofcom, but the mechanism for linking between broadcast TV and the second screen is still being developed, and we believe this to be a critical step in leveraging the mass audiences of broadcast TV.
Lack of universal standards
There is no common standard for content provision and formatting when building to different connected TV devices. Today, every time a content provider wishes to launch a service, they must build to each platform individually at significant expense. The market desperately needs a common set of formats to simplify the development process and make it easy for new content services to maximise reach across all connected devices.
Lack of a clear business model today
For those content providers eager to turn their programmes and spot ads in to immediate retail opportunities, the lack of defined billing platforms presents a significant barrier to the business model. Billing platforms are emerging through independent players like PayWizard, established payment businesses like Visa and mobile operators like O2 and Vodafone offering mobile wallet and direct-to-bill services. But the market remains in development with limited account registrations today and no common solution provided by the platform, requiring each content provider to adopt a piecemeal approach to payment models.
For the advertising market, there is a further challenge in that it remains unclear whether the disruption of connected TV will add value for the big ad sales houses like ITV, and this could ultimately hold the market back. The conversations I’ve had with media agencies and broadcasters suggest they remain unconvinced that connected TV will bring in significant new advertising money. It is more likely that connectivity and the frills that come with it will only help to maintain CPTs at the rate they are today. Even the idea of greater targeting, which offers significant value benefits for the advertiser, can be seen as a problem for broadcasters because, as has been suggested to me, it means they have to sell their audience many times over to generate the same return. None of this can prevent brands from developing their own apps on connected TV, but until the ad sales houses and media agencies recognise the value opportunities for themselves, it is difficult to see broadcasters fully endorsing the seamless transition between spot advertising and branded app environments.
So in conclusion, the outlook for the advertising market is mixed. Connected TV offers significant new opportunities to allow a broader range of brands to reach the TV screen and drive deeper engagement with audiences. But the market is still at an early stage of development and there are a number of technical and business model challenges yet to overcome before we see a wholesale shift in the traditional TV advertising model.
But that should not hold anyone back; the connected TV market is at a stage of “when” rather than “if” it will take off. So for any brand that has aspirations to be present on the TV screen, the market today is ripe for experimentation. By getting an app live on connected TV, brands can learn a huge amount about the development process, branded entertainment, opportunities in t-commerce and consumer reactions to the service with very little capital outlay, putting the brand in a great position for when the market does eventually takes off.