How Australia’s TV networks could build a single BVOD service to take on Netflix, and why they should
Last week, PwC's Ben Shepherd posited that Australia's free-to-air television networks needed to stop faffing about with their own broadcast-video-on-demand (BVOD) services, and instead come together with one offering if they truly want to compete with international giants. Not everyone was convinced though, so here, he answers your questions on the how and why, and explains the approach that has worked so far won't fly in the future.
The response to my piece last week urging Australia’s commercial free-to-air TV networks to organise around a consolidated on-demand destination was definitely cause for some debate.
Mumbrella was kind enough to request to run the piece, and across both Mumbrella and LinkedIn it had over 55 comments.
Across these there were a bunch of questions people had around the piece, questions I wanted to address to hopefully spur further conversation.
Before I address these, I want to be clear about my on-demand video usage. I definitely feel my household falls into the high-use category. We have Netflix, Stan, Amazon Prime, Kayo, NBA League Pass, and Bloomberg, and have access to all the BVOD services (we primarily use iView for kids programming, and I catch up on Modern Family on 7Plus). I watch a lot of NBA on Instagram as well, the kids use Kids YouTube too to watch Lego videos. We have FTA TV via Telstra TV and no Foxtel.
The article focused on Netflix as a real disruptive force to Australia’s TV incumbents because Netflix as a single entity is basically bigger than all the other participants in the OTT space combined, and is the force driving wide consumption change across all kinds of households and incomes. Netflix is something you do. It is bigger than its programs. It’s a brand in its own right. It’s a magnet for talent and consumers. Netflix reaches 11.26m Australians (Roy Morgan) over the age of 14.If these people watch Netflix 30 hours a month in place of TV they used to watch, it will dissolve 4.05bn hours of consumption from TV – around 12% of that being advertisements (486.4m hours).
That is a huge loss. And that is why it’s such a large issue.
So to the main questions raised:
– Did you forget Stan?
No, I didn’t forget Stan. As mentioned above I am a Stan subscriber. Stan I don’t believe is a material issue for the free-to-air networks, nor enough of a protector for its owner Nine Entertainment Co.
Reasons for this are:
- A single territory of operations means it’s a one-country player competing in a global marketplace for rights and programming. In that respect it is in a similar predicament to the FTAs and Foxtel in that it’s more of a broadcaster of others’ content, rather than a destination or content creator.
- Currently it appears to have high reliance on both Disney and Showtime content. Both Disney and CBS have aspirations of local streaming operations – so what happens if this content is pulled?
- Stan has 2.6m users according to Roy Morgan, making it between 20-25% of the size of Netflix. I liken Stan to a competitor to Netflix like Twitter is a competitor to Facebook. Playing a similar game, but in different leagues. The next 12-24 months will be interesting for Stan. Can it maintain itself as a wholly owned unit of NEC? Will it bring in an equity partner – either a local competitor or an international one? Will this partner bring with it content? Could it merge with a regional entity and try and push its technology and licencing approach into Asia?
– Who else around the world has tried something like this?
One argument was around how credible my assertion was and whether anyone in the world had co-operated to this level. Britbox in the UK is an example of this, but an emerging one. Hulu is the other – which saw NBC, Fox and Disney work together to create a streaming platform, which began over a decade ago.
– Does Hulu really matter in the streaming market?
This was another point – is Hulu a legitimate competitor to Netflix? Yes and no. It is similar, albeit larger, in relative size in the US to Netflix that Stan is in Australia to Netflix (albeit very different products). Hulu in the US has 25m subscribers (Deadline) – which at the ad-supported base price of USD$6 would generate 1.8bn in revenue – and is generating an incremental $1.5bn in advertising sales per year (at an impressive $60 per user per annum extraction). So I would say there are some strong parallels between what Hulu has managed to do in the US and the revenue it is generating (min. $3.3bn PA, likely $4-4.5bn), and I would argue the business is meaningful.
– This approach doesn’t make sense commercially – how do you ensure value is fairly distributed?
Simply, revenue would be distributed based on the content being consumed and where attention goes. If the participants don’t see the value in sharing data and audience insight, this could be kept protected, and content could be sold by each network’s teams/platforms only. It would allow the viewer to access everything on the one platform and each network could enjoy the benefits that come with this. It would also allow a shared platform for development, marketing and maintenance, and a more realistic likelihood of creating a platform that is closer technically to Netflix than the current available services. Initial ownership allocation wouldn’t be without its challenges, but the approach of Hulu in the US could be used as an example.
