Crowdfunded Internet TV
BY ANDREW SHEEHY, CHIEF ANALYST - 26 Sep 2013 Comments
We all know that the internet will play a major role in how TV shows and movies will be distributed and monetised in the future: OTT models are here, and they’re here to stay.
But has the Over the Top (OTT) internet TV market reached its cruising altitude?
Have OTT business models stabilised? Is the industry structure fixed? Will today’s value chain endure?
Bearing in mind the pace of change in the technology landscape, it seems a bit of a stretch to think that the OTT models we see today will look exactly the same in 20 years.
If we look at recent missteps, like Google TV, then it’s pretty clear that OTT is still in the nursery: there’s a long way to go yet.
So what’s next? What might OTT TV look like in 20 years?
One interesting – and super disruptive – idea is crowdfunded internet TV and we think that this is a candidate for where the current OTT market might be headed.
The following diagram outlines the value chain for broadcast television and OTT internet TV:
|Title:||Value Chain: Broadcast Television and OTT Internet Television|
|Companies:||Warner Bros., Paramount|
|Products/Services:||Netflix, BBC iPlayer, Hulu|
|Markets:||Television, Broadcast, Internet, OTT Internet TV|
It is interesting that the OTT internet TV model that has emerged so far is much like an online equivalent of the existing TV industry.
We have yet to see the emergence of intermediaries who are in the business of aggregating license rights and reselling those rights but we have seen the emergence of the online equivalent of TV networks (e.g. Roku, Boxee, Apple TV) and we are also seeing the emergence of models where OTT internet TV providers invest in producing their own content (e.g. Netflix’s House of Cards, plus others around the globe).
But while the current OTT model holds great promise it is also characterised by some oddities:
- The market leader, Netflix, is in our analysis guilty of chronic under pricing (see report here) which we think is destroying value and risks forcing the OTT internet TV model down the same road as music subscription services, which are presently fundamentally unprofitable;
- The OTT internet TV app model as it stands is not ideal because it places a heavy burden on app developers to assemble their own sets of license rights – which is an expensive and laborious process. This problem affects platforms like Boxee as well as Smart TV platforms like those offered by Samsung;
- There has been no real attempt so far to create an ad platform, perhaps like Google AdWords, for TV advertising. This would allow ads to be served programmatically on a contextual basis within OTT TV programming. Current OTT ad-serving solutions are platform-specific and require a customised approach – which seems orthogonal to the way the online ad market as a whole is evolving where we are seeing highly targeted campaigns;
- With the current OTT internet TV model, users are expected to select a number of subscription services and then view them individually. This will in the end prove to be prohibitively expensive and will encourage a ‘winner takes all’ model where one super-provider emerges who will then lack incentive to innovate. This is the last thing content owners want;
- Content owners see OTT as a crown of thorns: they realise that the internet will play a key role in the future but are worried about the role that Apple and Google might take and they are worried about devaluing their content. They are also worried about cannibalising their core revenues and remain fearful of repeating mistakes made by the music industry.
Because of this we have been thinking about a new model which could address some or all of these points.
The basic idea is that a company, let’s say SomeCo, would create a worldwide distribution platform that would be used to house, stream and download all television programming and movies ever produced, worldwide.
This is clearly a hypothetical idea: there is no evidence that content owners are interested in such a model and getting from where we are to this point would be extremely hard, and perhaps impossible.
Nevertheless, it is worth thinking about what this might look like because it is technically possible and, based our experience of how the technology sector has evolved over the last 20+ years, if an idea is technically possible then, eventually, market forces will result in that idea emerging as a product or service and then, maybe, as a major global industry.
The following diagram shows how a crowdfunded TV model might work.
The ‘Platform’ shown in the centre is best viewed as a global ad network (perhaps like AdWords) where the contextual link between the ad and the publisher is nor a search string, but an item of television programming – or a movie.
|Title:||Value Chain: Crowdfunded TV|
Also, the publisher in the AdWords model is not an internet website, but a developer (see the box below ‘Platform’ in the above figure).
