April 13, 2016
By Jake Ward Business Development Director
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For the rest of the Spring 2016 Industry Sourcebook issue of Streaming Media magazine please click here

The State of Media and Entertainment Streaming 2016

Now TV had a total of 729,000 subscribers with similar growth to Netflix at 45% year-on-year. Now TV is now the key driving force behind the increase in overall Sky TV subscriptions as general TV subscriptions continue to decline.

In total, more than 23% of U.K. households now have at least one additional paid-for video on-demand service. This is on top of the approximately 60% of U.K. households that already have a pay TV solution from either Sky, Virgin Media, or YouView. These numbers clearly show how the audience has become increasingly fragmented.

In terms of where the audience is moving, one of the questions is how important exclusive original content is as an audience attractor and a contributor to fragmentation. For example, are viewers buying into multiple platforms to get all the content they want? Netflix alone spends about twice as much on original content than either ITV or Amazon, but this is likely to change in light of Amazon's recent deal for three series of a new show with former Top Gear stars Jeremy Clarkson, Richard Hammond, and James May, the total cost of which was £160 million.

However, subscribers to such services say access to films and TV back-catalogues was their primary reason to subscribe, with original series only the 10th-most popular reason. In fact, less than one-third of subscribers (31%) claimed to have watched original shows such as Netflix's House of Cards. This would suggest that original programming is not a key factor in audience attraction and retention for these services, but that may be because they are an unknown quantity, unlike Premier League football, which both BT and Sky have used as a way to attract an audience to their OTT services.

So does this make it a difficult environment to launch a new service? YouTube's new subscription service, YouTube Red, is a bet that the benefits outweigh the risks. The service costs $9.99 per month in the U.S. and will shortly roll out to the U.K. and other parts of Europe. While it includes services such as Google Music and ad-free viewing as part of the package, the main driver will include exclusive content created by YouTube superstars such as PewDiePie.

The question is simple: will this be an attractive proposition in an already fragmented market reaching saturation? Of course YouTube isn't the only player trying to enter the market; Disney launched DisneyLife in November. The service—which costs £9.99 per month and can be accessed through a browser, an app, and through Airplay and Chromecast—includes a mixture of movies, television shows, music, and books, but nothing involving the Marvel or Star Wars brands.

In both cases, these offerings look bold. YouTube is basing its price point on exclusive content, but Disney's—despite covering a range of media—is riskier, considering the amount of Disney TV and film content available on services such as Netflix. It will be interesting to see if Disney is able to attract a substantial audience based on the multimedia aspects of the offering and, of course, pester power.

In this potentially saturated market, the BBC is looking to defend the iPlayer and has made a number of moves in the past few months to do so. The iPlayer is now actively stopping overseas VPN connections from accessing the service, which is meant to be free only for residents of the U.K.

Cutting off unpaid overseas access is hardly surprising. In July, the Global Web Index claimed that more than 60 million people were watching iPlayer for free outside the U.K.—a figure the BBC said was not plausible.

Moreover, as part of discussions with the U.K. government in relation to the BBC charter review (a review of the broadcaster's funding that occurs about once every 10 years), the BBC is lobbying for the TV licence to become a requirement if you are watching on-demand TV content. The licence stipulation currently only applies to live streamed content.

However, the licence review has caused problems with other terrestrial broadcasters, who in theory would have to also block viewers from using their services if a viewer did not pay the TV licence. There is still much debate and haggling to come on this issue.

Combating Fragmentation

So how do the content providers and traditional TV platform providers combat fragmentation of content and of the audience? Two competing philosophies are emerging.

When Apple finally launched the new Apple TV in November, the pitch from Tim Cook was simple: "The future of TV is apps." The Siri universal search, accessed through the remote, integrates with apps (including Netflix) where possible. This ability to search content across platforms and services could be revolutionary for users who are engaging with a huge number

of choices from diverse providers and devices. It could also solve some of the issues around discovery. The idea of an app-based TV also allows for the addition of new services through the same device, an idea Smart TV tried with limited success.

But the lack of ability to aggregate content viewing figures creates a barrier to entry for advertisers and monetisation of the content. With BARB already lagging behind, this might lead to the start of a significant drive away from advertising and toward subscription-based models.

In November, Sky announced an approach with different specifics but the same intent called Sky Q. Sky, in contrast to Apple, says "the future of TV is TV." Sky says it understands "that people now live their lives with a mix of different screens."

Sky Q will be a premium service that lets viewers shift what they're watching between different devices, including TVs, tablets, and phones, as well as download programming to take with them, all potentially in 4K via a new set-top box.

Neither Amazon Prime nor Netflix will be available on Sky Q, at least to begin with, and this could be a significant problem. However Sky Q aims to enable "fluid viewing," mixing traditional programming with internet content from YouTube, music video site Vevo, and fashion magazines GQ and Vogue. Add this to content from action camera maker GoPro and it could become a very interesting proposition. Potentially, Sky could become the essential hub through which all content is viewed, regardless of device or source.

However, the old issues will persist if there is no way to integrate those different platforms into content searches and assist with discoverability. The prize for being the "hub for everything" could be substantial, with the possibility of creating new or shared revenue streams across the platform. One of the key things to make any hub attractive to viewers is, of course, content,
and Sky owns a considerable library of rights.

So despite having already seen considerable fragmentation of both audience and content in 2015, it is clear that 2016 will bring yet again more new platforms and services. By year's end, we likely will hit peak numbers on services such as iPlayer, Netflix, and Amazon Prime. If a saturation point is reached in 2016, then we could well see significant services being shut down or consolidated in years to come.

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