The cost of rights for sport, drama and ‘live’ entertainment is soaring, writes Adrian Pennington, as telcos, broadcasters and OTT players battle it out to secure exclusivity to the next big thing in content.
The rapid proliferation of new types of digital TV service combined with the growing number of devices people use to access video has created a fragmented marketplace for suppliers of TV content. Yet content is, as it always been, a driver for eyeballs and there is only a finite amount of great quality content to go around. That means more TV service suppliers are competing for largely the same set of rights, and they want them on an exclusive basis. In a seller’s market prices are pushed up.
“It’s a state of affairs which is commercially alarming for large parts of the ecosystem,” says Ovum’s chief TV analyst Ed Barton, who is hosting the first webinar of the Media + Networks Digital Week (more here).
“Whether its pay TV, OTT or a free-to-air broadcaster they are all competing for audience share and/or subscription dollars but doing it in many different ways,” Barton says.
Sports still vital to pay-TV
For traditional pay-TV services, it has been the variety of content (and services) that has been a significant component of retention.
“High-quality content (irrelevant of genre) is still the critical component for any service seeking to succeed,” affirms Carl Hibbert, Head of Consumer Media & Technology at Futuresource. “For true scale and to raise service value and subsequent ARPUs, there’s a definite requirement for traditional operators to offer a mix of content, rather than rely on one type.”
Reduction in churn has significant impact on subscriber acquisition costs, which can rise into the hundreds of dollars. “Attracting consumers to a platform through content also has the ability to drive up adoption of other (higher margin) services such as broadband – particularly for those operators owning the pipes,” says Hibbert. “If operators are commissioning original content there is the ability to sell rights internationally to generate further income.”
Nonetheless, the sports package consumers have on their TV subscription has the potential to be either a deal maker or a deal breaker, according to a recent report by Ampere Analysis.
“With sports fans so overwhelmingly eager to pay to access their favourite competitions, there is tremendous scope to further monetise sports on TV,” says Ampere’s Alexios Dimitropoulos. “The challenge will be to balance the enthusiasm for niche competitions, particularly evident among younger viewers, with the demand for big ticket events such as the Champion’s League. Online services have a chance to maximise this demand, with an expanded offering of sports events, and that’s why we’re seeing Facebook, Amazon and Twitter make their first forays into this space.”
According to Dataxis the linear OTT Pay TV market in Europe reached 7.4 million subscribers at the end of September 2017 – up 13% on the previous quarter and driven by OTT sports platforms, such as Bein Sport Connect, Eleven Sports and Dazn. As sports events are a key driver to TV subscription, it is still to be seen whether this growth will continue at the expense of the traditional Pay TV offer, cites the research firm.
Drama’s golden age
One genre it seems we can’t get enough of is episodic drama, typically now packaged in box sets and binge-watched. And content suppliers can’t make series fast enough.
US cable broadcast FX calculated up to 250 original English language scripted series have been commissioned for 2018 alone. Deep-pocketed Netflix and Amazon are leading the charge, with the latter purging comedies to concentrate on drama and the former also planning 30 new anime series and 80 new original films.
Annual investment in content, including sports and originals, is eyewatering. The latest IHS Markit figures show that in 2017 Netflix spent £5.2bn on programming, up from £2.3bn in 2015. Amazon’s 2017 budget was £3.3bn while Canal Plus and the BBC are stagnating at £1.9bn and £1.8bn in 2017. Sky reportedly spent US$4.7bn on content in 2017, Viacom £3bn and Turner £2.9bn.
“What drives the spend is not the content per se but the ability to control the content and the ecosystem,” says Ampere director Guy Bisson. “A lot of the thinking behind Disney’s move to acquire Fox is about positioning for SVOD and streaming by taking control of more content they can licence anywhere.”
Disney plans to cut out the middle man by retracting its content from third-party streamers like Netflix to distribute it over two SVOD services; a ESPN-branded sports portal coming soon and a movies and entertainment platform combining Marvel and Star Wars with Fox properties due in 2019.
Value of appointment to view
Broadcaster production budgets may not be able to compete against a handful of massively scaled digital platform providers but they are still relatively powerful in terms of their reach.
This summer, for example, ITV’s schedule is dominated by Love Island and the FIFA World Cup. “This is unmissable TV and it’s these kind of shows that drive digital behaviour and social media, not the other way round,” says Paul Kanareck, ITV Managing Director, Online. “Indeed, a large percentage will be watching these shows on the Hub live or catch up – either on their mobiles or other devices.”
Live TV has run through ITV’s blood for more than 60 years and, from Kanareck’s point of view, the broadcaster offers something very different spanning daytime to evening entertainment to the kind of box sets offered by streaming giants.
“ITV makes big event television,” he says. “The growth of ITV Hub on connected TVs (now more than 50% of usage) means that even catch-up is a family or shared experience in the living room and on the biggest screen in the house.”
“Broadcasters have a deep and intimate knowledge of local audience which multi-territory platform providers may not,” says Barton. “Local broadcasters are trusted by their audience and they tend to be deeply meshed into local producer networks to source shows – though this is changing as OTT providers open local offices.
Many broadcasters also make a good business selling shows to Netflix and Amazon. ITV, for example, has invested in 29 indie production companies and markets content through ITV Studios as it seeks to reduce its dependency on advertising.
“In general, the amount of time people spend watching on SVOD is cutting into commercial broadcast time, but no-one reasonably thinks their rating will go to zero,” says Barton. “We’re-still listening to AM radio after all. But advertisers and marketeers want to know when it will its stabilise and understand what they are dealing with in terms of the size of market [for FTA broadcasters] going forward.”
Many broadcasters are building out their own digital platforms; BBC iPlayer being a pioneer in that respect. In the past few months ITV has been rolling out Hub+, an ad free premium service. “Consumers understand that somebody has to pay for the shows and if they want to skip the ads they have a clear and simple option to pay for that,” informs Kanareck. “We’ve had great feedback. Interestingly, it also helps remind consumers how good the free model paid for by advertising remains.”
However, digital players are now beginning to explore watercooler shows which are the traditional broadcaster’s strength. Netflix has piloted a game show which it can reversion for regional presentation. Facebook is hunting for ‘appointment-to-view’ formats and wants producers to pitch ideas about ‘community building’ shows ahead of launching its longer form Watch platform in Europe.
“’Appointment to view’ is an industry notion. Generating interest and habit is more about marketing and psychology,” asserts Dr William Cooper, Founder and Chief Executive of informitv. He also thinks that “national events, whether real or constructed, will continue to attract mass audiences to major broadcasters, providing shared experiences.”
True impact of digital players still to come
All the leading digital players Netflix, Facebook, Amazon have deep pockets to increase investment in their content strategies, specifically to differentiate their services – whether that’s new genres such as sports, building franchises or acquiring rights to existing content.
Apple is the current unknown, only dipping its toe into original content so far but with some major hires (recruiting Sony Pictures TV executives Jamie Erlicht and Zack van Amburg) a $1 billion content budget and the revision of its video/TV app.
“The evidence is clearly there that it’s intent on staking a major claim in this sector,” notes Hibbert. “The major issue for Apple is the limitations of its footprint to get content to the TV screen (Apple TV or plugging in a Mac). The key for all these platforms, however, will be securing global (and exclusive) rights for content, allowing them to maximise return through their respective footprints.”
Google shouldn’t be discounted either. “For Google it is more about building a ubiquitous ecosystem than investing directly in programming,” says Cooper. “It should not be underestimated.”