"Defining Strategies for Broadcasting and Communications"
2nd Annual European Media Leaders Summit 30th November/1st December,
London
By Steve Melhuish
To
sum up the event… the broadcasting and communications industry is clearly
struggling to get to grips with massive change. There are a number of
key events and issues behind the struggle; private equity driven consolidation
in Europe is changing the landscape and players, great growth opportunities
coupled with huge challenges in Asia are changing the prospects for content
providers, new technologies giving rise to new media channels, fragmentation
and access to the "longtail" and the first signs of a long-heralded media/telco
convergence are re-enforced by ntl's recent £820m bid for Virgin Mobile…
"Expect a second wave of mega-deals"
 |
Having just sold SBS Broadcasting for $2.3 billion to private equity, and now in new role as MGM Chairman and CEO, Harry Evans Sloan took to the stage. He kicked off with a "warts and all" look at the European media industry, setting the tone for many others over the 2 days by spelling out the "real nightmares" around TV's declining audiences and ad revenues. He contrasted this with examples of the many recent private equity acquisitions, and at vast valuations (up to 24 times EBITDA). He went on to praise the impact of private equity on the industry, sentiments echoed by others later. In particular, speakers were impressed with smart people, bringing clarity of thought, building value quickly and the speed of decision making (versus the demands, restrictions and process with a large group of shareholders).
So if the media industry is having nightmares, why then this flurry of expensive acquisitions by "smart people"? Harry expected major consolidation still to take place ("what about the likes of ITV and Flextech, in the UK alone?"), the potential to build pan-European media players, opportunities to grow revenues through migration from 'free to air' to 'pay TV', as well as an increasingly attractive central eastern Europe markets (including Turkey). On top of this, the large US media companies have been conspicuous by their absence in Europe… this time round. And of course, Google has a larger market cap than any of the traditional media companies today. So watch this space!
Technology having a huge impact on
the Media industry…
"I have no idea what the media landscape will look like in 5 years, but
I'm sure it will move more than in the previous 20 years" were the opening
lines of the CEO for Zenith Optimedia, Steve King. He painted an interesting
picture of an industry going through massive change driven by technological
advances. In particular, he (and others) cited the growth of broadband,
mobile penetration, personal video recorders (PVR) growth (enabling consumers
to skip adverts easily), podcasting, people buying a full set of TV series
on DVD (bypassing revenues for broadcasters) and younger consumers leaving
traditional linear TV in droves. This was having a major impact on the
advertising industry which is suddenly faced with spreading their investment
on a huge array of fragmented consumer communication points.
"The Global Advertising world is changing."
The outlook for the advertising industry is positive overall with a forecasted
6% growth worldwide in 2006, yet becoming ever more complex, according
to Zenith Optimedia's Steve King. TV advertising revenues would remain
stable, but this was due to the growth in BRIC (Brazil, Russia, India
and China) economies offsetting the decline from US and Europe. Not surprisingly,
the largest area of growth next year (110%) would come from Internet advertising.
The first signs of the industry's major change is that traditional mass
market FMCG advertisers were starting to divert budgets away from TV,
not into online advertising (unsuitable generally for FMCG) but into innovative
point of sale options "closer to where the purchase decision is made".
Steve went on to urge marketing agencies to adapt quickly, to help their clients understand and maximise the opportunities presented by the increasing fragmentation in consumer communication channels. Perhaps agencies would become more like investment banks, advising on asset allocation, with real domain experts and employing smart tools to help clients maximise return on investment from advertising spend. In addition, clients were demanding better advertising performance-measurement to gauge consumer's "attention rights" and calculate ROI from different media.
Content Owner's response…
All admitted they were in complete exploration and experimentation mode
with new media. Rich Ross, President of Disney Worldwide, said that they
had tried adapting content for multiple channels with recent iPod video
offerings ("its early days still"), short form content for mobiles and
time-delayed content available over broadband/Internet. He stressed the
need to create content specifically for the medium, and not just "chopping
content up into lots of short bits". He noted that technology had enabled
Disney to "collapse windows" (a common theme), where content could be
simultaneously launched across all countries, thus reducing the current
time-arbitrage piracy.
Patrick Vien explained they'd created a new Digital Unit within NBC, full of "20-something year olds" with 100% focus on capitalising on new technologies and, more importantly, to "educate us old farts. It requires a mind-set change"! He stressed the importance of partnership, citing recent success with NBC and Yahoo jointly promoting "The Apprentice". This led to increased audiences, traffic and revenues for both parties - a real win win.
National Geographic's President of Digital Media, Chris McAndrews, said that they had recently explored advertising-based short (2-4 minutes long) "webisodes" covering seen footage such as Hurricane Katrina, as well as never-seen content (from the cutting room floor). Again, they had some great early success 700,000 downloads of one webisode distributed through Yahoo. Alex Ogilvie of Warner Brothers Europe, said the rise of multi-channels was enabling them to address the "longtail" opportunity and monetise their library of older content, much in the same was as music download has re-energised older, forgotten artists.
"Everything is time shifted"
Almost every speaker gave an example about the impact of technology on
younger audiences with many giving a variation on the same theme... a
teenage son/daughter sitting in their bed room, listening to their iPod,
games console switched on, conducting an instant messenger chat with friends
and with the TV on in the background - all at the same time! Steve King
said that his son did not watch any linear but only watched time-shifted
programmes that had been recorded on PVR. His view was that the audiences
were becoming increasingly disengaged from traditional linear TV.
The demise of traditional TV?
