Are You Video Neanderthal or Video Sapiens? -...

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The Transformation Imperative WWW.OVUM.COM

Are You Video Neanderthal

or Video Sapiens?

Why a strengthened multi-screen platform and embracing data and analytics across both web and linear operations are key to surviving and thriving in a constantly changing video market

WWW.OVUM.COM WHITE PAPER

Are You Video Neanderthal or Video Sapiens? Published 02/2014

© Ovum.

Written by: Adrian Drury Published February 2014 © Ovum

This paper is written by Ovum in collaboration with Ooyala. The research and analysis contained here-within is based on original, independent research by Ovum, and the market experiences of Ooyala.

EXECUTIVE SUMMARY

CATALYST

Television audience behavior is evolving rapidly and at scale. Ovum research shows that the majority of leaders in the industry accept the fact that over 20% of all audience viewing hours will be delivered via web service by 2017. This would represent growth of 5X from roughly 4% of current US viewing as calculated by Nielsen. The rapid growth of tablet and smartphone ownership and the growing use of these devices as an alternative to the television, coupled with the development of multi-screen services as competition or complementary differentiators to linear services, is shifting consumer behavior and expectations. In research released at CES this year, 53% from a survey of 1,000 adults in the US stated that smartphones and tablets would replace the television as the most common way to consume entertainment by 2022. These forces are changing the basic competitive fundamentals of broadcast, pay-tv, and electronic sell-through.

Evidence for this shift can be seen across the whole industry. For Generation Y and Millennials, linear viewing is falling and web-delivered viewing is rising fast, catalyzed by mobile smart device adoption and service availability. In the US in 2013, monthly daily viewing of conventional linear television by the 14-to-18 segment dropped by nearly eight minutes, a drop largely offset by a rise in OTT viewing of seven minutes 30 seconds. Of course, a substantial part of this is Netflix and YouTube viewing, not just broadcaster services such as ABC Go or NBC.com Likewise in the UK, BARB data shows an incremental drop in linear viewing by teen audiences, albeit by only 2 minutes. Independent research by Ovum suggests the drop is larger, with 17% of the 16-to-24 age range reporting that they watch less linear TV now due to their consumption of web video services.

Back down the value chain, rights markets are being polarized by the impact of multi-screen catch-up, TV Everywhere, and SVOD rights. New players, specifically Netflix, have buying power and scale that local networks struggle to compete with. Longstanding commercial frameworks negotiated between broadcasters and their producers are being forced to evolve thanks to the growth of multi-screen on-demand viewing, for example the BBC’s renegotiation of the PACT agreement with its independent producers, which now makes nearly all original BBC content available for a 30-day, not seven-day, catch window and will bring large volumes of content into the BBC’s coming download-to-own store. Worldwide, the relationship between sport federations and sports programmers is also evolving as both parties look to exploit the continued price inflation of sports properties while developing a direct connection to the audience.

On top of all this, the industry, like its adolescent viewers that are being lured to find their entertainment elsewhere, is struggling understand and measure the changes it is experiencing. Event-based programming is now measured in tweets, not just rating currencies. The traditional idea of “overnight ratings” seems outdated for non-live programming audiences that increasingly take control of their viewing schedule and watch content recorded on the DVR or streamed via a catch-up service.



© Ovum.

INACTION IS NO LONGER THE RIGHT STRATEGY

Despite the evidence of growing change, there remains widespread inertia in the industry. There is a clear distinction between broadcasters, channel programmers, and service providers that have the right people, processes, and technology transformation programs in place to deliver future-proofed systems architecture and workflows, and those that do not. But no content service provider can or should undertake a process of overnight transformative change. The reality is that there is a journey that all content service providers must take to manage the risk and complexity of this change.

Ovum has identified four stages of content service provider maturity as these companies prepare for the new market conditions (see Figure 3). These are Stage 1, experimental web video services; Stage 2, basic service productization; Stage 3, hardening of the platform and service, and Stage 4, full integration of a platform that enables competitive advantage through data collection, analysis, and dissemination throughout the organization.

