A New Era in TV
Such a dramatic transformation provides opportunities as well as challenges for today’s incumbents. It also provides compelling opportunities for innovative new entrants, large and small. When all is said and done, consumers will be the winners.
There are approximately 100 million pay-TV subscribers in the U.S. who receive multichannel video service from providers such as Comcast, Time Warner Cable, DirecTV, Dish and Verizon. These subscribers watch an average of almost five hours of live TV per day or approximately 44 billion hours per month. That’s a lot of TV! But video consumption habits are changing. People today want to consume their video content anywhere and anytime, however they choose. They also wish they didn’t have to pay so much for the premium content that they currently pay for and/or don’t actually watch (the average video subscription service costs are approximately $75/month in the US). In addition, consumers have indicated that they might actually be willing to pay for different types or “bundles” of content than studios and programmers either realize or are currently willing to offer. But that’s another article unto itself, in which I’ll provide an overview of what I refer to as the coming “atomization of content.”
All of these changes in video consumption habits and desires — combined with increased broadband penetration and mobile device usage — have led to several evolving dynamics in the pay-TV ecosystem. These include an increase in cord-cutting/cord-shaving (this term refers to a consumer’s decision to completely cancel or significantly reduce their pay-TV package), a dramatic increase in online/Internet TV viewing over the last few years (today, greater than 640 million hours per month) and the creation of a parallel video ecosystem consisting of emerging TV and digital media services platforms as well as OTT/Internet TV Networks.
There are several companies leading the charge on innovation in the pay TV ecosystem. On the digital media services platform front, Roku and Apple TV are the two that have garnered the greatest consumer adoption, with approximately 90 percent combined market share in the US — and each of them has sold several million set-top boxes and a large amount of digital content. However, each one possesses a distinctive value proposition with different price points, content offerings and use cases (a comprehensive review by CNET of both Apple TV and Roku can be found here).
Regarding Internet TV networks, Netflix, Hulu and Google/YouTube have all built significant businesses to date, albeit with different content offerings, business strategies and use cases (combined, they had revenue greater than $4 billion and several hundred million users globally in 2011). Each of these entities, as well as Amazon, has also been quite aggressive at building out online video capabilities, not only by increased licensing of premium streaming video content, but also via the allocation of hundreds of millions of dollars dedicated to creating/producing new video content exclusively for distribution over the Internet.
Other technology behemoths, such as Intel and Microsoft, are also working on their own product and service offerings to participate in and help drive change in the pay TV ecosystem. Intel has had a number of Digital Home initiatives over the last decade, and now it’s intending to launch a pay TV service. The rumors about this effort include claims that Intel will deliver the service via an Intel-designed proprietary set-top box. Microsoft is aiming to have an integrated HW and content services TV offering, using Xbox as its set-top box or gateway in the home, supposedly delivering a wide range of licensed content as well as originally-produced content.
While the big technology incumbents evolve their strategies, a number of young start-up companies are innovating as well. Companies such as DecaTV, Awesomeness TV, Machinima, Filmon and others are essentially growing up as Internet TV networks, channels and/or media companies — each, in large part, developing its own video content focused on specific interest themes and demographic targets. For example, DecaTV is producing original video content for “engaged, affluent and educated women online.” Machinima has emerged as the leading video gaming entertainment network for gamers around the world, showcasing gameplay, original shows, game trailers and news. Awesomeness TV is a new Internet channel focused on teens and tweens, founded by former Nickelodeon and WB producer/director Brian Robbins. Filmon, founded by Alki David, is a global Internet TV network with a host of licensed as well as produced and owned content, and has one of the most extensive international content offerings.
Companies like Maker Studios, SkyChannel, Nimble TV, YapTV, Zeebox and others are innovating on the tools, infrastructure and services side. Maker Studios is essentially a one-stop shop for Internet TV development, production, promotion and distribution. SkyChannel is providing the most comprehensive and straightforward suite of tools for content owners to publish and charge for their content libraries on a multitude of devices, platforms and operating systems. Nimble TV is pioneering true “TV Anywhere” service with elastic cloud DVR capabilities as well as place-shifting (e.g., Slingbox-like) functionality. YapTV and Zeebox are two of the more impressive “Social TV” apps that provide a robust multi-screen, real-time viewing experience to consumers.
With the aforementioned transformations taking place in the pay-TV ecosystem, who will be the winners when all is said and done? Anyone who tells you they know for certain is wrong. What I can tell you is that although the incumbents will be challenged in a number of ways, you should not expect them to disappear anytime soon. They have tremendous resources, a history of competing vigorously in the marketplace and have shown the ability to evolve their existing businesses just enough to remain dominant. However, I do expect that there will be some new and innovative companies that will emerge as next-generation leaders in practically every part of the pay-TV ecosystem. I have my own ideas of which companies may be included in this group, but it will be the consumers who will really win — with increased content choices, more advantageous pricing schemes and the true capacity to watch whatever, wherever and whenever they want.
Daniel Leff is a Venture Partner at Globespan Capital Partners, a technology-focused venture capital firm with offices in Palo Alto and Boston. He invests in digital media companies, among other things, and is an investor in and on the board of Roku. He tweets at @dr_daniel_leff.