This ad network would handle all current TV advertising, that is the monetary value of the ad inventory it would be selling would equal the present value of the worldwide TV advertising industry – about USD 189 billion in 2012, and USD 205 billion by 2016.
By way of comparison, Google AdWords manages a total inventory value of about USD 40 billion.
We are talking about shifting the entire value of the TV ad industry onto the internet television platforms – most of which would be served on connected TV sets over the internet with some being served to mobile devices and tablets. There would be a remainder that could not be transferred in this way because not all homes will have broadband and not all users will have mobile but, in the long term, this will represent a smallish percentage.
In addition, the crowdfunded TV platform would extract payment from subscribers who would pay a monthly fee of an average of USD 20 per monthl (e.g. a lot less than a typical Pay-TV subscription).
This would allow the platform to collect annual service revenues for subscribers worldwide of around USD 156 billion (see tables below).
In total, the advertising and service revenues add up to total platform revenue of USD 369 billion.
This revenue could then be dispersed as follows:
- Platform operating fee @ 20% = USD 74 billion (about 2x Google’s current annual revenues);
- Payout to content owners @ 36% = USD 136 billion (enough to replace the revenue currently earned by every movie studio and TV production company worldwide);
- Payout to developer @ 44% = USD 164 billion.
There are several key points:
- For a monthly fee of just USD 20 a subscriber could obtain access to all movies and TV programming ever produced;
- Because of the volume of content, a layer of value-added services would need to be developed so users could subscribe (for free) to any number of ‘channels’ or services;
- Content owners would, via their payout, receive a total revenue stream that was equal to what they currently received from their current licensing relationships and businesses, so crowdfunded TV would be ‘revenue neutral’ for content owners;
- It would be possible to assemble programming from an effectively unlimited content library, and to develop some innovative programme packages which could then be marketed to target audiences;
- Developers could also have access to a large volume of data on their target audiences: users could, on an opt-in basis, elect to have their viewing habits and behavioural data published to the platform (not personal). This data would then be available to developers and advertisers for ad-targeting purposes;
- The fact that developers would not need to set up their own hosting infrastructure and assemble or buy license rights for their own content would mean that they could focus on creating value-added features and services.
Crowdfunded television as we have described it here is clearly a very hypothetical idea, and something that will probably never happen: there would be serious antitrust barriers and the only two companies who could realistically even contemplate something on this scale – Apple and Google – are already navigating their own antitrust tightropes. Also, the existing Pay-TV operators and broadcasters – who would either have to become developers or would have no business, would clearly fight any attempt to introduce a crowdfunded model. And that’s just two of a long list of problems.
Nevertheless, we think crowdfunded internet TV is an interesting idea that, if nothing else, has helped us understand more clearly that OTT internet TV as it presently stands is by no means the final answer. For those who say that a crowdfunded model would never happen, we would reply that ‘never’ is a very long time.
|Title:||Revenue Earned by Television & Movie Industries|
|Markets:||Advertising, Film, Television, Traditional Media, Television|
|Other:||(1) Refers to all input revenues which comes from advertisers paying to place ads on TV and from viewers who pay subscriptions for Pay-TV services and also ad-hoc pay-per-view fees. (2) Includes broadcast TV and Pay-TV. Excludes internet and mobile and apps. (3) MPAA figure for 2011 was USD 32.6 billion, up from USD 31.6 billion in 2010. Includes an allowance for non-MPAA members worldwide. (4) In long-term decline|
|Title:||Crowdfunded Television Model|
|Sub Title:||Analysis of Total Platform Revenue and Payouts to Developers and Content Owners|
|Other:||(1) This revenue supports the entire TV and movie industries. (2) Figure refers to the revenue earned by content producers (e.g. Movie studios and TV production companies. (3) Based on actual fees paid by Pay-TV and OTT internet TV providers (e.g. Comcast, Sky and Netflix). (4) Refers to Pay-TV revenues, DVD sales and Box Office. (5) We have simply added the value of the TV Advertising industry into the analysis and have assumed that all of these ads would be served via the internet to the Smart TV set.|
Contact Andrew Sheehy at email@example.com or follow him at twitter.com/sheehy_andrew