The media landscape is evolving rapidly before our eyes. A sea change has taken hold in many areas, perhaps none more so than in cable television. As a result of frustration over cable and satellite customer service and costs, many TV viewers have "cut the cord," meaning they choose to watch TV programs via other options.
Over the past eight years, cord-cutting has increased by 48%, with 14% of all households now fully removed from cable contracts. And the amount of cord-cutters only seems to be increasing; in Q3 of last year alone, nearly 1.2 million people defected. Traditional television is on a fast track to the media morgue. In a progressively virtual world, video content providers will need to adapt in order to stay alive in an increasingly competitive market.
THE OPPORTUNITY OF DYING MEDIA MODELS
One of the main reasons that cable viewership is dying is because of the low popularity of cable companies. High cost, poor customer service and a lack of value for money have been cited as factors resulting in customers losing faith in traditional cable companies.
Over-the-top (OTT) video media providers have seized the opportunity. With a la carte video options, consumers are able to choose the exact content they desire without having to sign lengthy contracts. Even established television networks are beginning to offer their services online. HBO, the longtime stalwart of premium cable, successfully launched its standalone service HBO Now in 2015, giving cord-cutters easy access to cutting-edge television programs.
With traditional television-viewing declining, cable companies have begun to adapt to the new media climate by developing their own streaming services. With enormous amounts of capital to spend, telecommunications networks are beginning to fill their arsenal with the most prestigious content providers. Already, NBCUniversal, Disney and Apple have announced plans to create their own streaming services with original content. AT&T’s acquisition of Time Warner shows a clear commitment to providing top-of-the-line programming to compete with the growing quality of original content on Netflix and Hulu. With the luxury of already owning premium commodities such as Marvel and Star Wars, Disney’s long awaited streaming service should immediately become competitive.
Another opportunity lies in enhancing its set-top box production (STB). STBs may seem like a dated tech, and yet the market is expected to be worth over $46 billion in 2027. Demand for HD STBs is abundant in order to access the full potential of 4K televisions, but as traditional cable STBs decline in popularity, investing in OTT-device STBs could prove a fruitful opportunity.
Telecommunications companies need to also look at OTT services for the ways in which they view advertising. By shifting from broadcast television to OTT devices, companies can spend advertising money more efficiently. With intelligent audience platforms such as TruOptik, advertisements are able to have shorter, better-targeted ads that customers don’t mind watching and companies don’t mind paying more for. In short, it’s a win-win for both sides, the mythical “Holy Grail” of advertising. However, there is yet to be any evidence that this lofty goal is achievable.
LESSONS FROM THE MUSIC REVOLUTION
Apple officially marked its intent to join the streaming arms race with Apple TV Plus set to be released this fall. In fact, the battle between Netflix and Apple has already begun. With a preemptive strike, Netflix recently dropped Airplay support from its app, while Netflix remains conspicuously absent from the Apple TV service. But in this current hypercompetitive video media climate, Apple may have a secret weapon: a roadmap of past success with iTunes.
In 2003, Apple faced a similar crossroads. iTunes began in 2001 as a media player to pair with the nascent iPod. With the release of the iTunes Store in 2003, it quickly became the premier music marketplace in the world. At its height, over two-thirds of all music purchases were made through the iTunes Store. Considering the sheer ubiquitousness of iTunes in the music industry today, it’s strange to think of its launch as an ambitious move.
The rise of peer-to-peer (P2P) music sharing sites such as Napster and Limewire had decimated CD sales by making pirated music accessible to anyone with a simple download. The music industry was in a crisis—or as Apple CEO Steve Jobs put it, a revolution. The stage was set for a kind of “cord-cutting” of the music industry that mirrors what’s happening with TV today.
Apple noticed this disconnect between consumers and record labels, and sought to develop a means to bridge the gap between the two. The iTunes Store aimed to address the concerns of consumers who wanted easier access, flexibility and lower costs without sacrificing quality in their music selection.
To address these issues, Apple made sure that they had top-of-the-line premium content for users to purchase. They secured contracts with some of the biggest record labels—Universal Music Group, Warner and Sony to name a few—and launched with 200,000 songs available to download. They set the price per song at a strict 99 cents, allowing customers to pick and choose whichever tracks they desired. And those who had previously pirated their music were able to experience the same ease of access with a simple click of a button. Demand picked up immediately, with a monumental one million songs sold within the first week. Later that year, iTunes Store was released for Windows, and Apple would continue its ascendency to a global juggernaut in music.
The climate for Apple TV Plus isn’t identical to what it was for iTunes: Rather than being bold new explorers in an emerging industry, they will enter a video media world with hordes of competition eager to see them fail. But by using the same strategies employed in the creation of iTunes, Apple TV has a blueprint for success.
Without the partnerships with major record labels, there is little chance that the iTunes store would have gotten off the ground as smoothly as they did. In a video media world where Netflix is winning Oscars, quality content is perhaps the most critical element. With confirmed original content from established stars such as Oprah, Steven Spielberg and M. Night Shyamalan, Apple is once again aiming to provide quality programming from the jump.
Apple can also imitate the ease of access for its customers that it executed with iTunes. iTunes optimized the process by allowing for consumers to choose songs or albums at the click of a button. Apple doesn’t seem to be giving this the full care it deserves in its video streaming, however. With Apple Plus TV, customers are able to access it in 100 plus countries, but crucially, its not compatible with Android or Microsoft devices. In order to fully reach its potential, access to this market is critical.
Another reason for the success of iTunes is its low price. When attempting to compete with pirated music, having a low price for music was essential. This is also the case in the hypercompetitive environment of video media. Apple has been tight-lipped about the cost of their service, while it did announce that there wouldn’t be any ads playing before the content. If Apple chooses to have a lower price than its competitors, it could prove to be game-changing.
Most companies probably will not survive the evolving media landscape if they take an insular approach to addressing changing consumer needs. They’ll have to look beyond themselves: whether that means embracing new revenue models, new technologies or perhaps new partners they didn’t know they would have. The challenge is a steep one, but it can be solved with always having the customer at the top of the mind.
Javier Brugues, is the director of Business Development atintive.com.