– What’s the problem? BVOD is growing at 40% here in Australia. This isn’t an issue.
Yes this is true, however it’s growing off a base close to $0, and the delays from the networks locally have meant that they are likely a decade behind where they should be. We should have had the same depth of content in 2009 and the same ad sales grunt behind it. We didn’t. So let’s not get too carried away with the current growth being some sort of signal of a job well done. The greater issue for me is people have shown they do not love having to maintain multiple services for their entertainment or even utility needs. Within music people wouldn’t tolerate having to maintain four services so they could access the artists they wanted. Within social networks/professional networks/online video, we have generally seen people want an all-in platform that covers everything, and we are seeing it now with Uber/Uber Eats. The insistence on individual platforms where a user may access one program I feel is a limiter to growth and counter to the general approach of most successful internet-enabled companies. Aggregate them all and I think the growth will supercharge as they move from a place to watch a program to an entertainment platform.
– People are watching lots of BVOD, why change it?
People are definitely watching more BVOD, but whether or not this is incremental in terms of audience or engagement to linear TV is unclear. However, the BVOD numbers at present are very reliant on a handful of programs. For the week commencing 8 April 2019, 15% of total BVOD viewing minutes were spent on the 10 top individual programs/episodes (Source: OzTAM VPM). For the year prior, same period, only 7.5% of BVOD viewing time for the week was taken up with the top 10 programs (Source: OzTAM VPM). For the week commencing 1 April, Married at First Sight’s top four episodes alone accounted for almost 10% of total minutes consumed.
– This reliance on key programs draws parallels to the arena/stadium concert promotion industry – a notoriously risky and creator skewed economy
It’s common within large-scale concerts for the promoter to take all the risk financially, and receive close to none of the upside if a tour succeeds. For instance, large Pop Star X will generally receive guaranteed 80-90% of the revenue minus production and venue expenses of a national tour, based on that tour selling out the venues it plays in. Example – if Pop Star X is playing five concerts at a combined capacity of 90,000 at an ex GST ticket price of $100, the gross will be $9m. 80% of this will be $7.2m. Expenses (travel, production, venue) will be backed out of this (let’s assume these are 50%). So the guarantee for the act will be $3.6m. The promoter will only see a payday if sales exceed 80%, and generally the split of this upside will be 80-90% artist, 10-20% promoter. For some big acts, this split can be 95/5 or even higher. In short, the artist always gets paid, and the promoter risks massive losses and minor gains. The reason: artists consider the role of the promoter as more of a utility/admin partner rather than a group that can bring them new audiences. Hence the artist wants every cent in the dollar they can get as they are the ones with the audience relationship and gravitas.
For instance – you never say “I went to a great Chugg concert”, but you will say “I went and saw Interpol and they were great”. My concern is the same economics could happen in BVOD for the domestic incumbents unless they can demonstrate the value they create for producers. Otherwise they will find themselves with large guarantees for content commitments, but very small upside if it succeeds.
– How legitimate is this thinking anyway? The idea this could happen isn’t realistic.
The counter to this has been people telling me the thinking is so obvious why did it take me this long to state it? My response to both of these is – yes, in the eyes of the consumer I do think this makes sense and is overdue. I think in the eyes of the networks it’s probably too soon and collaboration isn’t really something they’ve felt is a way to do business historically. The likely reality is the approach that has worked so far won’t work in the future – the content supply chain has radically been disrupted and the viewer has gone from having to follow a programming schedule and watching only on live big-screen TV or risk missing their favourite show, to having basically every piece of professionally created TV content at their disposal wherever they want it (at home, in the bathroom, in the air) at all times.
Ben Shepherd is a director at PwC. This post first appeared on LinkedIn, and has been reposted here with permission.
Looking at the topic of BVOD there are 3 core components:
– Technology
– Audience/content
– Data
Each of those have a level of dependence on one another and when we link is back to the Australian broadcasters we have localism versus globalism.
At the heart and soul of everything however is technology, depending on who you talk to the capability of human resources in that space in our market is limited beyond acronyms after a brew or two.
