Aggregation, audience engagement should be key areas of focus

December 7, 2020

Source: NEXT|TV

 

The first TV station in the United States began broadcasting on July 2, 1928, ushering in a new medium for storytelling, news and advertising. Television’s entrance into the mainstream brought together a new business ecosystem made up of content creators, advertisers, distributors and viewers.

Ninety years later, the key roles in the television landscape haven’t changed. But the advent of streaming has inspired new players, new business models and with them, new winners and losers. As the thrashing market nurtures some businesses while starving others, a new equilibrium will emerge. In that new equilibrium, how will operators survive, or perhaps even thrive?

As with many business questions, the answer often starts with a line from a Hollywood script: “Follow the money.” Advertisers historically have been the financial engine behind television entertainment, and their influence is still apparent in spite of the seismic market shift. Back then, as now, content was king and advertisers paid accordingly. Brand managers and ad agencies used to commit a full season’s worth of spending in advance without a clear understanding of how a new show would perform. Advertisers bore a lot of risks and, in return, they got Nielsen reports. On paper.

For a long time, the only thing that changed was the price of content. And with the higher price of content came the demand for higher advertising revenues. Both the costs for ad spots and their frequency increased. High market-entry barriers allowed runaway content-cost increases that were passed on to advertisers and viewers.

Ripe for Disruption

Fast-forward through decades of fossilized business models and you see why the ecosystem was a prime target for disruption by the rise of digital advertising. The explosion of real-time ad markets and troves of audience data significantly lowered ad costs and provided better targeting, tracking and analytics. Three-martini, Mad Men-style lunches became obsolete as advertisers pulled back commitments in favor of web and mobile advertising. To keep advertisers, television service providers need to offer more targeted access to customers, along with better tracking and analytics.

In the meantime, ad-free Netflix burst onto the scene and the direct-to-consumer (D2C) business became a thing. This threw another wrench into the TV ecosystem equilibrium. At first blush, D2C looks like a win-win-win-lose proposition. Content owners win by cutting out the middleman. Advertisers get one-to-one engagement and real-time feedback. Viewers get lots of choices and can cut the cord (and spend it instead on four to six over-the-top apps). Operators, as the distributors, appear to lose out.

So the question becomes, “What problems still exist today that also existed 90 years ago that operators are uniquely positioned to solve?” After all, with hundreds of available apps and subscribers maybe only signing up for four to six, content owners still need access to consumers in order to attract advertisers and subscription revenue. Consumers still want their entertainment to be easy to access and enjoy. This brings us back to our original question: Is there room for operators to survive or thrive?

Operators need to focus on two important areas. First and foremost, they need to embrace the role of master aggregator by providing content from all sources. This goes beyond traditional studio content and includes OTT sources as well as hyper-local and niche content. Television entertainment is now a one-to-one experience, and the content catalog has to be as diverse and eclectic as the community it serves. While there are plenty of contenders trying to be the master aggregator of content (e.g. Apple TV, Android TV, Fire TV, Roku, etc.), none of them can address the local community as effectively as the operator. Operators also aggregate consumers for the content owners and advertisers. It is this second role as an aggregator of subscribers that really gives them staying power in the market. Operators help lower overall distribution costs while lifting retention rates. With churn rates for OTT frequently as high as 50% or more, any pure D2C play becomes very expensive and hard to sustain.

Think Engagement 

The second point for operators to focus on is adopting an engagement mentality. Service providers need to evolve from their role as passive distributor in a one-to-many pipeline to an active participant in the one-to-one marketing model. This is accomplished by creating a more personalized experience that brings people together with the content they love. This approach requires a combination of innovative features and more flexible business models and service bundles. Success can be found with a heightened emphasis on promotion and merchandising to keep great content front of mind and to encourage upselling. And, of course, personalized advertising helps capture every source of revenue to help keep consumer prices low.

At the end of the day, operators still have an important role to play as aggregators — aggregating content on one side and consumers on the other. But in order to maintain relevance, they need to evolve their technology platform and business models and embrace a customer engagement mentality. Content owners want to keep making great content. Advertisers want real-time access to consumers. Consumers want easy access to a variety of content for a reasonable price. Operators will maintain relevance by efficiently bringing all of them together. And so, the dance continues.

– Matt Cuson is VP of product and marketing at Minerva Networks.