The reality is that many content service providers are still at Stage 2, as characterized by the high levels of separation between digital and conventional linear operations. The systems, workflows, metrics, and people managing the multi-screen services and the linear services are different, replicated, and non-integrated. This is technically inefficient, with multiple repositories of content, metadata loss, and systems that do not communicate. It is also limiting the ability of broadcasters and other content service providers to exploit realtime audience data and analytics to understand, react to, and exploit the direction of this rapidly evolving market. Consumers see little or no distinction between broadcast and web-delivered services, and content service providers also need to learn to see their services as integrated offerings.

BARRIERS ARE NOT EXCUSES FOR INACTION

There are, however, good reasons for this inertia. The kind of technology, process, and strategy transformation that the full integration of linear and multi-screen operations entails is challenging in a market where the outlook is volatile. This in turn makes basic parameters, such as the cost of capital, restrictive for large-scale investment projects. At the very least it requires strong, integrated, co-ordinated technology, operations, and strategic leadership, and these are scarce commodities. Perhaps most importantly, the vast majority of industry revenue still derives from linear scheduled services, and any change with execution risk that threatens linear services will be a tough sell.

The building blocks of future services will be single-structure, API-accessible repositories of content, metadata, and rights information, coupled with operational and advertising analytics data that enables programmatic service optimization. Linear and on-demand services will ideally be built on a common architecture rather than separated by the wall that now exists between new services and old. In a market where content service providers are moving from an audience relationship to an individual customer relationship, this separation is unsustainable. It is an inhibitor to the delivery of a cross-platform customer experience and effective audience management, as well as the ability to cross-sell and up-sell content.

Finally, this same inertia is limiting the evolution of the key performance indicators (KPIs) by which content service providers measure themselves. Multi-screen services and new platforms such as Netflix and YouTube are creating new parameters for the discovery and consumption of live and



© Ovum.

non-live content by audiences. However, the traditional currency of broadcast, panel-based ratings continues to give the broadcast market a skewed view of itself and as a result undervalue web-based viewing.

Some of the new indicators that content service providers should be measuring themselves on are:

• Conversion of catch-up views to linear views

• Personalized channel engagement and concurrent views

• Social recommendations/“logins” by asset

• Individual return on rights acquired or produced.

What is the price of inaction? In high-speed markets such as the US, Canada, and Northern Europe, the price is uncompetitiveness and loss of core high-value, multi-screen audiences, and in particular youth audiences. In slower-speed markets such as Southern Europe, inaction may seem like appropriate action today, particularly in challenged advertising markets, but in the medium to long term, inaction will make all broadcasters in all markets vulnerable.

KEY MESSAGES

• Viewing of premium on-demand and simulcast content on non-traditional platforms is growing rapidly and at scale. Ovum’s research shows a 5X increase by 2017, even in our moderate scenario. This is dissolving some of the traditional barriers to entry in this market as the ratings panel (slowly) loses its hegemony as the only data that counts.

• Content service providers must respond by breaking down the barriers between linear and web system and operations. This will enable new services, and free the flow of rich data throughout the organization, which will be vital to successfully evolving services and monetizing new audience behaviors.

• Because this architectural transformation is risky and complex, Ovum proposes a 4-stage model that any content service provider can follow to bring about a change strategy (see Figure 3).

• There are two new sources of competitive strategy in the broadcast market: technology platforms and audience analytics. Highly specialized skills are needed for both. Content service providers should beware the “CTO trap” where companies become locked into developing and supporting proprietary technology platforms, shifting focus and investment from the real sources of their competitive advantage. Instead, they should find partners who are experts in their space, and are able to deliver more future-proofed solutions at scale and in a way that integrates with legacy workflow, rather than destroying value through the distraction of proprietary technology projects.

• Data is and will be a vital source of competitive advantage. It will enable new, personalized viewing services, smarter production and acquisition decision-making, and more streamlined operations. Platforms that are able to capture and analyze viewership data, refining it into a genuinely valuable asset, will reap the rewards of new and more loyal viewers, higher asset yields, and ultimately higher profits and share prices.