An area hotly contested by both sides was whether we were now seeing the
start of the end for good old TV. On one side of the fence, the new media
team, Chris Dobson (MSN International) argued strongly that the industry
is in denial "consumers are accelerating away", broadband will become
the de-facto delivery channel and hence the reason for MSN's focus on
making the digital devices in the home work better together. Furthermore,
with the rise in PVR's, and particularly younger consumers "creating their
own channel", Jon Gisby, MD Yahoo UK & Ireland, expected linear TV still
to play a role long term but probably marginalised into primarily live
sports and event driven content.
On the other side of the fence were the broadcasters, and traditional TV-focused advertisers. Channel 5's Mark White's view was that TV was still the only mass-market method of targeting 90% of the UK's population on a weekly basis. And in response to new media's ability to segment its market, with TV's increasing channels, advertisers were better able now to target specific niche audiences (i.e. food and drink, or travel). Mark Boyd, Director of Content at BBH was concerned about "who will pay for TV in the longer term if ad revenues die? Will consumers accept paying 3 times their current price for TV?" Furthermore, he felt TV adverts needed to move from the current "interruption" to "engagement". "The demise of linear TV has been exaggerated. It is still absolutely key for launching any new series" was the view from Alex Ogilvie at Warner Brothers.
Media and Telco convergence finally
happening?
"The Consumer is having a field day," according to Shane O'Neil, Chief
strategy Officer of Liberty Global Europe, "not only are they getting
more choice more control but at ever lower prices". This is being driven
by the land grab taking place between media companies, cable companies
and telcos. After many years of hype, perhaps we are now seeing this convergence
start to take place? France Telecom is giving away free TV to drive broadband
take-up, whilst cable operators are offering cheap voice to drive TV take-up.
NBC's Patrick View example of a Telco/media vertical integration was compelling:
SK Telecom (Korea's largest mobile operator) purchased the country's biggest
record label earlier this year, and then went on to acquire music artist
management agencies. Italy's 3 mobile operator recently postponed its
IPO in order to purchase the regional broadcaster Canale 7, and presumably
increase its IPO valuation. Another example was Telenor's acquisition
of exclusive football rights in Norway, but as their commercial director
David Gilmore said "how do we now create something out of this, and monetise
across multiple platforms?"
Helmut Leopold of Telekom Austria explained that with voice revenues trending to zero due to VoIP, telcos were looking to adapt and diversify. This led to the development of a broadband IP-TV network in Austria offering consumers free to air, pay and video-on-demand channels. Furthermore, they had deployed an interactive community TV channel infrastructure in a small Austria village allowing locals to produce and distribute content (such as a community newspaper) locally, themselves, at very low cost and without intervention from Telekom Austria.
Not surprisingly telco and online portal representation in the guises of Vodafone, BT, MSN and Yahoo focused on the importance of the 'return channel', which they felt transformed passive, traditional 'lean back' media into a more engaging 'lean forward' media experience. Key examples given were Mobile TV, IPTV and increasing community-based and interactive online content from the major portals. The view from Adam Singer, ex-Telewest CEO, was that "navigators will beat aggregators". Not surprisingly this was supported by the content providers and Jon Gisby of Yahoo, citing the ongoing increase of online content and indexing of content expected to increase the importance of search within new media. In fact, TiVo recently announced that there next PVR would have a targeted advertising search functionality, allowing consumers to pick out advertising of interest!
There was a lot of talk (hype?) about mobile TV... as Graeme Ferguson, head of content at Vodafone, said it was still too early to judge "it is only 12 weeks old for us". Ray DeRenzo of MobiTV shared early US experiences where mobile operators have repurposed well known TV brands into 3-5 minute short-form content and added a simple electronic programme guide (EPG) to offer a mobile TV offering. MobiTV's experience was there was no cannibalisation affect against traditional broadcast and that it was just another example of consumers maximising their dead time. The biggest concern for mobile TV centred around whether consumers would be prepared to pay an additional subscription for mobile TV, particularly contrasted with expected growth in video iPod downloads for example. Graeme Ferguson agreed and said that Vodafone were looking at advertising as an option for reducing the burden on consumers.
"It is not a question of China OR India.
It is both, but different strategies"
The statistics presented by the Tom Group, BBC, HSBC and PWC for China
and India were staggering! There are more English speakers in China than
in the US, TV revenues are forecast to grow at 18% CAGR in both countries,
every 6 weeks China's urbanisation creates a city the size of Philadelphia,
India is home to the most-widely read English-speaking business newspaper
and China has 400m mobile subscribers.
Many similarities were drawn between both countries in terms of size, growth, digitalisation push, regulatory issues, piracy issues fragmentation between local, regional and national geographies and a growing content gap. However, key differences are broadband rollout (by 2009 China will have 10 times more broadband customers than India), China's average household income will be 2.5 times larger than India's within 7 years, but India is politically more stable, with better foreign investment environment and a younger population. Whilst there is huge opportunity and growth prospects in both countries, key issues remain around piracy (90% of India's TV revenues are lost as a result today), lack of regulatory clarity (particularly in China) and income expectations (monthly TV subscriber revenues of $1 for example in China prevents local broadcasters from paying Western-style prices for content).
All presenters (Tom Group, HSBC, BBC and PWC) agreed that Western companies needed to take a different approach to investing in either country, with the emphasis on developing a long term game plan, being creative, taking a holistic approach and working closely with the government authorities. And one thing is for sure, major Western media companies need to have a China/India strategy now!