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FAANG is coming for TV. The threat that giants like Facebook, Amazon, Apple, Netflix, and Google pose against the best and brightest linear leaders is old news. But, the war has not been won – far from it. Today’s media companies can still be big winners in the next phase of TV innovation, as long as they know how to strategically defend their champ status. Media expert Laura Martin, CFA & CMA, shared the keys to defending the throne at our recent NAB event for top industry execs, “Supercharging Advanced TV.” Read on to learn Martin’s top tactics for being a TV champ – not a chump…(for Martin’s full report, click the link at the end of the post)
Champ Status – Who earned it, and how?
In 1980, the TV industry was flatlining, and it needed a supercharged reboot, similar to what we are facing today. Instead of staying trapped in silos, Martin shared, “the US TV ecosystem spent the next 35 years together building one of the most successful US consumer products of all time: the linear cable bundle.” This created a bigger resuscitation than anyone had imagined, and made its way into 88% of US homes by 2010; profits are continuing to climb to $170 billion today. The unity and successful strategy delivered by the legacy companies behind this collaboration earned them their champ status, and also paved the way for other TV powerhouses to join them.
Champ Status – How to protect and keep the title
Unfortunately, the TV ecosystem is no fairytale, and the champs of the past are not guaranteed to continue to live happily ever after. They do have some not-so-secret weapons, however, that give them the edge they need against FAANG.
Not only is TV content still king, with the biggest audience and highest engagement, Martin also estimated that “$136 billion (is) spent each year on TV and film content plus overhead,” meaning they are still the biggest earners in the media business through using a dual revenue stream business model. TV companies are seeing protection from economic downturns through viewer subscriptions, while they are also able to monopolize during peaks through high-margin ad revenue. Per Martin, “if any competitor generates revenue from only one of these revenue streams, it can’t compete long-term against the dual revenue stream of the incumbent US TV ecosystem.”
TV companies are also protecting their champ status through their proximity to Hollywood and Silicon Valley, which remain the primary hubs for entertainment and technology – Martin calls this the cluster theory. Because the large majority of US TV content is created in Hollywood, and the corresponding technology needed to deliver that content is based in Silicon Valley, these champs are able to further strengthen these foundations and have more power over these hubs than FAANG. The content and technology created from these clusters is also keeping TV current.
Through broad reach and TV everywhere adoption, cable companies have been able to deliver “TV without the TV” to consumers, allowing them to ride the wave of smartphone and tablet popularity and not lose viewership. The TV everywhere approach also gives customers a more convenient option of sticking with one provider and having bundled plans, compared to completely cutting the cord and relying on multiple platforms to access the same content. Because of this retention, US TV advertising still produced a $71.6 billion profit at the end of 2017, and is going to likely maintain this pace through 2021. As long as these champs remember to rely on each other for support and keep up their pace, they will be able to keep their stellar status.
The Power of the Past – How Champs can avoid turning into Chumps
The future is looking bright for TV – but that can quickly turn dark if previous media perils are overlooked and technologies do not progress to illuminate viewers’ screens outside of their family living room. The rise and fall of news is a clear example of a once-thriving ecosystem that was overthrown and abandoned due to the force of FAANG. Search and social now own 80% of news traffic today, leaving once-primary news channels at the mercy of these giants, with little chance of overtaking them ever again.
The silver lining for TV? Champs can protect themselves against FAANG’s search and social steamrollers by offering premium content at scale through these outlets, before it’s too late. In a recent article in the New York Times, “Why Traditional TV Is in Trouble,” the VP of sponsorships and media at Sonic Drive-In said that “at the end of the day, you’re following the eyeballs, right?” while explaining how his ad business is shifting away from TV. The best way for TV to avoid a fate like the news industry’s is to create the multiscreen technology and content needed to retain audiences (aka, follow the eyes of its customers) and provide the same “TV” content without needing to rely on traditional in-home viewing.
The music industry also saw its audience eroded and profits demolished by the advantages Apple gave to consumers before independent technologies could catch up. The industry is finally recovering, but it’s taken years.
TV champs’ bundled cable packages help differentiate them, but won’t keep them safe forever. Champs must guard their audiences and their foundation of bundled offerings and must stay one step ahead of FAANG by distributing and owning their content before FAANG oversteps them – and should ensure that this is translated into the future or risk losing their profits (as we learned from the 12-year gap it took for the music business to get out of the red and recover). We are seeing TV champs NBCUniversal, Turner, Viacom, and FOX start this process with the OpenAP, and “work to standardize the language and some of the data sets that they use, hoping to make it easier for brands to buy cross-platform advertising with them.” (Maheshwari, Koblin, New York Times). It’s uncertain if the OpenAP standard is the answer to protecting champs from pitfalls like the ones in the music industry, but it is a clear example of forward thinking and strategy that can guard TV companies from FAANG.
The future of TV can be bright as long as today’s champs protect their profits, invest in each other, and consider the mistakes made in the music and news industries that preceded them. Read Martin’s full report.