Who will be the winner of TV’s content war?
As TV networks shell out big money in their fight against established streaming giants such as Netflix, ad-supported video on demand services (AVOD) could emerge as winners – acting as non-threatening content hubs.
NBC Universal and WarnerMedia are both planning to launch their own over-the-top (OTT) services next year, with the former announcing last week that it’s yet-to-be-named platform will be available in April. Both networks have made splashy reacquisitions in their attempt to bolster their direct-to-consumer (DTC) products.
NBCU reportedly signed a five-year, $500m deal to get all nine seasons of its hit show back from rival Netflix starting 2021. WarnerMedia will apparently pay $425m over five years to carry all 10 seasons of its show Friends starting in 2020, aligning with the launch of HBO Max.
According to Nielsen, Netflix’s two most popular shows are The Office and Friends. Netflix paid around $80m to WarnerMedia and $100m to NBCU to stream Friends and The Office this year, according to The Wall Street Journal.
So not only are the likes of NBCU and WarnerMedia breaking the bank to regain their popular shows, they’re also losing out on licensing money they earn by selling off content to competing distributors.
Alan Wolk, co-founder and lead analyst at TVRev, said that over the next few years, TV networks entering streaming will have to evaluate that balancing act: Should they buy back all of their content and hope exclusivity drives up subscriptions, or should they be more open to sharing in the hunt for lucrative licensing fees?
“If people can watch The Office on Tubi, does that mean they'll stop subscribing to [NBCU’s service]? That's basically the math,” said Wolk. “What is the benefit to us in terms of subscriber acquisition and retention if we have an exclusive versus if we share it?”
Tubi is a free AVOD service that in June announced it had over 20 million monthly users. Pluto and Xumo are other notable AVOD services that rely on a library of licensed content from big media owners such as NBCU and WarnerMedia.
This increasingly fragmented streaming landscape ultimately means consumers will have to decide what to pay for and what to leave behind. Wolk suggested partnering with AVOD services – instead of subscription services such as Netflix – may not be “as scary” for big networks because these free services don’t necessarily run the risk of stealing away cost-conscious consumers.
Sean Buckley, chief revenue officer at SpotX, also sees a chance for AVOD services to benefit from this tension over inventory rights.
“There’s a huge opportunity for AVOD given that people aren't going to pay for 10 different streaming services,” said Buckley, adding that while consumers are growing frustrated with traditional TV ad loads, there’s still a tolerance for some advertising.
A study earlier this year found that 81% of consumers 14-to-35 years-old are open to ads if it means getting the viewing experience they want.
Wolk noted that networks first turned to Netflix as a way of catching viewers up on live shows. Someone would watch the first few seasons of Breaking Bad online, for example, and then tune into AMC to watch the show live once they've caught up.
The problem was that viewers got used to Netflix's user experience and ad-free environment, so eventually they stopped making their way back to broadcast. Wolk and Buckley both project that AVOD will emerge as an alternative because their free offering and relatively similar ad experience doesn't pose the same threat.
AVOD seems to be in growth stage. Xumo recently added 14 channels to its service. Pluto seems to be eyeing international expansion after propping up pop-up channels in Europe as it outpaces growth plans in the US. Amazon also rebranded its AVOD service as it looks to become a bigger player in digital advertising.
This all comes as Linda Yaccarino, chairman of advertising and partnerships at NBCU, said the network isn’t ruling out partnering with competing streaming services to maintain its profitable licensing business.
The fragmented OTT landscape could also force mid-tier TV networks to hedge their bets as they may struggle with attracting viewers to their apps.
“It's tough to draw an audience directly to them on that app and they want to maximize the distribution of that show,” said Buckley. “What would the viewership of a show look like if it were [widely available] versus just available in [certain] destinations? That's a tough equation to balance for programmers right now.”
Wolk said the general assumption is that consumers will subscribe to three-fo-five services, so networks that fail to differentiate may suffer.
“Our theory is that a lot of these smaller cable networks… where nobody knows what's on them anymore are the ones that are really going to suffer because you'll go: ‘Why am I paying for this? I don't even know what's on there.’”
Strategy behind the content
Wolk added that moving forward, streaming services will need to decide “what they’re about” – to figure out their unique offering.
Disney seems to have a relatively developed strategy. Disney+, which will launch 12 November, will offer family-friendly content and big-name titles such as Marvel and Star Wars. Hulu will likely house edgier content – including Disney’s recently acquired Fox assets – and ESPN+ is dedicated to sports.
AT&T has said HBO Max will include live sports, but that announcement comes after internal conflicts over how the telecom's TV ambitions fit with WarnerMedia's existing strategy.
While NBCU is figuring out it's content play, it first needs to figure out how consumers can access the service. CNBC reported that viewers will likely need a pay-TV subscription to access the streaming service, otherwise they can pay $10 a month for a slimmed down version that would not offer equal value.
“The big challenge for all these services is how do you cater to that broader middle,” said Wolk, noting that most streaming services tend to cater to well-educated, middle class audiences.
Wolk noted that since internet-enabled TV isn’t bound to the time constraints of a linear broadcast, streaming services have the opportunity to reach any and all kinds of audiences at once, but they’ll first need to iron out their content strategy.
What this means for advertisers
Manny Hernandez, vice-president and head of display activation at Essence, said this content shuffle will force advertisers to look at buying into more platforms. However, as Hernandez pointed out, advertisers don’t have access to show-level data when buying programmatically in OTT.
An advertiser may know they’re buying within Pluto on the Comedy Central channel, for example, but they can’t see what show their ad plays in.
Wolk said that a big TV network’s streaming service and a free AVOD service should be considered as equally premium environments, so it’s just a matter of advertisers finding their audiences.
Content is a strong indicator, but it isn’t necessarily a proxy for audiences. Wolk said at this point, filling a streaming service right now is more art than science.
Hernandez said data targeting is an equally valuable buying strategy in OTT.
“If you're trying to define tech savvy people, you might target by device,” said Hernandez as an example. “Bottom line, there are different signals beyond the content itself.”