TV has been a staple in the lives of many, for generations, in which it has been affordable to all. Yet, while consumption within the medium remains relatively stable, its long standing evolutionary development may be about to reach a point of revolution. Changes in consumer behaviour for on-demand access to shows, as well as an online and mobile distribution system that facilitates such demand, may see old business models and their dedicated hardware become relics of the past.
A new report from The Boston Consulting Group (BCG), titled ‘The Digital Revolution is Disrupting the TV Industry’, considers the effect of the changes to the market, as well as its continued growth prospects in the coming years.
The television space has undergone gradual evolution following the introduction of the black and white TV in the early 1950s. In the mid 60s, the TV market saw the introduction of colour, satellite distributed content, as well as the pay-TV business model. At the start of the 80s, the first flat screens came on the market and the number of available channels increased to 10. The mid-90s saw the introduction of HDTV, and the first deployment of Internet Protocol television (IPTV). By 2010, smartphones and tablets became a means of accessing TV content, while the number of available channels had jumped to more than 135.
Changes are afoot, however, with high speed broadband networks enabling consumers in much of Europe and the US access to streaming content. The shift in distribution technologies, as well as changing attitudes among consumers on fixed watching times, result to a change in the relationship with key players within the traditionally stable ecosystem. The consultants highlight, however, that changes currently affecting the market – disrupted by how Millennials are consuming entertainment – are more likely to create revolutionary, rather than evolutionary, change to the marketplace – with traditional players at risk of losing market share.
So far, the addition of streaming channels has not drastically affected the consumption of more traditional television use. Between 2013 and 2014, there was a 1% decrease in time spent watching television. The rapid adoption of streaming consumption, up 50% between 2013 and 2014, and its continued expansion in the coming decade, may mean that the favoured distribution channels are changing - resulting in video-only distribution channels, such as satellite, becoming expensive legacy projects. One area that is rapidly changing, is a move away from interest in linear consumption towards on demand viewing; something which is better facilitated by streaming services.
According to BCG’s research, the number of TV subscriptions is slowing in most markets and is projected to decline sharply in the US. In 2014, an additional 300,000 subscriptions were added. By 2018, up to 500,000 subscriptions may be lost per year. In Western Europe, the number of additional subscriptions is projected to reach zero by 2018, while in Eastern Europe interest in the format is also continuing to decline.
Growing online revenues
The research also considers changes in the revenues of the online and mobile business models. The three existing business models are supported video on demand (EST), which provides viewers with free access to a large library of video content supported by advertising revenues; transaction-based video on demand (TVOD), which allows consumers to own or rent content for a one-off fee; and subscription-based video on demand (SVOD), which allows consumers to access a large library of content for a monthly fee. EST is projected to grow from $1.7 billion in 2012 to $4.8 billion by 2018, while TVOD will remain relatively flat at a continued near 10% of the total online and mobile revenues of $21.7 billion. SVOD will grow strongly, increasing its market share from 62% in 2012 to 68% by 2018 – with revenues of $14.8 billion.
The channels through which streaming video is consumed are also changing, with mobile increasing its market share from almost nothing in 2012 to around 40% by 2018. At the same time the increased attention of consumers for video will see advertisers seek to leverage the medium – with a total of 15.2% of the global advertising spend directed at the channel, compared to 3.5% in 2012.
Is the Digital Revolution cutting out TV entirely?
In a sense, online video has empowered consumers to watch what they want, when they want. TV's long legacy of linear programming has come under great threat for a while already, but TV is fighting back. Their answer to consumer's changing viewing habits, disrupted by the online market, is content creation.
Consumer's demand for nonlinear, streaming video has caused a run for hit shows that are able to capture mass viewership. Traditional TV networks recognise the need for unique content and are fighting back by going online.
TV networks have begun to invest in online productions, allowing viewers to access a wealth of excellent programming when and where they want. Lions Gate Entertainment, for example, joined forces with Netflix, Hulu, Youtube to create original series. Many traditional studios have or are launching subscription-based online-streaming services, including Lions Gate jointly with Tribeca Enterprises, Disney by way of their acquisition of Maker Studios (an online multichannel network), CBS with their All Access service, and HBO and Showtime with their own, stand-alone online streaming services.
Not only traditional studios, but also tech companies are in for the run for online viewership, with Amazon, Apple and Google all launching online-streaming services as well as commissioning original content.
The abundance of high-quality online content has attracted consumers and encouraged the shift from linear viewing to on-demand, time-shifted viewing. In response to the growth of online and mobile services and consumer's preferences for nonlinear and streaming video, traditional TV networks and suppliers are developing new offerings to compete. Content creators, networks and distributors are collaborating to deliver their traditional, facilities-based services over the internet by offering 'TV everywhere' through online and mobile services. While online-content networks and aggregators have assumed an important role in the value chain, many traditional content providers are making the necessary investments to stay in the game.
Although nonlinear, high quality content is filling up the online space; in the US and the UK, roughly 40% of serialised TV-show content is viewed in nonlinear formats, not all content follows the shift toward nonlinear, online viewing. Traditional TV remains the primary viewing space for news, live sports events, and live blockbuster events – like the Grammy or Academy Awards ceremonies.
Whether online will catch-up with news and live broadcast formats is to be seen, but traditional companies that manage to stay relevant in both market spaces will be able to build and add value if they successfully restructure their business models in order to keep fitting viewer's preferences in both spaces.