Most of the tech talent that does exist sits within tech businesses leaving broadcasters and publishers deprived of talent. So first things first let’s level the playing field.
1. Tech consortium:
Get this in place, a group of highly capable big picture people with the ability to execute. Let them align the tech capabilities especially for monetisation of of content across those in the BVOD space. Let that group distill the BS and make sure the agencies and buyers know what they are buying. Most of the confusion comes through the communication of what is and is not available from Broadcasters. It’s an easy way to default spend to the bigger players.
2. Long term audience growth
Once tech is taken care of and the playing field levelled then focus on building content offerings and your audiences. Think longer term and move away from flashed in the pan content which brands don’t feel so comfortable with: MAFs, MKR, Love Island etc
3. Make data the differentiator
Complimenting the audience the ability for advertisers to access your data and audience should be priority number one. Highest quality audience wins the day.
Broadcasters need to embrace the frenemy way of doing business. If they can gain economies of scale through technological capability alignment then they are forced back to what they do best; audiences and content
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While I’m really stoked to see my Aussie counterpart doing big things Down Under, I’m afraid Mumbrella has tagged the wrong person (again). You all tagged Ben Shepherd out of the Greater ATL office of PwC US 🙂
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The most mind boggling thing about this piece is the amount of viewing in your household. I just can’t get my head around it! Is this normal?
“We have Netflix, Stan, Amazon Prime, Kayo, NBA League Pass, and Bloomberg, and have access to all the BVOD services (we primarily use iView for kids programming, and I catch up on Modern Family on 7Plus). I watch a lot of NBA on Instagram as well, the kids use Kids YouTube too to watch Lego videos. We have FTA TV via Telstra TV”
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Based on studies it would appear average viewing
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I get the thinking, but let’s be clear on the facts…
Q. What’s the problem? BVOD is growing at 40% here in Australia. This isn’t an issue.
A. Yes this is true, however it’s growing off a base close to $0
Not exactly true… BVOD is a $130m market growing at 40-50% pa. It’s the fastest growing media channel in the country by a clear distance.
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Source please.
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ThinkTV Audited contributions
https://tvtonight.com.au/2019/02/revenue-down-but-bvod-is-booming-for-networks.html
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You’re roughly 5 years late there Ben.
The original vision for Stan was as a joint venture between the commercial FTA broadcasters.
Sadly they couldn’t get over their dislike for each other to make it happen.
Sometimes facts and commercial reality aren’t enough to open the eyes of ego driven media executives (not picking on anyone specifically).
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Isn’t this all ignoring the critical fact that people are choosing to watch content in places where there are no ads? It’s like selling TV ads based on the evidence that they are the most effective: it’s irrelevant if people don’t see them…
The only way the domestic TV industry will survive in the long term is if they invest in creating content that exports to the rest of the English speaking world, otherwise the maths just doesn’t add up.
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Horse… bolted.
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Ben Shepherd – An accountant who truly is The King Of Wishful Thinking!
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I’d like to see BVOD’s first introduce the same features that have been commonplace in other markets (and on Netflix) for years such as:
1) offline downloads (patchy mobile coverage out bush + most flights don’t have in flight wifi yet and all international flights don’t). They can still have ads, look to My5 in the UK as an example of a BVOD that does this well. When you download a title, it downloads a package of ads as well to watch while offline. At the moment people just resort to downloading from piracy sites, or using apps that extract the video out for them (sans ads) of which there are several.
2) audio description for the vision impaired. Several shows we export already have this on their overseas counterparts, eg Neighbours here has no audio description, but every episode broadcast on Channel 5 and My5 online has audio description on it. You can say just use a VPN and access it over there, but it’s easier (for several reasons, including chromecast fans) to just watch locally.
3) the option to pay for no ads. 10 have just introduced this (at a price that is way too expensive IMO – at $10 a month they are dreaming, reduce it to $5 or $6 then we are talking), and both the ABC and 7 have talked about it. I would like to see them all introduce it because at the moment people just use ad blockers.
In many ways the FTA networks restrict themselves from gaining extra revenue. At least try some of these things. Point 2 doesn’t give extra revenue, it’s just an accessibility feature.
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Good article.
I heard Hulu invited them all to a meeting 8 – 10 years ago. They were all like children and could not work together. Too much bad blood. Bit of a shame.
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