• In the new multi-screen world, traditional service providers must move beyond GRP metrics to use a new set of KPIs to measure and optimize their businesses. The new dials need to



© Ovum.

measure metrics such as conversion from web to linear audience, day-part use cases, device platform trends, and asset performance across all segments and platforms. In this report we provide an expanded list of potential new KPIs for the evolved content service provider.

WHAT IS KEEPING THE SILO WALLS UP?

While the industry itself is perpetuating the belief that only a very marginal share of total audience hours are distributed via the web, in part due to the collusion of ratings agencies such as Nielsen, BARB, or OzTAM, the reality is that consumption of live, linear, and on-demand content via the web is growing rapidly, particularly for the 2-to-24 age segments. As EPG position ceases to be a barrier to entry, broadcasters worry about new entrants in their market. Ratings agencies worry that they will lose their status as the only universally recognized measurement currency as they struggle to keep pace with changes in consumption habits and the subsequent ways in which viewer behavior can and should be measured. The industry is evolving toward a model where anytime/anywhere multi-screen services that integrate linear, live, and personalized on-demand content will be the norm. As we are already seeing, user experience as well as content will be a major factor in determining audience size and engagement.

MOVING TO A MULTI-SCREEN, HYBRID REALITY

In 2013, Ovum polled 300 senior studio, channel programmer, and service provider executives across North America and Western Europe and asked what share of audience hours they thought would be distributed via the web by 2017, on the basis that the industry average today in the US is circa 4%. Near to half of the respondents with whom Ovum spoke believe that number will be over 20% by the time we reach 2017, and over one-quarter of respondents believe that this number will rise to over 30% in the same timeframe.

Figure 1: Industry expectations of audience time shift: 2013 to 2017

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1 = 1 to 5% 2 = 6 to 10% 3 = 11 to 20% 4 = 21 to 30% 5 = Greater than 30%

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What %of total television viewing, in terms of share of total viewing time, will be delivered via the web in 2017?



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Even “just” 5X growth over the next three years would represent a substantial change over a short period, a change that we are already seeing in the Ooyala Video Index figures, which show that tablet and smartphone viewing grew 59% and 41% respectively in the first half of 2013.

At the point at which over 20% of the value of the premium video industry is being distributed via the web, it will be vital to have moved beyond Stage 2 of our evolutionary model.

TIMING IS EVERYTHING

Technology strategy is all about timing, and Ovum has identified four stages (see Figure 3) that content service providers have to move through in their journey to becoming organizations that can successfully compete in an age of mass personalization. Leading-edge broadcasters and service providers are already making these changes, whether organizationally or at a systems architecture level. One broadcaster Ovum spoke to in the course of the research for this paper has put in place a new converged “product team” with a mandate to mine, analyze, and track performance data across both traditional linear and on-demand services, with the power to influence production, rights acquisition, second screen, and service development strategy. This is creating an organizational bridge between the siloes in the business.

Another major new service provider is using an integrated multi-screen service management platform to not only manage its on-demand service, but also its linear channel service. It should be noted that this is a new service provider which did not have the legacy systems challenge, but it does demonstrate what can be done with the luxury of a green-field environment.

Crucially, the leaders in the industry are moving to this kind of integrated model today and this early movement will confer much more than just bragging rights. It will translate directly into competitive advantage. Content service providers that grasp the fact that audience and content performance data is a strategic asset will have a competitive advantage. They will have smarter, better, content

Figure 2: The rapid shift of youth audiences to OTT video services

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Youth audiences deserting linear TV: 2013 vs 2012 by age group (USA)

Watching linear TV Watching OTT video Watching OTT video on a phone

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acquisition and production as well as more engaging services for both audiences and advertisers, and will therefore have a strong competitive advantage.

Working to Ovum’s moderate scenario that 20% of the value of the industry will be distributed via web services by 2017, the brutal reality is that many first or second-tier video content service providers have little hope of being ready. Three to four years is in fact a short period of time in broadcast (although it is an eternity for a web company) to plan, build, and execute a new systems and operations architecture.

