How much more change can we expect in the TV industry by 2020? What will the new ecosystem look like? If today's companies like Hulu and Netflix are able to redefine user experience and Google, Apple and Facebook can influence consumer behaviour, what else might be in store? How well is the industry preparing for further change, as yet unimagined?
Introduction
The medium of television has survived a steady series of challenges over the past sixty years, but none as potentially disruptive as those facing the industry today. The power that once lay squarely with the TV networks has dispersed across multiple players, many of whom barely existed even a decade ago. Seemingly contradictory forces are at play. On the one hand, audiences have fragmented due to the proliferation of channels made possible by digitisation; on the other hand, businesses that once played clear and separate roles have converged so that today the distinctions between broadcasters, content creators, distributors and social networks have either blurred or disappeared entirely.
Business models are changing to take advantage of evolving technologies and consumer behaviour — and out of pure necessity. The ecosystem that feeds and supports the TV industry is being transformed and it is the consumer who is at the centre of this change. We are witnessing a complex web of interactions and alliances between unlikely bedfellows. Traditional businesses are reinventing themselves with remarkable agility and new players are taking advantage of lower barriers to entry.
Robust viewing figures combined with high-quality programming suggest that TV is assured of a strong future, but exactly what shape the industry will take in the coming years is hard to predict. Perhaps the biggest challenge for the industry today is one of leadership — difficult decisions have to be made in balancing the demands of current operations with the need to invest wisely in an uncertain future. That investment is as much about talent, organisational design and of course content as it is about technology and infrastructure. The main purpose of this paper is to identify the nature and extent of these leadership challenges and to consider the range of skills and experiences most likely to be found among those who will be responsible for transforming the evolving ecosystem of television.
Riding the wave of disruption
The disruption facing the TV industry has been compared with the effects of the digital revolution on the music industry. Traditional record labels were faced with challenges on all sides: the prospect of catastrophic disintermediation brought on by new technology; entrepreneurs challenging intellectual property rights; and artists and consumers rapidly embracing new technologies. The relatively stable and well established value chain — involving record labels, distributors, record promoters and radio stations — was undermined. Digital technologies dramatically reduced costs, enabling almost anyone to become a music producer; pricing models changed almost overnight; and social media opened up direct communication channels between artists and consumers. New online platforms appeared and along with them new aggregators and subscription-based services. Many artists established their independence from traditional labels by taking control of production, distribution and promotion — some raising the necessary finance through crowdfunding. Today, record labels have a place in the value chain, but their hold of the industry has been substantially diminished.
Looking to the future, overall I believe there will be a shake out: a few of the new players will survive and thrive, but the existing players will still be a huge part, maybe even a bigger part of the future ecosystem — but there will be very different services than they are today.
BRIAN SULLIVAN, CEO OF SKY DEUTSCHLAND
The TV industry has so far managed to ride the many waves of disruption, technical, social and financial, that have come its way. There have been casualties, but the industry has adapted well to changing consumer behaviour, not just TV viewing habits but a range of totally new behaviours brought on by the impact of mobile, tablets, social media and the proliferation of user-generated content.
“The prediction of the demise of TV has been very premature”, says Ralph Rivera, Director of Future Media at the BBC. “Six or seven years ago, everyone at the BBC was very concerned about the impact of on demand and that the TV business as we knew it would change drastically. The intervening years have seen TV go from strength to strength and so what we now do in digital isn’t so much a hedge because it’s what makes sense for our audiences.”
Guillaume de Posch, co-CEO of RTL Group, says that one of the main challenges facing the industry is non-linear TV: “TV has an important advantage in the digital transformation — it is already 100% digital. So the issue is not analogue TV versus digital TV, but rather the growing use of non-linear TV services. We are focusing on developing our offerings in both domains. Our target is to be present across all platforms, including YouTube, which is why we have also made a cornerstone investment in Vancouver-based Multi-Channel Network Broadband TV. In a nutshell, our goal is to recreate the virtuous circle of the traditional broadcast business in the online world: offering the best content, attracting the biggest audiences, and having the most effective distribution and monetisation platform.”
