Media business sectors went through the digital wringer in 2014: the reinventions of music, newspapers, and book publishing are not finished, though such change is certainly underway. And this past year we saw the first serious signs of disruption in the biggest sector of all as television began its heave and quake from cord-cutting, alternative platforms, advertising shifts, and audience fragmentation.
Some of the key trends we’ll be watching develop in 2015 include:
- Video advertising technology saw its share of investment and consolidation, particularly in online video, last year. Now the payoff starts, and we may even see some online techniques like programmatic ad-buying gain traction for traditional, linear TV.
- Over-the-top (OTT) television will become a serious alternative for programmers and advertisers as broadcast and cable networks alike make more of their shows available online. Verizon and AT&T will launch initiatives in 2015, and while those companies claim to be targeting mobile users, the endgame is the big screen. At the same time, there is tremendous tension over traditionally cheaper online ad inventory.
- The net neutrality wars will accelerate, with a serious FCC vote likely in the first half of 2015. Whatever the result — and it looks like full Title II reclassification of broadband access might happen — litigation will follow. At a minimum that means months of legal skirmishing lie ahead before we have any certain outcome or enforceable rules on net neutrality.
- Apple will continue to roil the TV and consumer space. Don’t expect an Apple TV set so much as its own version of TV-Everywhere infrastructure and services. And though Apple Pay will be limited by device availability, it will goad retailers into supporting it, or a secure alternative.
Thumbnail image courtesy of scanrail/iStock.
Video ad-tech boom
As marketers increasingly move advertising dollars out of TV and into digital in search of greater targeting and addressability, the video ad-tech world is poised for a big 2015 after a year of industry consolidation and fundraising in 2014.
As study by CB Insights in June found that $518 million in venture capital money had been poured into ad-tech companies over the previous four quarters. That figure doesn’t count M&A deals, like the $640 million Yahoo spent to buy programmatic video ad platform BrightRoll in November 2014.
Improvements in dynamic ad insertion in VOD and TV-Everywhere streams have improved online monetization opportunities for content owners and opened the door to buying video ads through programmatic real-time bidding platforms.
The big video opportunity for ad-tech vendors, however, could turn out to be bringing programmatic buying to traditional, linear television. In December, demand-side ad-tech provider TubeMogul rolled out Programmatic TV (PTV), a new software platform designed to bring greater automation to the business of buying TV time. TubeMogul has deals to connect PTV to several supply-side platforms, including AudienceXpress, clypd, FreeWheel, place media, Videa and WideOrbit. In test campaigns run for 3M, Diageo, Quiznos, Allstate, Dell, Motorola, and Gildan USA, marketers had access to 80 networks and 35 percent of impressions ran during prime time, according to TubeMogul.
Programmatic TV buying remains nascent, and the amount of premium inventory available for real-time bidding is still small. But it is growing. In December, ESPN made some inventory in its flagship highlights show SportsCenter available via real-time bidding platforms. Adap.tv, which launched its programmatic TV ad platform in March, claims to have inventory available from 100 cable networks reaching 90 percent of pay-TV households.
The technology for programmatic selling and dynamic ad insertion in live TV is still a work in progress. But with $70 billion in annual TV ad-spend at stake, and online platforms wooing marketers with the ability to target audiences instead of simply buying shows, the way is open for ad-tech companies to supply both sides in the coming battle.
Linear OTT advances
The debate over cord-cutting is no longer about whether it’s happening but how much. According to Leichtman Research, pay-TV penetration in the U.S., including cable, satellite and telco, was 84 percent in the third quarter of 2014. That’s down 3 percent from its peak of 87 percent in 2012. The top 13 pay-TV providers, representing 95 percent of the total video market, collectively lost 300,000 subscribers in the quarter, more than wiping out promising gains seen earlier in the year.
Even among those who haven’t cut the cord, traditional linear TV is losing its grip. According to Nielsen Media’s most recent Total Audience Report, the average adult spent 4 hours and 32 minutes per day watching live, linear television in the third quarter, down 4.4 percent from the same period a year earlier. At the same time, digital video viewing was up 60 percent over 2013. Even among viewers 55 and over, long the most loyal TV watchers, digital viewing was up 55 percent while linear TV viewing was flat.
