The TV viewing market is at the edge of an unprecedented disruption: More than a half of industry executives and experts (53%) expect transformational shake-up in revenue distribution over the next five years according to the new A.T. Kearney global study on the changes in the video and television industry: production houses and Internet companies providing OTT video could be the major winners (Netflix, Google, Amazon).
The new edition of A.T. Kearney’s NextGen study assesses the disruption and sheds light on new business models of the global TV market. The expectation is major disruption in the next five years, across all markets although at different speed. In markets such as Northern Europe, North America and developed Asia, disruption is already well under way.
Based on interviews with C-level executives from pay TV providers, telecoms, cable companies, broadcasters, and online video providers, 64% of respondents expect broadcasters to market their own OTT platform and estimate that 75% of consumer paid revenues in OTT will be from subscription vs. 25% from pay per use.
Three Middle East countries feature in the top 15 countries in our TV Disruption Index. Saudi Arabia ranks highest in the Gulf, boasting the world’s highest YouTube consumption per capita, relatively cheap mobile data, and one of the youngest populations in the world. We can expect significant changes in this region in the coming years. Those players that proactively change their business models and internal operations in the ways highlighted in our study will be best placed to sustain and grow their market positions.
Although the trends in TV market around the world are similar, the environment and pace of disruption varies. The A.T. Kearney Global TV Disruption Index assesses how much disruption each country can expect over the next five years. In that Index, disruption is defined as a shift in video consumption from linear broadcast to OTT platforms, i.e from serving homes to serving individuals
Christophe Firth, A.T. Kearney principal and co-author of the report says: “Markets experiencing disruption are expected to follow a similar curve. There is therefore much to learn from markets that are both at the same stage and those that are further along the curve. Although some markets appear to be safe from short-term disruption, the landscape can change quickly, particularly through supply-side innovation and changes in connectivity, such as national fibre rollouts, the launch of 5G, or mobile data price wars.”
As content and distribution converge, and all players pursue direct-to-customer models, there is a massive increase in content and platform options for consumers. These developments lead to an oversupply of video services for consumers to choose from. The study indicates executives expect households to pay for only two or three video subscriptions. With most content owners and new service operators lacking capabilities, resources and experience to provide direct-to-consumer offering, market fragmentation will create opportunities for companies to deliver this overflow of content in a compelling and structured way.
“Our study indicates a strong latent demand for what we call content navigators. To thrive in this new environment, having the right content is no longer enough. The user experience and branding are also central elements of the value proposition” says A.T. Kearney Partner Jan-Piet Nelissen, co-author of the report. “Many companies in the TV ecosystem can pursue a content navigator role, but given our consumer insights, there will not be a place for everyone. Speed and scale will be critical.”
Industry executives expect Production Houses and (diversified) Internet companies providing OTT Video to be major winners going forward. Respondents mention Netflix (32%), Google (26%) and Amazon (17%) to be the biggest threats to their business. On the other hand, Pay TV operators and broadcasters are the most at risk mainly due to the lack of experience in digital experience building.
A.T. Kearney’s most recent global study on the changes in the video and television industry included the distribution of 80 surveys and interviews with industry executives and experts on pay TV, telecoms, cable companies, broadcast, and online video providers. The results from this study have provided key insights on the video ecosystem—both the anticipated rate of change and recommendations on how to remain competitive as the industry continues to grow. From these insights, A.T. Kearney has developed recommendations on how to remain a strong player in the game while the industry continues to evolve.
Today, more than half of the world’s population is online, and consumer demand for online capabilities is experiencing a huge spike, forcing companies to keep up with the shift towards digital video distribution.
Companies such as YouTube, Apple, Netflix, and Amazon are constantly updating and forcing traditional networks to merge with other companies and to provide their customers skinny TV offers to keep their prices at par with online providers.
The global study observed that online video supply is growing fast, where demand is not, creating confusion at the customer.
Where 55% of customers are willing to pay and 53% want recommendations from their preferred platform, the report sees a new role developing in the value chain: a Content Navigator provides order for customers, based on a smart, but simple, interface, providing access to all video available.
This ‘disruption’ in the traditional TV ecosystem has been caused by a myriad of reasons. Compared to the ‘old world’ of television, this new ecosystem caters to a larger, global scale audience, allowing easy access for audiences with smart TV and smartphone availability.
Content Navigator platforms will evolve into a business platform that are simplifying and enhancing the video experience for viewers and adding value for all stake holders.
The revenue streams from this model come from ‘multiple sides’: customers pay for subscription fee or one-time payments to watch content provided by the company, advertisers pay to place ads on the service, content producers pay to receive data that will improve their content.
Where cablecos and telcos have the choice between a focus on connectivity only become Content Navigator, Pay-tv operators need to evolve into content navigation.
The report, distinguishes between four Content Navigator business models: pure navigator, premium producer, integrated, and tech navigator.
Each model stems from, amongst others, the level of proprietary content provided, the types and volume of advertisements offered and the amount of digital involvement in their navigator.
Becoming and remaining successful as the industry evolves will become a ‘survival of the fittest’ competition – one that will force companies to excel in several capabilities at the same time: provide compelling content, provide an exceptional customer experience, project a clear brand identity, and remain flexible in their commercial propositions.