Brian Sullivan, CEO of Sky Deutschland, observes that it is not change caused by technological disruption, but the disruptive and sometimes unsustainable business models that are created from this. “The economic disruption is much more about the way that content creators are trying to monetise the opportunity, and to me that’s the more interesting piece of the puzzle. For example Netflix is disruptive because they charge less than $10 whereas cable in the US starts at about $100. It’s not because of technology, it’s all about economic disruption.”
There is a shift away from the controlled, push world of advertising into the more engaged world of content.
DEREK SCOBIE, HEAD OF YOUTUBE BRAND PROPOSITIONS, NORTHERN & CENTRAL EUROPE, GOOGLE
If the world of tomorrow is a place where every flat surface will become a screen and where viewers will expect not to miss a second of Homeland or Downton Abbey, then the adventure for the TV industry has only just begun. A new paradigm is being set. Consequently, one of the biggest challenges facing any business involved in the TV industry today is how to balance managing the present environment with the need to allocate resources to the future, whatever that may look like.
Change at the margins
TV executives have to be keenly aware of the threats and opportunities arising from new technologies and shifting patterns of consumer behaviour. No-one can afford to be caught off guard by the next disruptive force sweeping through the industry. However, the reality is that new technologies which seem to be pointing the way for TV’s future have so far had relatively little impact on the population at large.
A recent paper from Numis Securities, providing a view from the City on the prospects for the pay-TV and free-to-air broadcasters, underlined the structural robustness of both pay-TV and free-to-air models, the enduring value of high-quality content, the growth in second screen technologies and the symbiotic relationship between TV and social media. In February 2014, UK TV marketing body Thinkbox reported that during 2013 98.5% of TV viewing still took place in front of a traditional TV set and 88.7% of TV was watched live (only a slight fall from the previous year). The average UK viewer watched just under four hours of TV per day (an increase over a decade ago), with only three and a half minutes watched on mobile devices. These statistics do not suggest that we are on the verge of a revolution.
If viewing patterns among the mass audience have remained so constant, why is there so much excitement and concern about what is happening at the margins?
The battle lines have already been drawn between the plethora of OTT services available with Netflix, Amazon Prime Instant Video and Tesco’s Blinkbox going head-to-head with Channel 4’s recently launched 4seven and Virgin Media’s FilmFlex, not to mention Apple TV.
While traditional TV broadcasting continues to be an effective way to reach a mass audience, OTT TV’s main players such as YouView, Google-owned YouTube, Hulu, and even the recently-launched Now TV from BSkyB are all becoming a real force in television. These players are not only constantly refining the user experience but also investing heavily in content. Netflix, which has been dominating the headlines because of its huge investment in original content, added more than $2.5 billion worth of content last year to its streaming library. Its arch-rival Amazon doesn’t break down its investment in media and entertainment but it has been reported that it invested close to $1 billion in content spending last year.
Then there are the likes of Microsoft whose gaming console Xbox One is now designed to offer television services, stream videos and also offer access to app-based services on one single device.
Telecoms operators, too, such as BT, France Telecom and Deutsche Telekom are experimenting with OTT, developing services targeted at reducing existing customer churn and attracting new customers. The jury is out on telecoms in this market, as they need critical mass before they can acquire enough attractive content to lure viewers. That said, BT’s recent deal with the Premier League and its plans for a sports TV service could be a game-changer.
Just as interesting have been the activities of mobile operators in this emerging landscape, for example: AT’T’s reported interest in DirecTV; the French cable group Numericable winning a bidding war for the mobile operator SFR; and Telefónica acquiring a stake in the Mediaset Premium pay-television service, whilst completing a deal to buy Mediaset Espana’s holding in pay-television operator Canal Plus.
Meanwhile, Vodafone has acquired cable companies in Germany (Kabel Deutschland) and Spain (Ono). In Portugal and Italy, it is also developing its own broadband infrastructure. In 2012, it spent £1bn on UK operator Cable ‘ Wireless allowing it to offer internet services to its business customers. The company has moved into pay-TV in Portugal and New Zealand. Analysts have speculated about a takeover of TalkTalk or an alliance with Sky. “Vodafone is becoming a very different company to the one it was two years ago,” CEO Vittorio Colao has said, pointing out that the convergence of mobile, broadband, home phone and TV means that it is increasingly important to offer all these services. The fast-changing telecoms market means that Vodafone could become interested in owning TV rights. “Is it possible longer term that there is some convergence on bidding for content? It’s possible,” he said in a recent interview.
