TV challenges and opportunities

Jan Dawson / April 11th, 2014

I spent a couple of days this week at the National Association of Broadcasters show in Vegas. I was there to gather material for a report I’m writing on the future of TV and video services and had lots of interesting conversations with infrastructure vendors, service and content providers about directions in the market. I thought I’d share some of the trends I identified at the show and the implications for the players.

One of the most prominent topics at NAB, as at CES in January, was 4K. The consensus is very much that 4K is the next HD, not the next 3D. In other words, it’s the next logical evolution which will be adopted in time and not just a gimmick that will quickly fall by the wayside. Much of the attention at both NAB and CES was on 4K hardware, both creation and consumption devices. It would be easy to get the impression from both shows 4K is here or imminent, especially since 4K-capable TVs are now available at decent prices.

But the reality is linear TV, which represents the vast majority of viewing today (see below), won’t see 4K content for quite some time to come. The most optimistic view on this I heard at the show was next year, but the consensus from the vast majority of people I talked to was 4K linear TV won’t hit the mainstream until the 2016 Olympics. Encoding technology isn’t really there yet and won’t be for some time, even though some vendors are fudging this by splitting 4K streams into four quadrants and re-combining them at the other end. There’s also the usual chicken and egg issue about content and endpoints, with content providers waiting for device uptake and consumers waiting to purchase TVs until content is available.

In the meantime, to the extent 4K does take off, it will be through non-linear consumption such as online streaming (e.g. Netflix’s 4K streaming of House of Cards), offline distribution by TV vendors, and the odd specialist channel delivered in 4K much as some early HD and 3D channels were.

For today though, most viewing is still linear, live TV. To anyone who watches a lot of Netflix or Hulu, this still seems baffling, but it’s a great indication of the slow pace of technology adoption and the power of entrenched habits and cultures. Two major cable networks shared statistics in panels I attended about the proportion of activity that’s still linear, as I shared in the tweets below:

Though the revenue number is more easily discounted, since even online and mobile viewing is tied to cable subscriptions, the Scripps viewing behavior number is pretty startling. For all of the DVR, VOD, online and mobile options available, 94% of content is still live and linear – i.e. good old fashioned TV viewing. On the other hand, 6% has shifted to new viewing models, and from my conversations with other players it’s clear DVR’d content is becoming more and more popular. One major pay TV provider told me viewership is starting to skew significantly towards time-shifted viewing and they expect this trend to continue. So even though the numbers are small today, they’re going to pick up significantly.

At the same time, I saw a real reluctance from everyone whose business depends on pay TV to acknowledge the threat posed by over the top (OTT) providers. I was reminded of Upton Sinclair’s famous quote: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” It’s always hard to tell whether these players are really in denial or whether they’re just telling a story that suits their business. But they were all dismissive of the threat of OTT and saw it much more as something pay TV providers would eventually absorb into their platforms rather than something that would be the basis of an alternative competitive platform. Distribution rights are seen as the biggest barrier to most OTT players going beyond their current catalogs and approaches, since most content owners are still incredibly reluctant to let their more valuable content go online or into other new distribution models.

One other trend was the increasing prevalence of solitary viewing, which almost everyone seemed to find depressing. It’s difficult to get hard numbers on this from anyone, but tablet and smartphone viewing is seen by lots of people as a proxy for this behavior, and there’s likely plenty more going on through more traditional devices too. The implications are considerable when you think about some of the next big things on the horizon – personalization, recommendations, targeted advertising and so on – all of which depend on understanding individual and not family preferences. Some infrastructure vendors are talking about user profiles as a possible solution, but that can end up being kludgey. I wouldn’t be surprised if Netflix eventually abandoned its user profiles, if behavior in our house is anything to go by – we set up two profiles originally but all the My Little Pony episodes are still getting watched on the “Mom and Dad” profile because our kids don’t bother to change the profile when they view things. There are other ways of tackling some of this, but I don’t think any of them will really help with personalization or targeted advertising.

Overall, the key theme emerging from my meetings was there’s a great deal of change happening in the TV market, it’s happening at a tremendous rate, and it’s not very clear yet what the end game will be in many of these fast-changing areas. It’s an exciting business to be in, to be sure, but there are still some major challenges to be solved (and it’s not clear who will solve them), not the least of which is fragmentation in the user experience. I continue to believe whoever solves that fragmentation for users will score big in the future TV market.

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw, a technology research and consulting firm focused on the confluence of consumer devices, software, services and connectivity. During his thirteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.
  • jfutral

    My take on the Scripps stat, anecdotally of course, is that every time I’ve seen those channels tuned to, it is almost always like a radio station. People kind of turn them on and leave them without _really_ watching for specific shows, that is until one comes on that grabs their attention during the time they have the channels on. I feel like, as OTT catches hold, that would still be a key way for them to offer programming, just back to back streaming of shows on their website or app, with commercials or without for paying customers. Heck, I’d pay for Food Network or HGTV that way. Those are great channels to simply have on, even if just in the background. Even better if I could search their archival programming for specific help on projects (Thanksgiving dinner, dining out while traveling, or home repair/renovations). HGTV and Houzz.com should team up.

    Joe

    • Space Gorilla

      Yes, TV is a passive activity, and viewed more along the lines of genre I would guess, “I like sci fi” or “I like renovation shows”, exactly the way we listen to radio. Good comparison.

    • It’s an interesting thought. Whenever I see stats on total TV “viewing” in the US I’m convinced they reflect this sort of behavior, as the total average number of hours per person way exceeds the time average people could actually spend actively watching shows. I think the “left on in the background” scenario accounts for a lot of that viewing. I do think we’ll see some channels / companies experiment with pay-per-channel models, but I suspect most viewers will tire of the hassle and expense of paying for all their channels individually. The cost will quickly add up for anyone who watches more than a few channels.

  • I.A.C.

    Jan it’s evident why online viewing would be tied to cable subscriptions, but mobile? Why?

    • It’s usually all tied back to a pay TV sub – through authentication. You have to prove you’re a subscriber to get access. As such, subscription revenue would appear to be cable-only even if viewed on a mobile device. Though ad revenue would still show up in the mobile category.

Protected by Gerben Law