UK TV industry stand to lose £1 billion a year to 'super-aggregators'

03 October 2017 Consultancy.uk

Consumers confused by the multiplicity of video-viewing platforms available present a major opportunity to market disruptors looking to become “super-aggregators”, according to new research. With 40% of under 35s alone stating there are too many video services, the UK TV industry could meanwhile lost as much as £1 billion a year, if companies like Amazon or YouTube cement their place as middle-men for televisual content.

Television looks likely to quickly become a major victim of digital disruption, according to a new report from OC&C Strategy Consultants. The TV landscape had previously been described as transforming into a ‘video’ landscape by an A.T. Kearney study, with that paper suggesting while the creation of content was still important, the hardware and software on which content gets delivered is also set to become a major battleground in the future. Major disrupters in the market, such as Alphabet owned Youtube, Netflix and Amazon, each offer different ways of accessing content, largely in an as needed/on demand way.

Now, researchers from OC&C suggest that as a result of this power-struggle, UK broadcasters could stand to suffer the same fate as the music, news, insurance and property industries, to name but a few. While powerful digital newcomers – including Apple, Netflix, YouTube, Amazon and others – have each worked to create their own original content in order to muscle into traditional television’s market share, their potential as middlemen is the area where they could take the most significant share of revenues.

With the BBC iPlayer, Amazon Prime Video and YouTube among the platforms engaged in a tug of war for the attention of British consumers, the modern TV viewer now has an array of viewing options to choose from. More than 20% of under-35s presently use more than seven services to keep up with their favourite shows, while 40% of an OC&C survey said they are becoming confused by how many options are available. Broadcasting could subsequently become controlled by one or two “super-aggregators”, which would act as viewing gateways for consumers looking for a simple way to access a plethora of content – if this sentiment continues to grow, and market newcomers adequately cater to it.

Proportion of watching time, attributed to activities, by age group

Millennials have a somewhat different profile, compared to earlier generations, when it comes to consuming various media forms currently on offer. Earlier in the year, a white-paper from L.E.K Consulting found that traditional television does not garner much favour with the group. Of the total time Millennials spent consuming media, just 13% was spent on traditional television – compared to 32% of the time for older generations. While the report found consumers across the age-group did continue to watch media, it revealed they tended to do so through paid and free Over The Top (OTT) online video services, at 20% of total media consumption time compared to 9% for older generations. If this significant market share, which is likely to grow in importance over time, as older demographic diminish, the opportunity to profit from a desire for simplicity in the segment offers up a long-term business gain.

Beyond just Millennials though, 61% of all respondents to OC&C’s Digital Media Consumption survey said they wished there were a better way of searching for TV, film and video content across multiple services – suggesting this major opportunity for newer market actors, who are looking to eat away at the market share of incumbents, could be seen to come to fruition much more immediately. Including advertising revenues and pay-TV subscriptions, the UK broadcast industry – which include the TV businesses of the likes of Sky and BT, ITV, Channel 4 as well as the BBC’s licence fee and commercial income – is worth up an estimated £15 billion in yearly revenues.

However, with the door open to new aggregator services to simplify the search and delivery of content for consumers, analysts suggest traditional broadcasters such as the BBC, ITV and Sky could lose out on major income, should rival services from Amazon, YouTube, and even Facebook, become dominant players in the TV industry over the next decade – with advertising and subscription fees landing predominantly with them instead. Analysing of the proportion of revenue that aggregators – including the likes of Uber –have taken from traditional players in other sectors, OC&C came to the conclusion the TV industry in the UK could lose £1 billion – the equivalent its current annual profits from broadcasting activities.

UK TV Industry Economics 2016

While the BBC particularly looks well positioned in the UK market for the on-coming aggregation threat, with 69% of survey respondents having used the iPlayer service in the past 12 months, this was only enough to see it rank second in most used digital video services. Google-owned platform YouTube ranked first, with 73%, placing it as the most popular on demand video service in the UK. Worryingly for the BBC’s rival broadcasters meanwhile, ITVHub (38%), All4 (28%) and Demand5 (27%) each finished behind Neflix.

Super-aggregator

Netflix, which initially began as a DVD rental service before branching into video on demand, was used by 44% of the respondents asked, making it the most popular subscription service (not counting the BBC’s license fee as such). Amazon Prime meanwhile shares the same level of popularity as Demand5, and outflanks subscription broadcaster Sky, with their on demand offerings only used by 25% of those polled. While Netflix currently looks best positioned to become a super-aggregator however, it is relatively poorly positioned as a multi-faceted product, unlike Amazon for example. Due to this, OC&C’s report identifies Amazon, Facebook and YouTube, each of whom have enormous global user bases, as being potential middlemen for TV viewing and the biggest threats to traditional TV broadcasters.

Which of the following TV, Films & Video brands have you used online in the past 12 months

“Viewers are facing a complex web of different routes to access TV content, leading to an unsustainable level of confusion and inconvenience,” said Mostyn Goodwin, a Partner at OC&C. “This environment is giving rise to the need for a super-aggregator service that provides a universal access point to content… This is not theoretical, in other industries we have seen how powerful these aggregators can become.”

Goodwin added, that while broadcasters may not be stung hard initially by aggregators keen to add to their platform, once the market moves toward bi-polar or even a monopolistic situation, that may change. “It is about the balance of power. At first there may not be much of a charge [to appear on an aggregator platform], commercial negotiations are easy as the digital players want to grow their businesses. Over time, as they grow scale, the nature of the deals can change. What choices the broadcasters make now will define what scale of ‘problem’ they will face.”

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