Ralph Rivera from the BBC makes a pertinent point: “Certainly OTT services are coming into play but they still make up only a single digit percentage of overall video consumption. For example, iPlayer, as good as it is, is still only 2-3% of overall time spent compared to the rest of broadcast television.”
The simple answer to why these embryonic changes are exciting so much attention is that even though the traditional TV set may continue to provide the venue for the lion’s share of viewing well into the future, the viewing experience is set to change beyond recognition. Linear TV watching may predominate among today’s mass audience, but all the signs are that a huge generational shift in viewing habits is underway which will fundamentally change how content is created and when and where it is consumed. We may not have reached the tipping point yet, but it is only a question of time.
These new consumer behaviours may still be in their infancy but they will have profound implications for every aspect of the industry — not least because they are being driven by the young. As David Abraham, CEO of Channel 4, points out: “If the ecology among that critical young group changes that is a big issue for media in general because advertisers like to catch consumers young and they’re prepared to pay a premium for it.” Abraham likes to use science fiction writer William Gibson’s quote “The future is already here, it’s just not evenly distributed” to underline the point that “we’re seeing this change in behaviour first, but it will eventually hit those traditional channels that are currently feeling more secure because their viewers are older. Eventually, there’s a generational shift.”
The new, enhanced viewing experience
The TV of the future may look the same and occupy the same central position in the home, but the nature of today’s viewing experience indicates a radical and irreversible shift in behaviour.
The second screen in the room, whether a smart phone, a tablet or a laptop, is turning a passive experience into an active one, as viewers comment on what they are watching with friends and strangers through Facebook and Twitter. This social engagement not only enhances the experience for the viewer but also provides broadcasters with a powerful viral marketing tool. They have been quick to see the opportunity: for example, BSkyB teamed up with Twitter to share video highlights from the UEFA Champions League and Channel 4 integrated its iPad App with Twitter to encourage its viewers to discuss its broadcasts live.
The proliferation of smart phones is drawing more and more short-form content into that medium.
DAVID ABRAHAM, CEO OF CHANNEL 4
According to Brian Sullivan, “there has always been a generation change in entertainment consumption. One side effect of the new technology landscape for content is a new paradigm in communal viewing. It’s coming back, but not in the way that we know it. It’s still a very positive thing if managed properly. We are seeing an increasing trend of two or three programmes being watched in the same main room, at the same time, but on different devices — the main TV, the laptop and the iPad. It’s not the way we grew up, but it is together.”
One of the most important factors affecting the TV viewing experience is the desire for flexibility. Creating outstanding content remains the number one priority for TV companies, but nothing should interfere with a person’s ability to access it however, wherever and whenever they feel like it. Today it is perfectly reasonable for a viewer to start watching something on one screen and expect to be able to continue watching seamlessly on a different device. The degree of flexibility with which content is delivered to the viewer is likely to become a key factor in determining its success.
For the BBC, says Rivera, this means changing and deepening its relationships with those who consume its content: “One of the things that we will be doing differently to the past is to engage with the people formerly known as the audience, meaning, that we will become much more cognisant of who you are and what your relationship is with us throughout your day and your week and as you move from one of our services to another. We know who you are, we know your interests and what your usage patterns are, and then we start to tailor our services around you and bring you the best of what we have available across TV, radio and online.”
The future architects of TV
The industry has a dogged focus on giving consumers what they want, and the ability to respond to these demands is helped by new technologies and by embracing creativity and innovation.
What will drive growth? Technology pioneers or content creators? Or a combination of the two?
Digital Disruptors
It might have started out as a battle between the technology giants such as Amazon, Google and Apple against the television titans. But as BBC’s Rivera notes: “I don’t think the big picture is about how online or others substitute for TV or radio — that’s not the game. I think it’s about the market growing not just in terms of size but also in terms of the diversity of stories that can be told.”
Abraham from Channel 4 says that the industry is doing its best to accelerate into new areas because the pace of innovation around TV is ramping up. “Apple is rumoured to be building a TV proposition, Microsoft is launching the Xbox One — there’s so much potential disruption around television.”
