John Penney, Starz!; Steve Koenig, CTA; Rajan Mehta, WWE; and Dan Schinasi, Samsung
New advances in video picture quality may be close to driving sales of better performing 4K Ultra HDTVs with high dynamic range and wide color gamut capability, but for the near term it doesn’t appear that major content distribution networks are close to supporting them.
That was the assessment of John Penney, Starz! chief technology officer, in leading a panel discussion on “Next Gen TV, New Content Formats and The Impact On Retail” during the Consumer Technology Association’s Innovate Conference in New York City this week.
“Just from a TV-only perspective it is extraordinarily difficult,” Penney said. “When you are at the level of HBO making $10 million an hour programming, you already have a high wholesale price point, there is no way to put on top of that for most distributors to create the UHD tier. Netflix does a little bit by streaming, but for the content provider it has to be a mass switch because the cost of doing it in the first place is so much higher initially until everybody does it that way that you almost have to have simultaneous monetization to offset or else you get large margin compression.
“At the same time you are having to go to two-way more direct marketed media and more data science and all of this. So, studios are where it could happen, but in your independent model production network companies there is a very big challenge there to make it work in the near term,” he added.
More on the Next Gen TV panel after the jump:
Concerning advances in home-based video technologies like Ultra HD picture and sound quality coming simultaneously with a shift in viewing patterns to more and more personalized viewing screens like tablets and smartphones, Penney said: “we are at an amazing inflection point in this business, and when I say this business, I mean multiple industries that bring us television as we know it, from the living room, to the device, all the way back through the networks and the distributors, the content creators and software developers who bring out products on devices.”
Concerning the prospects for consumer willingness to pay a premium for advanced video quality streams like 4K UHD and HDR, Rajan Mehta, WWE executive VP and CTO, said “time will tell” if consumers will actually pay more for programming produced for the new technology.
“The direct-to-consumer model is so new – it is a year-and-a-half in – and if you look at some of the content that’s there, we have over 4,000 hours of viewing time, and some of that is SD [standard definition] content and some of it is the new UHD content,” Mehta said. “Would I love to have ultra high-def with HDR? Yeah, absolutely. But I think it is TBD if we can monetize that. We are a different model than a cable network. If you look at it in that model, you had people who tried to monetize a 3D channel, and we know how well that worked out, and we had people who did an HD channel and that wasn’t an increase in monetization, it became the standard. To project if people are going to pay [more] for a UHD only package, I don’t think anyone can do that without understanding the scale.”
The panelists seemed to indicate that prospects for future growth in the television business are starting to diminish as more and more consumers begin using tablets for personalized viewing experiences.
Steve Koenig, CTA senior director of market research, said viewer behavior has started to shift from watching TV on the living room couch to watching TV on a wide variety of mobile and stationary displays.
“There is an inflection point that magnifies or accelerates a trend, and one of those pivotal moments was the April 2010 introduction of the iPad. We’ve already started to see people looking at some content and browsing for more on small screens or smartphones, and larger screens on the iPad. What we’ve seen since then in the traditional TV market is that sales have been tremendously impacted. In 32-inches and below, as time has gone by there have been less and less [sales] to replace sets in the bedroom – people simply shift to larger displays, if they are going to have it all, and the tablet and smartphone has become a very personal display that people watch.”
Koenig pointed to CTA research showing that the traditional TV in the home is still the centerpiece or hub for interconnected activity but more and more consumers are shifting their video consumption activity away from the “flagship display.”
As for content, the direct-to-consumer model that many networks are starting to bring forward enables offering programming that follows consumers around both within and outside the home.
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Meanwhile, digital content distribution is generating new revenue streams for various participating media companies. One of the most successful at this has been the WWE, global professional wrestling enterprise, which has built upon the former dual revenue stream of cable TV fees and advertising support by layering on additional business models including, subscription based streaming content, ad-supported subscription streaming content and others.
Mehta said the WWE’s digital business today accounts for 6 to 7 billion YouTube video streams on wrestling topics and events on a yearly basis, and is the No. 1 YouTube sports channel and in August became the No. 1 channel on YouTube in terms of consumption. The organization also counts 600 million social media followers on various platforms. In 2014, the WWE also launched one of the first over-the-top sports networks.
Dan Schinasi, Samsung Electronics product planning manager, said that through Samsung’s smart TV product portfolio, content delivery has been very important in successfully introducing 4K Ultra HDTVs into the marketplace. Over the past year, the company has started streaming through its SUHD TVs: DirecTV 4K content, high-value 4K high dynamic range (HDR) content, and the Vidity 4K download service. However, Samsung remains agnostic as to which delivery path it takes to the viewer, adding that Samsung will not position the television as a cord-cutting solution.
The CTA’s Koenig said the cord-cutting has been overblown. He added, “consumers endorse choice and they abhor complexity,” but at the end of the day, consumers are sticking with what they know and supplementing in different ways and looking for value. Koenig said that while Millennials are different from older generations in the way they consume video content, much of what has fueled the cord-cutting activity that has taken place in that group is being driven by a general lack or disposable income.
Consumers also endorse convenience, and as Millennials advance in their careers and earn more money, they return to big-screen TVs and subscription TV services because they lack the time to go online to hunt for video programming. This is also helping to spur sales of things like SlingTV, but Koenig added that only 5 to 6 percent of households are actually cutting the cable and satellite TV cord. Most people are supplementing existing subscription TV services with over-the-top programming options, he said. About two-thirds of pay TV households are streaming content, Koenig said.
“For the content industry, it is really all about meeting your customer where ever he or she is,” Koenig said.
“We are forgetting consumer choice. Where do people want to consume that content?” Schinasi asked. “Is it on the small screen when they are traveling? When it’s in the home in the living room… that’s extra value that we are offering. Also, these different devices that are out there offer different quality experiences. The quality experience that you get when you are roaming when you are out at work consuming video on your phone versus the content experience that you can enjoy in your living room. Now with some of these advancements in 4K and high dynamic range and wide color gamut, there is a demonstrable difference, and some of these services can actually command a premium.”
Ending the session, Bernie Appel, a long-time consumer electronics industry sage and a founder of the RadioShack retail chain, commented from the audience that when personal computers where just breaking onto the scene, he drew consternation for saying that “the TV will always be the primary source of home entertainment, and don’t ever think it is going to be the computer, and that hasn’t changed one bit. Now you’ve improved it. You’ve made it more fun, you’ve got DirecTV, you’ve got Netflix and everything else, but as long as I’m evidence, and it may not be much longer, TV is going to be the main source of entertainment in the home.”
Penney responded: “I absolutely agree with you, but what we are doing is layering on all of these additional things above TV. If TV is the anchor, there is a whole world around it that didn’t exist before, which increases the complexity and risk profile of content creation and delivery but also the complexity of building business models for the entire ecosystem, not just networks and physical TV sales. That’s the thing that is challenging people, especially with the notion potentially of cord cutting in the short term for Millennials.”
By Greg Tarr
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