Is The Premium Video Business Harder To Attack Than Digital Giants Imagined?


The past few weeks should be modestly reassuring for Team TV in the race to see whether traditional television companies can become major digital players faster than digital companies become television ones.

Powers including Facebook, Apple and Google’s YouTube signaled in a series of programming-related initiatives that they’re still testing the video market to see where they might fit in — not preparing to challenge traditional TV networks head-on the way Netflix has with by spending $6 billion a year on content.

In addition, smaller digital players are blanching at the high stakes to play the original content game. IAC’s Vimeo confirmed Monday that it pulled the plug on a planned subscription VOD service that also would have bought and developed full-length scripted series.

None of this means that TV providers should be complacent about the oversize profits they collect from the nearly ubiquitous pay TV bundle. At issue is when that system collapses, not whether it will.

But Team TV seems to have more time than industry bears envisioned when digital players began to venture into video. Team Digital is still nibbling at the edges — not deploying its enormous balance sheets to crush the status quo.

Facebook’s seeking original shows that it can offer as early as this summer. But it’s looking at series that only cost about $3 million an episode — far less than what most networks budget — with requirements to steer clear of kids, politics, news, nudity, and profanity.

It has good reason to be careful: Many advertisers aren’t yet sold on the platform as an alternative to TV.

“The combination of Facebook’s in-feed video ad format and engagement dynamics is not a compelling alternative for brand marketers seeking a full sight, sound, and motion message solution to build efficient reach,” MoffettNathanson Research’s Michael Nathanson says. Many remain “hopeful” that it will evolve, he adds.

Meanwhile Apple has yet to demonstrate that Steve Jobs was right when he told biographer Walter Isaacson for a book published six years ago that he had “cracked the code” for making the medium consumer friendly — and a big business for the technology company.

After struggling for years to secure streaming deals with traditional TV networks, Apple this month indicated that it probably will go it alone. It hired former Sony Pictures Television presidents Jamie Erlicht and Zack Van Amburg to oversee all aspects of worldwide video programming, including developing originals.

That dampened speculation that Apple might tap its $250+ billion cash reserve to buy Disney, or another major content company.

Spending on content and big name execs “does not ensure success,” says BTIG’s Rich Greenfield — one of the Street’s most vigorous critics of the pay TV bundle. “Netflix has spent years singularly focused on the video experience and infrastructure. There will be a long catch-up period for any potential competitor. Even Amazon, with its dramatic spending ramp has not achieved the same level of success in video relative to investment.”

Google’s been more ambitious about ordering originals for its $10 a month, ad-free YouTube Red, also available to subscribers of YouTube TV: It has introduced 37 original series, and last week unveiled plans for 12 additional ones.

But there’s no evidence that YouTube’s originals are attracting big audiences. Google releases data selectively. As of last summer YouTube Red only had 1.5 million paying customers — including many who wanted it to access YouTube Music — The Verge reported in November.

To be sure, the digital giants can change the TV competition game in a flash if they want.

They have the means: Investors consider Comcast, the largest traditional TV content owner, to be worth about $186 billion — which makes it just 41% as big as Facebook (at $450  billion), 28% as big as Google parent Alphabet (at $672 billion) and 24% as big as Apple ($764 billion).

And they have a motive: The growth in digital advertising is slowing, and the next ripest domestic targets are the $66.6 billion spent each year on TV ads, and $100 billion spent on pay TV subscriptions.

What’s more, digital companies have a growing appreciation for professionally produced fare. Google and Facebook vowed to clean up their ad sales efforts this year following reports that their computer algorithms linked major brand promotions to controversial content, including jihadist videos and suicides.

“The brouhaha has led to a flight to quality by advertisers (with P&G at the helm), as they grow increasingly frustrated with what they see as poor ad supply hygiene,” reports Ooyala, a firm that researches premium online video and serves providers. “They’ve begun to hold their partners (initially, their buying agencies, trading desks, etc.) accountable for a more transparent and effective use of their ad spend.”

Meanwhile Team Digital is still figuring out some of the basics: What shows will generate consumer subscriptions, or ad sales? How can viewers learn that the shows even exist at a time when there’s a glut of attractive options across broadcast and cable networks, and other — more popular — digital programmers? And what platforms can they count on to reach audiences?

These hurdles are too high for some smaller digital companies to scale. Vimeo’s pullback this week follow’s Verizon’s decision early this year to scrap its planned AwesomenessTV premium content service.

In 2015 SnapChat ditched its planned Snap Channel, after hiring former Fox head of comedy Marcus Wiley to build an original content slate.  And in 2014 Microsoft folded its Xbox Studios original content venture led by former top CBS and the WB executives Nancy Tellem and Jordan Levin.

Team Digital has a clear opening to attack the video market — traditional TV has no monopoly on premium programming. But if the last few weeks are any indication, then Team TV may have enough advantages to avoid a rout.

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