Former BT TV Group CEO Marc Watson sees OTT as a ‘frenemy’. “If you are first and foremost a content owner these things look like a threat because they are direct competition. If you are essentially a network provider then the one thing that unites all of these services and companies is reliable connectivity to reach the customer. As a connectivity provider we see these services as being a good thing. The YouView platform is a classic example of that — a service where customers will be able to access content from us, but they can also get it from Sky via Now TV, from Amazon Prime Instant Video in the future. We want Netflix on that box and we’re talking to them,” he adds.
FremantleMedia recently announced that they will effectively create global channels behind key franchises like X Factor and Got Talent by repurposing material from the original programmes for YouTube, tailored to an online audience.
Content creators
As viewers get used to accessing content on a variety of devices at times that suit them, they are also participating in the distribution of content through the use of social media. But their direct involvement in the transformation of television does not stop there. Viewers are no longer limited to the role of passive consumers, they are starting to have a profound impact on content development, once the exclusive domain of broadcasters and production companies.
We don’t want a CV anymore. We want to see a reel — you have no excuse for not having created your own stuff and piloted it on YouTube.
TIM ROBINSON, COO OF SHINE GROUP
In taking full advantage of the tools available to produce and publish content on video-sharing websites, Generation C is expanding the definition of television and forcing TV companies to become active on these platforms, for example slicing existing content into short highlight segments suited to the medium.
In his 2013 James MacTaggart Memorial Lecture at the Edinburgh Television Festival, Kevin Spacey alluded to this ability of content creators to self-organise, collaborate and bypass traditional broadcasters to find their audiences: “Until now, those of us in the television business have been able to wait until the talent finds us. We have the keys to the kingdom and folks had to bring us their stories if they wanted to find a route to the audience. But now, things are changing and changing fast. Kids aren’t growing up with a sense of television as the aspirational place for their ideas; all they know is the incredible diversity of entertainment, stories and engagement that they can find online and if they do love a show on Netflix or Apple TV you can bet they probably don’t know which network it aired on.”
Spacey spoke of “an environment where leadership will take risks, willing to experiment, being prepared to fail, aiming higher rather than playing it safe”. While such an attitude is entirely appropriate in a creative industry, leaders cannot afford to jeopardise the success of current operations by incautious investments. No-one wants to go down expensive blind alleys. Yet some counter-intuitive thinking and prudent investment in new platforms is necessary.
Rivera believes that the Internet must be seen as a creative platform, not just a distribution platform. “We’ve proven with the BBC’s coverage of the Olympics the promise of anything, anytime, anywhere, any device. Now it’s time to go beyond that and start to use the Internet as a creative platform that is social and interactive and non-linear.”
Many of the larger content providers are now uploading their official content to YouTube, for example, both as a marketing exercise and as a way of increasing their understanding of platform strategy. “On YouTube, it is a case of fishing where the fish are,” says Derek Scobie, Head of YouTube Brand Propositions, Northern ‘ Central Europe, Google.
YouTube is giving rise to new forms of entertainment and new producers of popular content. “It is a whole ecosystem in its own right,” says Tim Robinson, chief operating officer of Shine Group, “targeted at those who are interested in creating their own content, creating it for other people and communicating with their community.”
In amongst the 100 hours of video uploaded every minute on YouTube, is high-quality content produced by an eclectic range of individuals and broadcasters taking advantage of the site. Scobie calls these “endemic creators” and they include the likes of Madonna and Jamie Oliver who have created their own exclusive YouTube videos. Broadcasters such as the BBC and ITV also have struck content deals with the site.
We want journalists who are living and breathing it, out there tweeting it, blogging it, news gathering and making connections and building communities online.
JOHN HARDIE, CEO OF ITN
Scobie gives the example of Pixiwoo, the producers of hair and make-up videos whose YouTube channel has over 1.5 million subscribers at the time of writing. “YouTube is a natural place for them because it’s a democratic platform. Pixiwoo started without any real game plan but has grown to be a media brand in its own right, extending its success into the real world with make-up and beauty brush licensing agreements. As part of the StyleHaul network they are now talent managed by a company called Gleam Digital who provide them with a commercial interface looking for licensing opportunities and collaboration.”