Those inescapable trend lines help explain why CBS and HBO have each moved to make portions of their linear channel available direct to consumers over the internet, despite the risk of alienating traditional pay-TV providers, and why Viacom has made deals with Sony and with Verizon to make some of its networks available through virtual pay-TV services delivered over-the-top. Increasingly, that’s where the viewers are.
Those baby steps into linear OTT won’t be the last, however. Verizon plans to launch its virtual pay-TV service with content from multiple providers by the middle of 2015. Dish Network has so far lined up deals with Disney, A&E Networks, and Scripps Networks for a linear OTT service it plans to launch in the first quarter.
AT&T also plans to launch an OTT service once its $48.5 billion bid to acquire DirecTV is approved by regulators. Both Verizon and AT&T are aiming to target mobile viewers, particularly as handsets that support LTE multicast grow more widely available starting in 2015.
How quickly linear OTT develops depends crucially on how fast technologies such as dynamic ad insertion and programmatic video ad buying develop. Simply trading TV ads for online and mobile ads on a one-for-one basis would be a net loser for broadcasters because of the lower fees online and mobile ads fetch. As the technology for leveraging location, personalization and other features of mobile and connected devices for ad targeting becomes more widely available, however, linear OTT could develop as an incremental monetization opportunity for broadcasters, which would attract more premium content into the space.
Never-ending net neutrality
Someday, believe it or not, the Federal Communications Commission really, truly will hold a vote on a new Open Internet order, better known as net neutrality rules. And that day will almost certainly come in the first half of 2015.
Anyone hoping that the FCC’s order will be the last word on the matter, however, will surely be disappointed.
Whatever the agency does — and it is looking more and more as if FCC chairman Tom Wheeler is leaning toward full Title II reclassification of broadband access — litigation is certain to follow.
“The big dogs are going to sue no matter what comes out,” Wheeler himself acknowledged at an FCC open meeting in November. “We need to make sure that we have sustainable rules, and that starts with making sure that we have addressed the multiplicity of issues that come along and are likely to be raised.”
At a minimum that means months of legal skirmishing lie ahead before we have any certain outcome or any legally enforceable rules regarding net neutrality.
Now that President Barack Obama has weighed in directly on reclassification, moreover, the issue has become thoroughly politicized along partisan lines. With Republicans taking control of both houses of Congress in January the odds that lawmakers will move to block or overturn any new rules that smack too much of Obama have increased significantly.
Even before the president issued his call for Title II, in fact, partisanship was creeping into the debate. According to a study by the Sunlight Foundation, roughly 60 percent of the comments submitted to the FCC during the second comment period were opposed to stricter net neutrality rules, including Title II reclassification. That was a sharp contrast to the first round, when opinions overwhelmingly favored stronger rules.
Much of the opposition in the second round of comments, the Sunlight analysis found, appeared to have been orchestrated by a single organization with ties to the billionaire Koch brothers, whose political organization has spent hundreds of millions of dollars to elect Republicans over the last two election cycles. If the Koch brothers have a position on net neutrality it’s now the de facto GOP line.
Given the intense partisan warfare on Capitol Hill these days a partisan divide over net neutrality is a recipe for gridlock on the issue.
The only thing certain about net neutrality at this point is that we’ll still be arguing about it a year from now.
Apple impact: TV and payments
Not to steal the thunder of Piper Jaffray analyst Gene Munster, but 2015 really could be the year for Apple TV. Not an integrated Apple TV set, as Munster has been predicting since 2010, but the start of a major effort by Apple to restructure the pay-TV ecosystem.
Apple has been a disruptive entrant into some markets — smart phones, for instance — but its real genius lies in capitalizing on underlying disruptive forces to create a new, Apple-friendly paradigm. It didn’t introduce the iTunes Music Store until the recorded music industry was fully aflame from piracy and the labels were ready to make very Apple-friendly licensing deals (which they later came to regret).
The pay-TV business, in contrast, has until recently proved remarkably resistant to disruption, as the networks have held tightly to their content and to their dual revenue-stream business model, leaving Apple to settle for its modestly functional hockey puck as its main TV presence.
