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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Despite industry disruption televised sport still draws audiences

24 April 2019 Consultancy.uk

Despite the disruption wrought on most areas of traditional broadcasting by streaming challengers, sports remains a major draw for audiences of television networks. This is particularly true of viewers who bet money on sporting events, with those that have skin in the game considerably more likely to follow the event on a television screen.

Arguably the true opiate of the masses, for centuries organised sports have been a major draw for hordes of fanatical spectators, from the grand coliseums of Ancient Rome to the more understated greens of local cricket grounds. The advent of television in the 20th century took this to a new level, allowing for widespread visual access to major sporting events, and sowing the seeds of a multi-billion industry in the process. Yet while watching sport remains a key pastime for many, changing consumer preferences and new technologies are affecting the traditional sport distribution channel of TV.

To better understand trends in the sporting broadcast market, Deloitte recently released an article titled ‘Does TV Sports have a Future?’ as part of its wider ‘Technology, Media, and Telecommunications Predictions 2019’ report into telecommunications trends. The conclusions in the piece are based on the firm’s own survey of 1,062 US-based respondents.

More men than women watch sport

Traditional television has in recent years begun to lose out to streaming and on demand services, resulting in a generation that is watching considerably less television. The shift in consumer sentiment has caused traditional TV companies consternation as well as shifts in business models. The average Millennial now watches 42% fewer minutes per week of TV in 2018 than they did in 2010. Yet not all areas of the traditional television market have been as hard hit by the shift, and sport is one of them. This contradicts previous studies which may have suggested that Millennials were abandoning ‘old’ media for their sport viewing.

One reason for this could well be sports betting, which means that many of the people watching the event are keen to see how their punt is faring, in play. According to Deloitte, 78% of male sport viewers, and 64% of their female counterparts would be more likely to tune in to a live event if they had bet on it.

The study found that sport gambling remains a key fixture in the gambling industry as a whole in the UK. In the United Kingdom in 2017, sports betting had £14 billion in turnover. In the four Nordic countries, meanwhile legal gambling of all kinds was an approximate €6 billion industry in 2015. In the US, meanwhile, the industry as a whole is worth around a quarter of a trillion dollars – with sports betting figuring at around 40% of that total. The industry is projected to see growth of 9% over the coming three years.

Betting on sports is associated with watching sports on TV for more than five hours on a typical weekday

However, while the gambling industry does indeed seem to have some impact on television engagement, it would be dangerous to overstate this as a positive, and such a conclusion might also put the cart before the horse. Deloitte’s study found that ‘super-superfans’ – those who watched more than five hours on a typical weekday – were more likely to gamble than average viewers.

Of those who watch more than five hours of sport per day, only 4% do not bet. Of those, 2% do not currently bet, or have never bet, respectively. Again, it could be asserted that these people are engaging with televised sport, and thus keeping the advertising-based industry afloat, due to the betting they participate in. However, it could equally be argued that they are exhibiting compulsive behaviour in spending such a large amount of time viewing sport in the first place – behaviour which would leave them as easy prey for gambling firms, who can now milk them for profit.

But where is all this set to lead? According author Duncan Stewart, the potential profitability of this model means it is likely to be exported from the UK in the coming years.

Steward concluded, “As a thought experiment, one can imagine a 30-year-old American man in the year 2025… watching a football game on the TV set, smartphone in hand. He can bet on the match at any point, modify his wager, buy back a losing wager, bet on the outcome of individual plays or individual stats such as the number of passing yards by the quarterback—all in real time, and all tailored to him. Ads could be served that are customised for him, informed by his betting and attention, and watching would have to be 100% live. The broadcaster or betting site could not only charge more for ads seen by such an involved viewer, but even have a share in (or own outright) the profits from the betting/video stream … at margins much higher than the usual for TV broadcasting. To an American, this sounds like science fiction, but in the United Kingdom, these solutions (or variations of them) are available today.”