One of the biggest challenges for traditional content producers is to maintain a watching brief on innovations of any type — whether they involve the application of a new technology, an unusual business model or a new approach to content development — and knowing when to experiment. As John Hardie, CEO of ITN, says: “Any major company in media will want to show the world that they are a future-facing company. So what we have done with ITV is significantly improve ITV News online to include live streaming and far greater updated engagement. Rather than have a static website, you have to get much more current and break new stories online. What is the commercial impact of that? Almost none — it’s about the reputation.”
Increasingly from a talent point of view it’s the new technology companies that monopolise measurement and data skills, and so I fear for the future of television to the extent that we will have our relationships with our viewers increasingly interfered with by those that know how to do it technically and use data cleverly.
DAVID ABRAHAM, CEO OF CHANNEL 4
Channel 4’s Abraham says there will be a disruption between companies that exploit content and companies that remain investors in new content ideas: “Those are two quite different activities and organisations that see content as a battering ram towards customer loyalty in the technology space will need to work out how that migration will actually occur — how will they retain what is special in developing innovative content in this country?”
Disruption and data analytics
The appetite for flexible viewing options and on-demand TV has resulted in a wave of innovation in the industry. The evidence can be seen in the growing popularity of over-the-top providers such as Netflix, YouView, Hulu and Now TV, as well as new services from the likes of Channel 4 (with mobile offline viewing for 4oD and ‘pause and play’ across different devices), and BBC iPlayer (live streaming, mobile downloads, live restart and archive access — all available on a variety of platforms).
With so many organisations entering the world of content creation and distribution and experimenting with subscription models, it is hard to predict what a stable business model will look like, or who will emerge as serious long-term players. Netflix, which recognised the appeal of series with longer story arcs played out over several seasons, have been joined as developers of new content by the likes of Amazon (Instant Video), Microsoft (Xbox Live), Sony (PlayStation Network) and Sky (Now TV) all commissioning new series to be launched exclusively on their proprietary platforms. As they vie for the most compelling content that will secure viewer commitment over a long period, over-the-top broadcasters are making sophisticated use of data analytics to help them cross-sell content and optimise pricing strategies. These companies currently have an advantage over many traditional broadcasters in being able to track viewing patterns, anticipate behaviours and market content to niche audiences. The full potential of data analytics has yet to be realised, but in the right hands it is going to become a powerful force in helping TV companies connect content with audiences over the most convenient platform at the most appropriate time. For example, Channel 4 now has 9 million people registered in the UK. “This has ensured that we are not being left behind when Facebook or Twitter come through the door of an agency and say that they have direct relationships with millions of people in the UK”, says Abrahams.
Where does talent come from?
As the ecosystem of television continues to undergo digital transformation, the knowledge, experience and skill set required of leaders across the industry will change as well. The executives responsible for creating and implementing strategies that can bring their businesses competitive advantage will have to possess a unique blend of skills to deal with a complex array of challenges: new business models, changing patterns in content creation and distribution, new platforms, evolving consumer preferences and data analytics — to name a few arenas where expertise is in high demand.
Perhaps the most critical aspect of a TV industry CEO’s brief is to ensure that the right skills are being brought into the organisation. According to Just Spee, CEO of Endemol, “Over the last several years we have replaced quite a few of our key people, and the new generation is more willing to accept new technologies. We now have a more modern thinking generation on board.”
De Posch says that his company has been recruiting people with internet and social media skills into the corporate headquarters. “The younger generation has naturally been more in touch with the whole new world of digital consumption trends and monetisation,” he says. “In the future, it’s likely that we will recruit increasingly from platforms like Facebook, YouTube and Google, although currently the flow is the other way, with Google recruiting people from traditional advertising into their business.”
Channel 4 has hired people from Dunnhumby and Experian to innovate around advertising propositions and viewer loyalty programmes. The digital transformation has opened up a need for highly trained analytical minds, graduates with maths PhDs for example, to help dissect and anticipate consumer behaviour in order to deliver a customised viewing experience across multiple platforms. “We’ve definitely had some challenges around finding young staff to actually do the work due to high demand from employers across numerous industries for their services,” says Abraham. “However we’ve made progress via a programme with Imperial College and other places and now have team of a dozen people who are working with big data in a new way. Television is all about measurement through samples, whereas big data is all about being in contact with all of your viewers all the time. There has been a lot of complicated thinking around how to accommodate that into the work flows and normal working practices.”
