Friday 24 May 2019 8:49 pmSchroders Talk

The future of TV: Is it just the walking dead?

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  In 2014, Netflix CEO & Founder, Reed Hasting, prophesied that “linear” – or traditional broadcast – TV would be dead within 15 years. As the company has grown, so too has the belief that his prediction will come true. However, while the future of broadcast television looks very different, we don’t think TV is finished just yet.

How we watch today

According to a recent Thinkbox study – a marketing body for UK commercial broadcasters – we watch TV for three reasons:

  • To escape/indulge
  • To unwind/seek comfort
  • To connect/experience

Whilst there is an element of overlap between them, in the main each state requires a different type of programming to fulfil it. These requirements are the reasons why such different programming can be equally popular, e.g. UK soap opera Coronation Street (comfort), UK talent show Britain’s Got Talent (connect) and Netflix sci-fi series Stranger Things (escape).

These states also give us an idea as to how programming will remain differentiated on a global versus a local basis. ‘Escape’ can be the same across any culture, it just needs to be something you don’t do everyday (like selling crystal meth or visiting shadow dimensions). As such, it lends itself well to the business model of subscription video on demand (SVoD) where content is distributed globally.

“Connect” and “unwind” are different beasts. Connect relies on people watching content at the same time. You can’t vote on Britain’s Got Talent when you aren’t watching live. Unwind is primarily found in cultural familiarity (Coronation Street is one of the most popular shows in the UK but only expats watch it in the US). As a result these two states find a better home within local distribution.

While Netflix may be able to dominate in one area, it appears there will remain a need (and therefore a future) for locally generated content.

Still time for a commercial break

Whilst Netflix is growing in popularity, advertising continues to finance the majority of the TV you watch today. The reason is simple, it is a great advertising medium.

In the marketing world campaigns fall into two different buckets, “sales activation” and “brand building”. The first is generally short term and very targeted, usually achieving an effective uplift in revenue that fades quickly. The second has a broad reach focused on emotional engagement. Typically, brand building has modest results in the short-term, but long-term, can drive consumers to a brand without the need for continued repeat spend.

All companies have and will continue to employ both sales activation and brand building, but the “mass-reach” and emotional engagement required for brand building is only really currently available from traditional TV.

There is a genuine lack of alternatives out there for advertisers to meet these brand building needs. Even if traditional TV’s mass audiences are showing signs of dwindling – which itself is debatable, but an argument for another day – as they do so, the amount of advertising space that fulfils the mass-reach requirement becomes scarce.

As with all demand/supply imbalances, the product of this phenomenon is price appreciation. This is positive for those broadcasters that retain large audiences, who are then able to recycle this money back into new content production.

Back to the future?

In a world where this scarcity model drives TV advertising pricing ever higher, the question arises of if/when Netflix and Amazon decide to join the party. As content costs soar will these two giants charge more for their products or will they move to a hybrid approach where the viewer is exposed to a limited amount of advertising.

It’s not a new model. After all, it’s simply following the lead of Hulu in the US and Maxdome in Germany, both of which have enjoyed reasonable success. Whether the heavy anti-advertising rhetoric of Netflix allows it to launch a hybrid model in the US is yet to be seen. However, in international markets a hybrid model could just prop up revenues enough to allow Netflix to sustain its content spend in the long term.

The empire strikes back?

In the face of potential disruption to its core brand building revenues, broadcasters are fighting back. For the first time, the emergence of streaming apps has given these broadcasters data on, and direct access to, their viewers. This is a powerful combination, allowing them to serve individuals-targeted adverts just as Facebook and Google do. They can therefore gain access to advertisers&rsquo