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ITV results cast light on way forward for traditional TV companies

Downton Abbey R2 TV Cd coverUK broadcaster ITV announced their results yesterday and the differing fortunes of the two halves of their business show the way forward for traditional TV companies everywhere. The two parts of the ITV business are content production and content distribution. The production business is doing well with shows like Downton Abbey getting large audiences in the UK and selling well abroad, but revenues at the distribution business declined. The good news for ITV shareholders is that investors thought the positives outweighed the negatives and sent the shares to a 52 week high.

I say this is the future for traditional TV companies because distribution (or access) is being rapidly commoditised by the web and the old model of producing content in house and shovelling it out to consumers with limited choice over what to watch is dying fast. Content production and distribution are no longer tied for technical reasons – any show can be streamed or downloaded at any point to any device with a broadband connection (Downton Abbey is available on iTunes in the UK) – making any future coupling purely a business model decision. We are seeing distribution businesses like Netflix, Amazon and Youtube commissioning their own exclusive content to drive subscriptions to their platforms but this will only be effective beyond the margin if both the content and the distribution are best in class. Otherwise consumers will reject the bundle.

Traditional one country broadcasters have a shot at being great content companies (as ITV is showing) but over time their broadcast TV audiences will dwindle and ad rates will fall as more money moves on-line, and in the next few years the distribution sides of their businesses will lose their value. Their only hope is to build big audiences for their web properties, but I see the chances of success here as slim. The US might be different due to the size of the market where Time Warner (owner of HBO) might combine great content production with a great distribution business – but even then the execution challenges of managing artists and techies within the same organisation will be challenging.

  • Matt Millar

    As a consumer the marginal cost to me of getting live content streamed over the internet or TV broadcast is now almost zero (true, it’s slightly easier to turn on a TV and press “1″ and be served something than to find the content I want in an app/website – but it’s pretty small)

    So the challenge for these businesses is really “how do I continue to innovate in the content now that the traditional “broadcast” model is losing it’s grip?”

    For a long time the delivery medium has informed the content to be created – which is why films are different to plays, and why TV content is different to films – in spite of the fact at the high level these are pretty much the same (indeed, there is _nothing_ stopping me watching a film on the exact same TV I can watch X Factor on – and I do, but can you imagine going to the cinema to watch an episode of X Factor?)

    So as the economic engine that has funded content creation (the distribution monopoly) loses it’s power, what are the disruptive innovations that will affect the content arms – and who will be the new winners and loser?

    Appointment to view content remains key – any broadcaster who pays for exclusive rights to live sport knows this – but appointment to view isn’t unique to sport – we see this with the TV apps we build (disclosure, we build and run the X Factor app for ITV) – the majority of usage peaks around the time that the TV show is on – there is value in an experience that you share at the same time as everyone else. (just as commenting on these results now – shortly after announcement is more interesting than commenting in 4 weeks – in spite of the fact that they are just as relevant then)

    The popularity (and effectiveness) of the livestream of Felix Baumgartner’s jump on YouTube shows that this isn’t unique to the medium – people want to experience things together and live – which typically has been capitalised on by the “broadcast” model, but in the new world needs new innovation to help.

    Fun times.

  • http://www.theequitykicker.com brisbourne

    Thanks Matt. The balance between TV that people want to watch live and that which they don’t mind is interesting to think about. Sport, reality TV, and the odd blockbuster episode of a TV series are the obvious drivers of live, but will they make up a big enough percentage of viewing to determine business models and tech architectures? And how much does this matter in a streaming world? And how do you deliver sit back and watch TV via a streaming interface?
    Lots of space for innovation.

  • neil_lewis

    Thanks for the insights Nic – I wonder whether the same applies to print publishers – be they books or newspapers?

    Clearly, being a Bloomsbury (publisher) has been a better business than a Barnes and Nobel (distributor) – but what about regional or national newspapers?

    Some print media companies – such as the Economist – have always run both a newspaper (The Economist) and a content production business (Economist Intelligence Unit).

    I’m beginning to see something similar happen at a regional newspaper level – where much of the money that ‘would have’ been spent on advertising via third party media is now spent on content creation for the brand or business itself. At the moment a lot of that money is spent via SEO agencies – but nevertheless, the product and service companies are increasingly paying for content creation instead of advertising.

    And this seems to reflect the same value drivers that you’ve identified in broadcast media?

