New developments in broadcasting are going to lead to an interesting power shift in the broadcasting industry, very much like what happened in the mobile industry.
New over- the-top (OTT) content - which is growing exponentially - will see vendors taking a leading role in application provision. We see this happening with the smartphones and the tablets, where iTunes and Google Play have positioned themselves as the leading content portals. On top of that other vendors such as Samsung, Sony and Nokia are offering their users similar facilities.
Long before smartphones and tablets even existed – back in 1999 – we predicted that TV would become an application on the Internet and it certainly looks as though we are now well and truly on that path.
Today this trend is continuing, with the arrival of connected or smart TVs where we see the same vendors taking a front-row position in making new content available to their customers. Here video-based content has become an application available on the TV via the internet connection.
The broadcasting industry is playing these developments down, claiming that these OTT content developments are no threat to their business. This is certainly the case in 2012, and there is no way the situation will change anytime soon. But the trend is most certainly heading in that direction and new OTT services will increasingly compete with the traditional broadcasting services for users’ time and attention – and there are only so many hours in a day that people can look at content.
Broadcasters claim a superior picture quality. While that is true we also see that, particularly in relation to pay TV, customers are prepared to give up a certain degree of quality in exchange for lower cost.
While most broadcasters do now offer internet-based services as well they are not putting much effort into marketing these services; and in the meantime other competitive OTT services are able to attract more and more of the users’ attention.
And this is not a new phenomenon. Like the broadcasters, the newspaper publishers have a problem with cannibalisation. They prefer to keep their customers on the traditional platforms as these platforms are far more lucrative for them.
While broadcasters also mention the depth and breadth of their offerings, others with deep pockets can do the same – and, as a matter of fact, Google has entered the smart TV market, using its FttH network in Kansas City with content aggregation offering 185 channels at a very competitive price.
Another advantage OTT operators have is their national and international reach. Broadcasting is still geographically oriented and, while this is great for local services, the majority of content has a much more national/international nature. The OTT operators could become more attractive in those segments, which would again lead to an undermining of the old broadcasting model.
On the other hand the vendors are hardware-oriented and Apple will experience a serious problem here, as over time it is unlikely that they will be able to capture more than 25% of the market with their hardware. This will be a problem in relation to mass market content.
Lessons should be learned from such developments in other sectors. The mobile operators introduced internet on mobile phones back in 1997, but they used their dominance in the market to keep charges very high in order to protect their phone business. However when the iPhone arrived in 2007 they were unable to attract content providers and users and their mobile internet market was demolished within one year. From that moment on their own future in this market was in the hands of the smartphone and tablets vendors.
While the battle in the broadcasting industry is far from over in the end it is the customers who will decide. In relation to pay TV, there is already an international decline in these services, as customers do not particularly like operator packages of which they use only 5 per cent or 10 per cent; nor are sports fans impressed by being required to buy the most expensive content packages in order to see all of their favourite sports. There is very little loyalty and if these customers get a choice they will abandon this market overnight.
Another important consideration is the changes that are taking place in customer behaviour. Services are becoming more and more personalised. We watched the transition from the home family phone to the mobile phone, and the exponential growth in the use of video on smartphones and tablets heralds a similar change in broadcasting – rather than servicing a home these devices service a person.
This trend is set to continue and broadcasters have very little experience in servicing individual customers. They don’t even know who their end-users are, their customers – from whom they generate their income – are the advertisers. Are the broadcasters ready for such a change? And will they be able to change their business models accordingly? Most likely they are already too late to catch up with this trend.
Broadcasting still enjoys enormous popularity; however nothing lasts forever, as we have already seen in other sectors. The broadcasters need to shed a bit of their overconfidence in their traditional products if they are to secure their long-term survival in this market.
Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.