The Digital Revolution Is Disrupting the TV Industry

The Digital Revolution Is Disrupting the TV Industry

          
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The Digital Revolution Is Disrupting the TV Industry

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  • The Key Enablers of the New Online Ecosystem

    The television industry has a long history of incremental evolution: black-and-white gave way to color, big boxes slimmed into flat screens, 3 channels ballooned into 300, networks made room for cable and satellite, and now all three are making room for online and mobile platforms. (See Exhibit 2.) Each advance intensified competition among all the participants in the value chain. But even with all these changes, incumbents were able to coexist and, for the most part, thrive. And the core sources of value within the industry stayed the same. Content rights and production have always been the name of the game—and all relationships within the industry have revolved around this critical piece of the puzzle.

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    The greatest threat to traditional television as we know it comes from the emergence of new online and mobile pathways and the increasing cloud-based ability to provide on-demand, nonlinear services. (See Exhibit 3.) Although it’s a simple, well-reported notion, it’s worth recapping here. Streaming video completely bypasses the traditional video-aggregation and distribution models around free-to-air (FTA) broadcast networks, cable, and satellite—disrupting long-standing value chains and dedicated infrastructure (for example, broadcast towers, cable lines, and satellites) that have historically been critical to the television industry. The online and mobile ecosystem also changes how content reaches viewers, and on-demand viewing has made the fixed, mediated schedule of linear programming seem obsolete.

    exhibit

    Until recently, changes in industry dynamics have been evolutionary rather than revolutionary. However, the new online ecosystem is threatening the roles and relationships among key companies in the ecosystem that up to this point have been consistent. It is instructive to understand the enablers of the new ecosystem before considering the future. Three overarching forces stand at the forefront:

    • Advances in Technology. The robust fixed-broadband infrastructure that is needed to meet the demand for online video is now available in most countries. In North America, 85% of households are today ready for streaming, and projections say that 96% will be ready by 2017. Europe is following quickly with 74% projected by 2017. For users who are on the go, improvements in wireless connectivity have enabled greater access to digital content, and devices that can access mobile video have saturated the market. By 2017, the number of tablets and Internet-connected, or smart, TV sets will be nearly 1 billion worldwide. Streaming video has advanced to the point that it is now viewed as a direct threat to traditional TV.
    • Increasing Availability of High-Quality Online Content. Traditional studios have begun to invest in online productions, allowing viewers to access a wealth of excellent programming when and where they want it. Lions Gate Entertainment, for example, joined forces with Netflix, Hulu, and YouTube to create original series. In 2015, Lions Gate launched a subscription-based online-streaming service with Tribeca Enterprises. Disney acquired Maker Studios, a multichannel network that creates and distributes YouTube clips. FTA networks, such as CBS All Access, and premium channels, such as HBO and Showtime, have announced stand-alone streaming services. To make matters more interesting, global tech leaders are bringing disruptive models to the market. Amazon.com, Apple, and Google have all launched online-streaming devices to supplement their video-streaming services, and all three have commissioned original content as well. The abundance of high-quality online content has attracted consumers and encouraged the shift from linear viewing to on-demand, time-shifted viewing.
    • Development of New, Low-Cost Content-Production Models. Digital studios and semipro content creators are challenging the belief that high-quality content must be expensive. Top-tier network entertainment programs can draw 10 million to 15 million viewers and cost up to $5 million per episode, and top-tier cable shows—at up to $3 million per episode—routinely draw millions of viewers. By comparison, the top YouTube channels have proved they can drive millions of views for $30,000 to $50,000 per episode. In some cases (for example, Recipe Rehab on CBS or AwesomenessTV on Nickelodeon), online productions have migrated to linear television. With low costs, and a growing ecosystem of digital aggregators, online and mobile content creators are challenging the long-held belief that producing hit entertainment content must be a very expensive proposition available only to those with deep pockets.