A NEW ARCHITECTURE TO DELIVER COMPETITIVE ADVANTAGE

Having the right architecture in place will confer a clear competitive advantage as we move from a broadcast audience relationship, to a personalized customer relationship where the audience is still engaged by a mass-media communal experience that is, however, delivered in a highly personalized way.

Today, front-running media companies are putting data management platforms in place that create centralized repositories of content, metadata, rights information, and customer data to enable true service personalization at scale.

Effective personalization of web-delivered multi-screen services, either to monetize directly or to drive users back to the schedule, will require the ability to personalize services at massive scale, matching and anticipating end-user requests and preferences.

Moving to a centralized architecture of content, rights, and metadata to create a platform accessible to any service delivered by the organization will be a key enabler of future services (whether advertising, core hybrid on-demand and linear, or derivative second-screen services) as well as creating process and workflow efficiency, and limiting system and headcount duplication.

MANAGING RISK, NEW SKILLS, AND THE IMPORTANCE OF SELECTING THE

RIGHT PARTNERS

Integrating linear and on-demand services is complex and involves risk. The challenge is to create a platform for future services and to enable the organization to position itself to deliver these future services, without threatening the integrity of the systems, processes, and workflows that are delivering the majority of value for the broadcast business in the near term.

But while there are risks and challenges, getting the technology platform strategy right will be a source of competitive advantage for content service providers. It will enable the launch and operation of more engaging services, enable the harvesting of data to make smarter commercial decisions, and change the economics of new demographic and geographic market entry. Smart technology strategy in the new era of personalized mass-media services is the enabler for the extraction of data from operations and audiences. Broadcasters must understand that technology is now a key enabler of competitive advantage.

All media companies will require at least some third-party assistance to make this change. Even the very largest players in the industry will need to bring in new, scarce, specialist skills. Many broadcasters are lacking in Big Data skills that would enable them to make better use of the rich supplies of audience information thrown off by web-based services.



© Ovum.

When considering which partners to work with, broadcasters must take into account not just the potential partner’s historical quality of execution and service availability (these are minimum requirements), but also the strength of their roadmap and that more intangible quality: “vision”. A technology partner that is able to deliver both a pathway to the future of the market, but also reliability and great service, is the right fit, right now.

Figure 3: The 4 evolutionary stages to a single platform for integrated multi-screen video

• Experimental service delivery from a standalone platform with little to no workflow integration

• Commercial goal is to learn, experiment and understand, but at the expense of establishing a premium price point for premium content

• Run by innovation team working separately from the core organization • Limited catalogue size, limited service sophistication, monetization through limited ad sales

Stage 1: Experimental web video

• Early experiments lead to the productisation of a catch up service or TV Everywhere style proposition to drive lower churn and higher ARPU

• Platform operations and ad sales remain highly siloed, preventing efficient sharing of data, creating poor service experience and harming return on acquired multi-screen rights

• Businesses realize the value of real time data and the potential for linear and on-demand service integration, but the challenge seems too great

Stage 2: Basic service productization

• As multiscreen audiences scale and revenues grow from advertising, subscription and other consumer monetized services, so the need to differentiate on service experience grows

• Focus on workflow efficiency increases, along with the need to allocate more resource to multiscreen

• Ad sales operations are brought together to enable packaged ad sales propositions that reach across all platforms

• The architecture of multi-screen management systems are made more resiliant, more scalable and more highly integrarted to better manage metadata, rights, orchestration et al and to be a credible migration path for legacy systems and operations

Stage 3: Hardening the platform & service

• Full integration of linear and on-demand / simulcast services at a people, process and systems level with an architecture built on single repositories of assets, metadata, rights and customer data, enabling a diversity of linear and non linear services to be offered across any platform.

• Real time content and behavior analytics enables increasing programmatic sophistication

• NB: This is the nirvana. No one is there yet and most are at least 5 years away.

Stage 4: Full integration



© Ovum.

