What can entrepreneurs learn from Aereo?

In June 2014, the US Supreme Court ruled that cloud-hosted video streaming platform Aereo had breached copyright in the way it ‘acquired’ content, and the service was forced to shut down three days later. While the tech-savvy consumer might have felt aggrieved to see the dissolution of a highly innovative and forward thinking content service, the ruling came at the defence of the multi-billion-dollar television industry that is determined to avoid the catastrophe that engulfed the music industry 10 years ago.

So what does this mean for entrepreneurs and how can they learn from it?

In my role, I meet a lot of entrepreneurs who try and convince me that television is “broken” and that broadcasters no longer deliver content in a way that aligns with modern consumer behaviours. For the most part I sympathise with their frustrations – my own setup at home involves a Mac Mini plugged into a TV with a Sky Go, Netflix and Amazon Prime subscription (I challenge anyone to show me an alternative that can offer superior consumer choice!). But even comparing side-by-side a traditional grid EPG with Netflix’s personalised interface says enough about how TV is lagging behind the new online players.

Yet despite a common appreciation of the innovations TV is still to embrace, I rarely meet an entrepreneur who truly recognises the commercial reasoning behind these antiquated practices.

Television is still the single most powerful advertising medium in the UK. It has the ability to command vast audiences and accounts for the majority of our weekly media consumption. According to Ofcom’s latest CMR, the average UK consumer spends twice as long watching TV each day as they do on the internet and mobile phone combined. In 2013, ITV’s ARPU was £0.11 per day. Compare that to the £0.03 daily ARPU generated by Facebook or the £0.06 daily ARPU generated by King’s Candy Crush game. This is a finely balanced and lucrative economy that is naturally sceptical of anyone proposing a radical change to the status quo.

The difficulty for start-ups in the TV industry is the ability for incumbent players to exert control in both content and distribution.

Content creation is an inherently risky and hit-driven business, which is exacerbated in television because the cost of production is so high. As a result, broadcasters wield significant power as the primary source of income and distribution for producers. Only recently have Netflix and Amazon started to commission, but their level of spend falls short of the expenditure of the BBC and other incumbent broadcasters. This is a challenging environment for a start-up, who without significant capital will always play second fiddle in securing the content relationships they need to build a scale business.

Similarly in distribution, the landscape is controlled by a small number of scale players whose exclusive broadcast relationships and network bundles make it difficult for new entrants to win share. There are too many barriers preventing the incumbent set top box from being unhooked from the TV. And online where barriers are non-existent, the marketplace is too broad to prevent the consumer from clicking away to a competing content service.

There are three notable launches that provide lessons for entrepreneurs:

  1. Google TV, who transformed the EPG and mode of interaction between the viewer and the platform, fundamentally lost out to incumbent players because it lacked the content to propel the service;
  2. Zeebox (now Beamly) brought the second screen opportunity to life promising new ways of servicing and monetising content, but struggled to convince broadcasters they weren’t out to steal their advertising dollars;
  3. Aereo took the radical approach of trying to force its way into the market via loopholes in copyright law. But ultimately it was in no one’s interest for them to succeed – existing platforms did not want to lose market share, and content owners didn’t want to lose out on the fees they should have received for distributing their content.

Contrast these approaches with that of the only successful UK platform launch in recent history – YouView – who spent years partnering with the broadcast community to bring them onside, and driving an aggressive bundling strategy with telcos to drive adoption and force the platform into homes.

I don’t have an answer for entrepreneurs looking to enter the TV market – there are no silver bullets. But where most start-ups are trying to disrupt the status quo, I would argue a better strategy may be to work with the industry to find ways of doing what they do better. For example, reducing the risk in content creation, helping broadcasters charge a premium on their CPMs, enabling platforms to reach new audiences, finding new ways to monetise archive content… the list goes on. You can disrupt the industry from the outside – Netflix has proven that – but to achieve it you need significant capital behind you. In the meantime, it’s easier to find an ally who can help navigate a path to success.

 

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One thought on “What can entrepreneurs learn from Aereo?

  1. Pingback: The Taylor Swift-Spotify saga (2/2): value of distribution | Nick Verkroost

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