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?
Netflix is the biggest video on demand service in the world. It has more paying subscribers than the largest US pay TV providers; 28 million globally of which 24 million are in the US. It has changed the way studios think about content distribution, and how consumers access content on connected devices.
But all is not rosy under the hood at Netflix… Their role in the value chain is to realise a margin between content supply/delivery and consumer purchase. But in doing so, Netflix is hostage to the commitment of their suppliers and there are now big questions over the long term cost dynamics that could undermine their retail model.
We’ve had two big announcements in two weeks – first Google announced it would be bringing Google Play movies, TV shows and music to Google TV, then on Monday Microsoft announced that it is launching a new music subscription service on Xbox, dubbed Xbox Music.
It’s a clear signal that the big technology platforms (Apple included) are putting content at the centre of their TV strategies. And rightly so; consumers turn on a television to be entertained. But what does it mean for the likes of Spotify, Netflix and Amazon for whom these platforms present a critical route to the consumer?
Microsoft has just announced the launch of Xbox Music, but how important is content revenue to the Xbox business?
Total Xbox revenue is estimated at £8.3bn in 2011, which includes console sales, Xbox Kinect sales, membership to Xbox LIVE and revenue generated by Microsoft through content sales. Based on a statement in the annual report that “platform revenue grew $2.7bn or 48%”.
But how does this break down between the different components, and how much can be attributed to content?
I seem to repeat the same discussion with every media executive I meet – I argue that connected TV is going to fundamentally change the way we watch TV, but the response, usually from those with a few more grey hairs than me, is to argue that consumers want a “lean-back” experience and that’s exactly what they’ve got with linear broadcast TV. I don’t disagree with this argument – I think linear TV is a great product and will prevail long into the future – but to couch it in an argument of “linear vs. on demand” is too narrow in today’s market.
Here’s my rebuttal: I agree that most people don’t want to be leaning forward to select the next programme as the last one finishes, like selecting individual tracks from a music library. My argument is that linear itself is going to change, and that is what’s going to drive our shift in viewing behaviour. Let me explain…
What can mobile offer the connected TV arena?
The platform ecosystem for consumer entertainment is shifting, and mobile is becoming a core part of those experiences. Television and mobile have long been considered as separate independent industries, but this is all about to change. The television is now the final frontier for the mobile industry. The operating system players – Apple, Google and Microsoft in particular – are investing significant R&D dollars in developing solutions that can carry their platforms across to the main screen in the living room. They are incredibly well placed to do it, leveraging their significant global scale and rapid innovation cycles to bring new functionality to the TV screen. And they will use their position of strength in mobile as the “way in”, either by licencing technologies such as Airplay and Smart Glass to TV manufacturers, or more likely by convincing consumers to buy an inexpensive box (gateway) to plug into your TV HDMI.