DRIVING TRANSFORMATION TO ENABLE MASS PERSONALIZATION

The product of the future is the personalized channel model that offers audiences a highly personalized, socially connected perspective on mass-media events (X-Factor, the Olympics, the latest season of Game of Thrones, and so on), which are at the heart of the industry’s consumer audience promise. But to deliver this profitably and at scale and in the realtime environment of live services, service providers and broadcasters need to transform their systems and process and move to a technical and operational model that enables fully integrated multi-screen and linear services. To date, the broadcast industry has enjoyed several strategic protective barriers that have insulated it from the rapid and highly disruptive transformation occurring around it. Other segments of the media, specifically news and magazines, and other industries, such as retail, have not been so lucky. However, this is changing and broadcast must act now to avoid print’s fate.

No broadcaster or content service provider could or should make a sudden move to converged, integrated platform for both live and traditional linear business. There is a journey for all broadcasters and service providers to take. Ovum proposes a four-stage model that all content service providers should move through to effectively manage the risk and organizational transformation required (see Figure 3).

ORGANIZATIONAL TRANSFORMATION

Siloes of teams managing the multi-screen services and traditional linear services are preventing the sharing of content performance and audience behavior data between these teams, and hindering the creation of truly integrated services.

We are, however, at a stage in the market where the growth of multi-screen audiences and the fight for ad revenue is stimulating some leading channel programmers such as Viacom to integrate their web and linear ad sales teams to create joint native ad propositions that extend across all platforms. Ad sales integration is the logical first step in multi-platform and linear organizational integration, and efforts such as the Viacom strategy are the start of a process toward wider integration.

The next step will be to have single scheduling and multi-platform teams that are exploiting the realtime ad sales and programmatic buying opportunities of multi-screen alongside the upfront, remnant, and “make good”-driven parameters of linear. This will position them for the coming change in broadcast media buying.

Likewise, as content service providers experiment with new subscription models, whether SVOD, TVOD, TV Everywhere, or any permutation and combination of these models, so the need for integrated, cross-platform service strategies will grow. Marketing, strategy, and operational management will need to cut across all platforms. This is a smart, logical step, and already Ovum is seeing examples of both broadcasters and service providers moving toward these structures.

TECHNOLOGY TRANSFORMATION

Multi-screen, mass personalization requires new systems architectures that can rapidly scale new services up and down based on performance and demand. These will also require speedy innovation both in how services are delivered and measured. Hosted platforms that offer an architecture enabled for legacy workflow integration, as well as a migration path to a single



© Ovum.

repository of for content, metadata, operational intelligence, and audience data, will give broadcasters and service providers an effective solution to these three challenges, without locking them into constant cycle of internal development and expensive in-house developer resources.

Broadcasters and service providers should beware of the attractions of the “CTO office”, specifically the risk and cost of trying to replicate in house what specialist platform providers are doing on a multi-tenant basis with highly specialized resources. The goal should be to focus on the core business of video content delivery and monetization and not proprietary platform development.

REDEFINING THE SERVICE

Television needs to evolve its product for consumers, advertisers, and partners. Digital platforms such as Google and Facebook are aggressively targeting brand and direct-response budgets, and broadcast needs to offer services that offer rival levels of targeting and attribution without sacrificing the unique reach and engagement characteristics that has led to television dominating ad spend for 50 years.

For consumers, broadcast needs to offer increasingly personalized services that enable audiences to have a very individual or socially connected experience of a mass-audience show. Broadcast also needs to be able to market more effectively, recognizing that its product is now one with which audiences will engage at a range of different points before they ever view, whether they become aware of a show brand on a social platform, test a show via catch-up or from a DVR, or are recommended a show through an interactive EPG.

New audience segments, and in particular youth audiences, are looking beyond television for their entertainment video. Channel programmers have to participate in these arenas or they will lose their market.

Ad buyers also need new products. Early efforts by some broadcasters at highly data-driven strategies may have been a little premature but the direction of travel is right. Today the biggest change factor in broadcast is platforms such as Facebook and Twitter using the data their platforms throw off around TV viewing behavior to influence and target TV ad spend. Broadcasters must look to innovate with their own products to ensure they do not end up dis-intermediated by players that have forced themselves into the ecosystem as data providers.