  • http://www.theequitykicker.com brisbourne

    Hi Neil,

    I think brands are increasingly investing in content and engagement rather than buying advertising which also has its roots in the commoditisation of distribution.
    Does that answer your question?

  • neil_lewis

    Thanks Nic – partly answered – the example you give – Downton Abbey – demonstrates a build once, sell often – business model. However, the same model used to apply to newspapers and print news – but no long does thanks to the internet. The battle in the music industry to protect rights has its source in that desire to retain the ability to build once and sell often (in this case a 3 minute song) and it seems that music has reached a mid-way position where the song is available on YouTube – free – but via iTunes or a printed CD is a paid for product (ie retaining the build once, sell often model).

    Regional newspapers are losing out to SEO agencies, in my opinion, because companies typically create content for search ranking and social media ranking. The question is whether the newspaper groups can – or will – reformulate themselves as generators of content for their old advertising clients.

    The downside of this shift for newspapers is that they are shifting from the old media model of build once, sell often – to building customised content on an hourly rate. Therefore, as revenues grow, costs grow in line and they never get much beyond an agency model – which will always have a low valuation in comparison with a business that actually makes or creates something unique.

    Hence, I’m seeing the distribution vs content value shift – as you explained above – but also in newspapers print media, there is a shift away from build once, sell often – and that is what is really hurting this sector of the media.

    The opportunity will return to regional news when they can shift back to the build once, sell often model. For this to take place, they may need to become creators of localised special reports / books / information products – which have the potential to be replicated across other regions simply by dropping in data and tweaking.

  • http://twitter.com/stevesampson11 Steve Sampson

    Felix jumping from the edge of space had a record audience of over 8M watching live on YouTube. Very social and a straw in the wind for ITV. 500M have viewed Gangnam Style. Not social at all but huge levels of interest. Same provider. Content provision now goes way beyond the simple act of watching the programme. I see Zeebox rushing round the globe doing a deal a week. A lot of big media companies are laying down some heavy bets. (disclosure – I was an exec with News Int and Trinity Mirror). Newspapers are stuffed. The core technology is ancient (dead trees), re-purposing content online can’t monetise, Mail Online is enormous but does nothing for the main paper’s circulation or revenues. One transaction point (the coverprice) and you haven’t a clue who your end customer is. Radio re-invented itself when TV came along in your car/the tranny. I wish it was different for newspapers as I love them.
    How big is the parallel with ITV? There is so much fragmentation/catch-up TV etc etc they have to be quaking. They have a huge ratecard to maintain, digital is cheap as chips by comparison. Bizarrely it’s the SKYs of this world with a subscription based model who are to a greater degree future proofed. Their problem being bigger, nastier fish swimming into their waters.
    The simple programme is not enough. Mr Millar’s triumph with the X Factor App is without doubt part of the future of viewer engagement. ITV are considering an umbrella app for all of their shows. TOWIE generated 600,000 tweets last series, BGT had 44M interactions on the app. Shazam is their preferred social TV partner for maxing the viewer/ad experience. All good – but can they get enough real-time viewing around blockbuster shows. Can they keep coming up with them? “The next big thing” is going to come from outside the traditional providers. We’re all streaming YouTube video on our tellies now. Can you create an audience of 50 million which stays with you every day, creates a constant buzz round the vertical, has big peaks around the programming, demands more after each event. And creates a unique on-going inter-action opportunity for big spending brands. Woking on one right now.
    @stevesampson11

  • http://www.theequitykicker.com brisbourne

    I think a large part of the problem for local news groups is that their content is low quality, and easily matched by internet companies using high volume low cost content creation models similar to those pioneered by Demand Media. We used to read local newspapers despite the poor quality of the content because there were few alternatives. No longer true…
    High quality content producers are still making the build once sell often model work – e.g. Techcrunch. Your final paragraph talks to how regional news might build a quality offering.

  • http://www.theequitykicker.com brisbourne

    Hi Steve – to my knowledge all the successful companion apps have been for reality TV shows, and I wonder if the second screen will become popular in other genres where interaction with the show isn’t possible. One thing I’m struggling to get a handle on is how important realtime telly will be going forward. There’s a scenario where it is limited to sport and reality shows.
    The answer to this question will determine how users want to interact with their TVs and play a big part in determining the success of Google, Apple and Amazon vs traditional live TV companies. It will also have big implications for technical architecture and startup opportunities.