Integrating new hires effectively with experienced talent has been a priority for Abraham. At Channel 4, 200 advertising sales people rub shoulders with 100 technologists and 150 commissioning editors, of whom 60-70 are digital specialists. “When I arrived three years ago, one of my first moves was to embed digital staff among the programme makers because I did not want them to be a separate fiefdom.”
The challenge for Marc Watson has been not just to introduce the right new skills, but to change the culture of the organisation to embrace the kind of agility and creativity necessary for a thriving TV business. In a short space of time, BT has acquired very strong sports rights and moved into content development on the back of its super-fast broadband infrastructure. “We need to make sure we are able to match the best. There are still some gaps in expertise that we haven’t filled yet and culturally there’s still a job to do to modernise. We’ve come a long way in the last year but one of our challenges now is to continue the process of modernisation of the company — to foster a culture which is more open to new ideas, creative thinking and risk taking, the kind of characteristics you find in successful modern businesses like Google and Apple.”
Rivera says that television has entered a period in which there is a premium on technological innovation as much as there is on editorial creativity. “People rightly focus on the BBC as an iconic storyteller but increasingly people are also saying that the BBC has been a technological innovator through radio, TV and online. So for those who are interested in taking their craft to the next level this is a good place."
Rivera is concerned that the TV industry is not yet attracting the talent required see it through the next wave of disruption. “What is going to attract the talent? There is a big difference between the US and the UK/Europe, where the US has much more digitally-savvy boards than the UK or European companies. There are also more engineers that lead technology and digital functions in the US whereas in Europe, there’s more of a tendency to take a smart strategist who’s never coded in their life and make them head up technology. In the emerging competition that people are concerned about — Google, Facebook, Apple — engineers are sitting at the top table. I don’t think we’ve achieved the right mix. We’re very far off balance here.”
At the heart of TV’s success, of course, is the insatiable appetite for high-quality content. The ability to develop world-class content and identify and foster outstanding creative talent is (and will remain) one of the key tasks of leaders throughout the industry. Tim Robinson, chief operating officer of Shine Group, says: “As much as we try to industrialise the process, ultimately it all comes back to good ideas which in turn brings us back to the core Shine strategy at its simplest, which is about giving talented people the right environment to come up with good ideas and then ensure that those ideas are translated into the highest quality programming. What is critical is how you go about managing your talent, how you go about executing your ideas and how you do the smartest deals to maximise their commercial value.”
Five questions for TV industry leaders to consider
Is your commercial team capable of operating outside its comfort zone in developing alternative monetisation models for an increasingly unstructured environment?
Do your content development or commissioning teams truly understand the new rules of consumption in the connected, platform-neutral world?
What is your recruitment strategy for tech-savvy creative talent and those hard to find categories such as software engineers and data analysts?
Do you have the right organisational model to motivate and retain the new generation of digital talent?
How adaptable is your culture to a new paradigm of ‘frenemy’ partnerships and ‘user creators’?
Conclusion
The TV industry has not just survived the disruption of the recent era of digital transformation, it has emerged from it a great deal more agile and innovative. Further disruption is inevitable, so there will continue to be a strong premium on strategic leadership as every organisation in the TV ecosystem seeks to anticipate what further changes in technology and consumer behaviour are around the corner and how these will affect business models and give rise to new forms of competition.
We believe that TV companies will need to be as innovative in finding the next generation of talent as they have been in responding to the disruptive forces that have engulfed the industry in recent years. The above five questions may be helpful for any company determined to maintain its competitive advantage by identifying and securing the very best talent in the market.
Acknowledgements
Spencer Stuart would like to thank the following people who generously agreed to be interviewed for the purposes of this report:
David Abraham, CEO, Channel 4
John Hardie, CEO, ITN
Guillaume de Posch, Co-CEO, RTL Group
Ralph Rivera, Director of Future Media, BBC
Tim Robinson, Chief Operating Officer, Shine Group
Derek Scobie, Head of YouTube Brand Propositions, Northern & Central Europe, Google
Just Spee, CEO Endemol
Brian Sullivan, CEO, Sky Deutschland
Marc Watson, CEO TV Group, BT
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