The average adult in the UK now consumes 4 hours and 35 minutes of video content each day. A proliferation of channels, providers, devices and modes of watching has left us with a seemingly inexhaustible range of content to choose from, at home and on the move. The challenge for media providers is how to feed this need for entertainment, through the right investment in production, infrastructure and customer experience.
Playing the content trump card
Content offering is increasingly a key differentiator in a saturated market, with exclusive content the factor most likely to influence people’s decision to pay for, or pay more for, a video streaming service. Sport in particular is a large draw; 35% of media subscribers agree that live sport is a significant reason to purchase a pay-TV service, rising to 45% amongst men. Unsurprisingly UK media providers have to dig deep in their pockets to keep up with the most in-demand content, like rights to Premier League matches. Sky paid £4.1bn for their rights in the 2016-19 seasons, to retain their dominance in the face of a serious challenge from BT Sport. Ofcom data shows that spend on sports channels increased 24% in 2016 to £2.9 billion. Meanwhile, spend on entertainment content grew 7% YoY to £910 million and spend on films increased by 10% to £340 million.  Broadcasters know that investment in exclusive Sports and Entertainment content is necessary to fend off competition in a growing pay-TV market.
Is this insatiable appetite for content making media providers lazy and their customers fickle? For certain providers, access to the best content has become a distraction from good customer service, a carrot to dangle in front of new and disgruntled customers. And those consumers are only too happy to hop around, switching services and accumulating subscriptions for fear of missing out on the latest ‘must-watch’ series. Although content is king, it is not a sustainable driver of customer loyalty or growth. It is ultimately another commodity which can be traded up or left behind. To build a sustainable business, media providers need to get the basics of customer service right first.
The elephant in the room
But there is an elephant in the living room, as Tony Hall, Director-General of the BBC, is well aware. Speaking at the release of the BBC’s annual plan in March 2018 he acknowledged that “the global media landscape is going to be dominated by four, perhaps five, businesses on the west coast of America in the years to come,” and offered a vision of how the BBC would compete with a new threat – FANGA. This acronym for Facebook, Apple, Netflix, Google & Amazon, is apt for these new media giants and the sizeable bite they have taken out of the global media market. In a sign of how rapidly the new players move, Netflix’s value recently peaked at $153bn, surpassing that of Disney co., and it has amassed 125 million subscribers in barely a decade. Netflix is in prime position to usurp traditional pay-TV broadcasters: a subscription Video on Demand service, offering international and home grown content at a fraction of the price of pay-TV.
The main driver of Netflix’s success is a fundamental shift in how we consume content. Over a third of people are now ‘binge viewers’, watching multiple episodes of the same programme in one sitting at least weekly. The most stark behavioural changes are generational: last year, for the first time, 16-24 year olds spent more time on Netflix in a week than all BBC services put together, including iPlayer. To stay relevant, established providers need to keep up with our changing viewing habits. The BBC has committed to transform iPlayer by increasing personalisation, making content available for longer and improving UX. Premium set top boxes like SkyQ and Virgin’s V6 have introduced multi-room, multi-device flexible viewing, intended to complement SVoD services. Meanwhile, Sky have successfully micro-segmented for the 16-34 audience, with Now TV, the UK’s first contract-free triple-play bundle, attracting 1.2 million subscribers to date. The fear that this would cannibalise Sky’s share of market seems to have been unfounded, with only a reported 2% of Sky TV customers moving to Now TV.
In order to retain that customer base, Sky will need to keep investing in premium content. Content like House of Cards, which Netflix produced at a cost of $4.5m per episode after borrowing $1bn to create more original programming. That gamble paid off, but it has set a precedent in the industry. A decade ago, premium drama cost an average of £1m an hour; but by 2016, HBO was spending a reported $10m (£7.5m) per hour on Game of Thrones. The fact that these sums tend to be spent on international productions that can be sold globally is threatening the UK production industry, with Tony Hall lamenting the impact of a £500m funding gap for uniquely British content.
How do you compete?
So how can the comparatively small UK media players keep pace in an environment where money talks? There are two approaches to content production: partnership and patronship.
The strain to fund more original content is fuelling acquisitions and consolidation across the market. Comcast’s bid for Sky is partly rooted in the need to “invest more in original and acquired programming… as we strive to deliver a truly differentiated customer experience”. Sky’s $250m debut partnership with HBO will allow them to produce more high-end drama in the vein of Game of Thrones, this time sharing the cost of production rather than paying huge sums for exclusivity rights. Meanwhile, Virgin Media have partnered with Amazon on a 10-part sci-fi series which is expected to cost $40m. Virgin Media’s chief digital entertainment officer stressed that they were coming together as “partners not predators”.
Liberty Global, Virgin Media’s parent company, is taking the patronship approach by investing in an independent TV studio, Platform One Media, leaving them “perfectly positioned to develop and distribute compelling narratives that are artistic, meaningful and addictive, by working closely with innovative, inspiring talent”. Certainly, the golden age of TV we are said to be living in has emboldened young creatives. They know that production studios are crying out for original story-telling, and are more willing to take risks and nurture new talent. So, content costs are on the up, but through clever partnerships and by cultivating creativity, smaller players can stand their ground, and retain their share of a booming market.
This is just one example of the impact that greater content consumption will exert across the broader Telecoms, Media and Technology sector. Mobile and broadband providers are well aware of the increasing demand for data and broadband speeds, as consumers look to stream and download content anywhere, at any time. To keep up, operators need to plan ahead, and understand customer requirements to stay competitive. Three has made a first move, responding to new consumption habits with ‘Go Binge’, a zero-rated data package for streaming services. As we have previously discussed, the need to adapt and develop new pricing models will only intensify with the introduction of 5G and ongoing Fibre rollout.
So far, traditional industry service providers have borne the burden of funding major infrastructure upgrades. Upgrades which FANGA then benefit from through their OTT services. However, as FANGA look to assert their dominance through operating networks like Amazon Web Services or devices like Google’s Pixel, they may also seek to circumvent and outpace the TSPs and ISPs of old, bridging the gap between media platforms and media providers. Will we see the end of traditional industry provider models? Or will FANGA simply inherit the incumbents’ issues?
Stay tuned to find out.
Kristina Bugeja is a management consultant at Moorhouse - a consulting firm that is focused on delivering sustained transformational change. Working in small integrated teams with our clients we support them in responding to their most strategic challenges. In doing so, we are able to leave a legacy of increased capability through a genuine commitment to skills and knowledge transfer.
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 IPA Media Touchpoints report, September 2017 http://www.ipa.co.uk/news/adults-spend-almost-8-hours-each-day-consuming-media#.WugwBJoo_IU
 Mintel - DVDs, Downloads, On-demand and Streaming report, March 2018
 Mintel - UK Bundled Communications Services report, March 2017
 Ofcom, Communications Market report, August 2017 https://www.ofcom.org.uk/__data/assets/pdf_file/0017/105074/cmr-2017-uk.pdf
 Ofcom, Communications Market report, August 2017
 Ofcom, Communications Market report, August 2017
 BBC Annual report 2018, http://downloads.bbc.co.uk/aboutthebbc/insidethebbc/howwework/reports/pdf/bbc_annual_plan_2018.pdf
 BBC Mediatique - Content Market Dynamics in the UK, November 2017 http://downloads.bbc.co.uk/aboutthebbc/insidethebbc/howwework/reports/pdf/content_market_dynamics.pdf
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