$127m or $1b? The billion dollar BVOD ambition question

Ben Shepherd argues that BVOD is currently undersold, with networks leaving $473m on the table in unrealised revenue. $1bn per annum is achievable in the next two years, he says, and that needs to be the goal.

The TV industry released its revenue numbers this week for the 2019 financial year.

The figure that grabbed my attention was the broadcast video on demand revenue figure for the same period.

“The one bright spot for the TV market was in digital viewing, with broadcast video on demand growing by 32.24% across the year, albeit off a relatively low base, to revenues of $127m.”

For total TV revenue, BVOD represents 3% currently.

It feels low and, to be honest, it is low.

For perspective, the current BVOD revenue is basically the same as the entire digital market in 2001.

From 2001 to 2011 the digital industry grew at anywhere between 30-50% annually. We saw $132m in 2002 become close to $3b in 2011.

There are two ways you can look at the current BVOD revenue.

One is that it’s immaterial and a category that is overstated in the media in relation to its contribution to revenue and importance to advertisers. It’s $127m in a video market reportedly worth $1.3bn, according to the IAB. Less than 10%.

The other is that it is significantly undersold and has significant revenue upside. What do I mean by this? Basically, a lot of inventory remains unsold and/or is being sold at a lower yield than competitors.

My view, surprisingly to some, is the latter. BVOD has big upside for networks and their shareholders but it’s currently largely unrealised financially.

My math based on average BVOD consumption in 2019 across all people is that the BVOD commercial market has a potential worth of $600m as it stands right now.

This is based on a few factors:

  • assumption that non-commercial BVOD (ABC) makes up 20% of total consumption
  • 10 mins of commercial airtime per hour
  • 15s CPM [cost per thousand] of $25 net of all fees and intermediaries
  •  sell through of 80%
  • audience consumption in calendar year 2019’s first half remains stable throughout the second half

The networks have done the work around creating audience supply, they’ve done the work around ensuring content is available, now they have to do the work around monetising it. $127m into a potential worth of $600m means, in my estimate, they are leaving $473m on the table in unrealised revenue.

Rectifying this is key – to show not just relative growth in category, but real volume growth in terms of revenue.

Realising this also theoretically allows money to be invested into more content, user experience and better targeting and data.

And by monetising better BVOD could, if recent consumption increases continue, be a $1b industry by 2022-23.

This doesn’t mean BVOD is or isn’t under indexed for marketers. Marketers are going to continue asking the same questions around the overall incremental gain of the format in relation to linear, as well as whether the same audiences can be reached either more efficiently and/or effectively through platforms with more comprehensive user data. The potential revenue figure is created around inventory available.

One provocation is that the networks maybe need to look to Netflix for inspiration. In 2011, Netflix started to focus on moving it’s customers away from DVD to streaming.

“The future is brightest by focusing on streaming,” said Reed Hastings.

Netflix understood that whilst it’s larger business was DVD based, the future was streaming and it had to eat into the DVD business to give customers the better product. It couldn’t pretend that the streaming opp was incremental to DVD – it wasn’t. Streaming would replace DVD and who better to disrupt the company than Netflix itself

Maybe TV needs to eat into linear more assertively? Maybe BVOD is being viewed as a secondary option with linear revenues still the focus of these businesses. The 3% contribution of BVOD would indicate this may just be the case. And maybe BVOD isn’t an “and” it’s an “either/or”?

So how do you interpret this?

For me, if I’m an investor or shareholder it’s a positive TV story. A potential growth story for on demand but maybe at the expense of linear. But the industry needs to aim higher. $127m per annum is not going to cut it. $1bn per annum is achievable in the next two years and needs to be the goal.

This may require a change in how it’s sold. It may require partnerships, more collaboration or even a different sales model. The media businesses that have seen transformational growth over the past two decades have sold their product unlike anyone who came before them – Google, Facebook, Amazon, Netflix.

It’s an exciting opportunity and an audacious goal that needs to be the driving ambition and force for every TV network in Australia.

Disrupt yourself – it may be the only way to get a higher chunk than 10% of the video revenues in Australia across digital.

Ben Shepherd is the chief media officer at CHE Proximity


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