In 2014, however, disruption finally came to the TV business. Cord-cutting is rampant, and prime-time TV ratings are declining across the board as the audience shifts its viewing to DVRs, VOD and over-the-top channels. In short, the pay-TV business is looking increasingly ripe for Apple to do its thing. And as I noted in a post here in August, several recent steps by Apple suggest its preparing to make its move, including building out massive CDN capacity for carrying video and developing a new set-top box for integrating linear and OTT services in a single interface.
The strategy starting to come into focus would be classic Apple. It would leverage consumer’s existing investment in pay-TV by creating a universal TV Everywhere platform that could be integrated with traditional pay-TV service while extending it to Apple mobile devices, just as iTunes leveraged consumers’ investment in their existing music libraries. Over time, iTunes became a platform for launching new services, such as the iTunes Music Store and the App Store. Similarly, as consumers’ investment in the traditional pay-TV bundle wanes or becomes more a la carte as more people cut the cord, Apple would be building a new base of connected TV set-tops to provide a market for new video channels and services developed directly on Apple’s apps platform, including live and mobile TV services.
It’s a strategy that may not make those pining for an Apple TV set happy, but it’s one that has worked well for Apple before.
Payments
Meanwhile, consumers’ use of mobile-payment system Apple Pay is likely to remain limited in 2015, if only because the penetration of Pay-capable devices — the iPhone 6 and Apple Watch — is likely to remain limited. But that doesn’t mean it won’t have an impact in retailing and on mobile payments generally.
Having launched in October with a handful of major credit card issuing banks on board, Apple announced in December that more than a dozen addition banks had since signed on to support the service. Collectively, the banks that now support the service account for 90 percent of credit card purchases in the U.S., according to Apple. While the added support is nice for Apple, Apple’s entry into the mobile payment space has sparked consumer interest in mobile wallets generally, providing a lift to the entire category. Both Softcard, the payment system backed by Verizon, AT&T, and T-Mobile, and Google-backed Google Wallet reported seeing a spike in usage following the launch of Apple Pay.
Apple still faces resistance from major retailers, including Walmart, Best Buy, and Target, which support the rival CurrentC mobile payment system scheduled to launch in 2015. Because Apple Pay works in conjunction with the existing Visa and MasterCard networks to process payments, many retailers see it as simply perpetuating the current system of transaction fees that they see as too high. But as I noted at the time of Apple Pay’s unveiling, Apple has shrewdly designed its system to create a countervailing pressure on retailers eventually to adopt it.
One of the most notable features of Apple Pay is the level of security it brings to in-store payments compared to the current system of magnetic stripe plastic cards. Recent massive hacks of point-of-sale systems at Home Depot, Target and other major retail chains have left credit card issuing banks anxious for a more secure system.
Unless Walmart and the other hold-out retailers are prepared to eliminate credit card purchases altogether, pressure from the banks to adopt a more secure system for conducting those transactions, such as Apple Pay, is likely to win over time.
Key takeaways
- Video advertising technology will start to pay off both online and on traditional television. Online targeting and media buying techniques will gain traction in linear TV markets.
- A critical mass of over-the-top television programming and services will spawn further fragmentation. Those new ad technologies might be enough to make up the pricing difference between online video and conventional television.
- The FCC seems to be leaning towards full Title II reclassification of broadband access in the first half of 2015. However, that means months – or even years – of legal battles lie ahead before net neutrality is stabilized or enforceable.
- Apple will remain the biggest technology company force in consumer media and entertainment. It is building out its own flavor of TV Everywhere infrastructure and services. And Apple Pay will force retailers into supporting it, or a secure alternative.
About Paul Sweeting
Paul Sweeting is a Gigaom Research analyst, and is the founder of Concurrent Media Strategies, a Washington, D.C.–based consulting and editorial services firm specializing in digital media technology and policy issues. In 2007 he developed and launched Content Agenda, a website owned by Reed Business Information, the publisher of Daily Variety, Broadcasting & Cable, Video Business, Publishers Weekly, and other media-related properties. He left RBI in 2009 and launched the Media Wonk blog, which examined the impact of digital technology on the way cultural products are created, communicated, and perceived, both in commercial terms and as a cultural and political phenomenon. He also became an analyst with the GigaOM Pro network and began contributing to the Gigaom and NewTeeVee websites. In 2010 he launched Concurrent Media Strategies and the Current Media website, which incorporated the Media Wonk blog.
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