Apple and Microsoft
One trend in the video space is players like Microsoft and Apple looking to have more of an impact. Microsoft signed a deal with BSkyB in May to provide Sky TV services through the Xbox 360 video game player. Apple has set the pace in the portable media player (PMP) market with its iPod and then with Apple TV.
However, some in the satellite industry believe it may not be sexy brands like Apple that will prove the ultimate winners in providing video services to the next generation of users but rather TV operators which already have established relationships with content players and a significant amount of buying power. “Television is very different from music and books. It is about content experience and this is what matters,” Peled says. “TV operators are large players. They have strong content relationships. They understand the consumer. They understand that they need to offer the customer the ability to offer content everywhere. Apple view this as an opportunity to sell more hardware, but we think TV operators will win because they have the content relationships they have as well as the buying power they have because of the established subscriber bases that they have. To get any good content, you need minimum guarantees. It can be very expensive otherwise. Joost was setup by marquee names but didn’t work. Yes, people are watching YouTube, but they are still watching popular content.”
Harshman cited DirecTV’s agreement with the NFL as an example of a satellite pay-TV operator flexing its muscles in the content area. “The traditional pay-TV providers have the relationships. After all, they have the experience in maintaining a profitable business model and the monetization of this content. The key players in this industry are well-positioned to be at the forefront. If you look at DirecTV for example, they have signed an extension of the NFL Sunday Ticket. That agreement not only includes making games available for viewing for television, but also across different devices. I see that as a harbinger of what will come.”
The past and the future are colliding, says Peled. “There are two conflicting trends in the market which have been going on over the last two to three years. They are actually coming to a head in the way we suspected. Customers want free content, but there is this notion that advertising will make up for this free content. As you know, a lot of businesses are rethinking that. We did a study on this over three years ago. Our research told us that you would need to double advertising revenues to make up for subscription revenues. Advertising growth is like GDP growth, so there is no way that it can possibly make that leap. If GDP goes down, so do advertising revenues. Our conclusion was either costs go up, or it is not going to work. This year, for the first time in the United States, you are beginning to see authentication where you can watch stuff on the Web, but only if you can authenticate that you can watch it on pay-TV so you have to prove you are a paying subscriber.”
There is little doubt this is one of the most exciting times to be involved in the TV industry. However, with the next generation of digital video user more demanding than ever, wanting more for less, the path to profitable business models will continue to be a tricky one to navigate.
Mark Holmes is Via Satellite’s Associate Editor.