MOVING THE DIALS: NEW KPIS FOR A NEW CONTENT SERVICE

PROVIDER BUSINESS

A symptom of the challenge that many broadcasters face in their move to a new hybrid multi-screen and linear world is the metrics by which they measure their business. Broadcasters still predominantly measure themselves and the performance of content in the context of gross rating points. However, as they move from a model where linear dominates, accompanied by an experiment in multi-screen, to a hybrid model where traditional linear is just one outlet, so they need new metrics and specifically new KPIs that enable them to assess, manage, and optimize the real performance of their multiple services.



© Ovum.

What are the new dials that video content service providers should be reading? Ovum recommends a set of new KPIs that should be common for an industry moving toward realtime operations:

• How are specific assets performing, where, and with whom?

• What is trending right now?

• What are the time-of-day trends, across linear, simulcast, and on-demand, and what are the emerging use cases by demographic?

• What are the device trends, and in particular, what devices are seeing sufficient usage to warrant native experience development?

• How is a constant tempo of multivariate tests performing for different audience segments?

• How are audiences responding to and engaging with ads on different platforms, and how is ad load influencing audience behavior?

• Linear, simulcast, and on-demand asset and channel performance across all platforms.

• Shares, likes, and purchases, and social campaign performance.

• How are on on-demand audiences translating into traditional linear audiences as they go through phases of the fan cycle?

• What is keeping viewers engaged and keeping them watching (recommendations and CTA performance)?

• Loyalty as measured by return frequency and share of total viewing.

• tVOD/sVOD conversion for service providers running these models.

These are just some of the new KPIs that content service providers need to start using in their business as they integrate their on-demand and linear operations, beyond conventional linear-skewed ratings data. In order to do this, it is vital that content service providers have platforms and analytics systems in place to store, process, and expose the data across linear and on-demand programming operations. This is a key component for effective hybrid operations.

COMBINING PANEL AND ONE-TO-ONE DATA

In the near term, it is important that broadcasters understand how to embrace both the 1-to-1 measurement possible with web video and traditional panel measurement. While the ratings providers are rapidly working to internalize alternative sources of audience data from Twitter, Facebook, and a plethora of second-screen sources, it is vital for content service providers themselves to understand how traditional panel demographics map to known web users and how relative behavior correlates across platforms. Being able to tune linear and on-demand service decisions based on the understanding of this correlation is key in both maximizing audience, and integrated selling of advertising across web and broadcast.

THE FATAL COST OF INACTION

We have established that the integration and transformation of systems, process, workflow, and human capital is challenging, risky, and expensive, and broadcasters are being asked to do this in a market where the outlook is volatile.



© Ovum.

Any consideration of strategy, however, has to consider the opportunity cost, in this case the opportunity cost of inaction. What happens if you do nothing?

Ovum believes that the cost of inaction far outweighs the risk of the transformation. Specifically, inaction will lead to:

• Competing content service providers being better able to attract, retain, and exploit audiences.

• Displacement by new, highly disruptive market entrants.

• Reduced agility and therefore limited capability to respond to new audience trends.

• Continued inefficiency in the form of systems and headcount duplication and reduced ability to exploit available rights, content, as well as operational and behavioral data.

In summary, inaction in the form of not evolving the systems, products, or methods of measurement and management for the new multi-screen market will lead to a loss of competitiveness and an increase in vulnerability to existing and new entrants.

This is a market that has rewarded inaction to date because of the protective barriers of regulation and rating currencies, but inaction is now a fatal play.

ABOUT OOYALA

Ooyala delivers personalized video experiences across all screens and is a leader in online video management, publishing, analytics and monetization. Ooyala’s integrated suite of technologies and services gives content owners the power to expand audiences through deep insights that drive increased viewer engagement and revenue from video.

Companies using Ooyala technology include Telstra, ESPN, Univision, Telegraph Media Group, Bloomberg, Telefonica, Comedy Central, The North Face, Rolling Stone, Dell, Sephora and Yahoo! Japan.

Headquartered in Mountain View, California, Ooyala has offices in New York City, London, Sydney, Tokyo and Guadalajara, Mexico. The company works with premier reseller and technology partners throughout the Americas, Europe, Africa, Japan and the Asia-Pacific region.

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