What Convergence Means For Digital Video
Today, when we talk about television, we mean two things: first is the physical display in our living rooms (the “best screen available”), and second is the ecosystem that provides the content (studios, broadcast and cable networks), and distribution (multiple system operators such as Comcast, Time Warner, etc).
In the same way, when we talk about digital, we refer to a set of devices: desktops, laptops, tablets and smartphones. But the digital content ecosystem is significantly different. It includes the output of the television ecosystem, but it also includes the less-understood digital original and user-generated content.
The critical differences between TV and digital are twofold: one, today TV remains relatively unmeasurable compared to digital; two, TV content drives discovery and community dialogue in a way that digital doesn’t. But at some point in the near future (five years, perhaps), meaningful convergence will occur, and the content on your TV device will be both accessed and measured precisely the same way as digital devices are. In addition, the digital original and user-generated content will be easily available on that same device. That convergence will disrupt the uneven flow of advertising and subscription revenue across the spectrum, leaving content creation and discovery to be the primary differentiators.
So what does that mean for those two critical areas?
I still believe this is the driving factor behind everything. Nothing matters more than good content.
Arguably, there is a fixed amount of money that consumers are willing to pay for content. At current pricing levels, bundling provides the average consumer access to a wide variety of content for about 57 cents/hour. But individual pieces of content (movies, TV series on iTunes, etc.) run anywhere from $2/hour to $12/hour -- and that’s not counting PPV Boxing and other sports packages. Convergence means that advertising revenue will likely stay, although it may evolve so t begins to influence content more directly. Multiple ancillary revenue streams will likely narrow to demand licensing; syndication may disappear, since it will be hard to build a network on the back of content that is readily available any time, any place.
These facts will affect the way that content is created. First, a new generation of screen- and network-agnostic consumers will open the door for a new set of players. We may see growth in digital hybrid studios/distributors like The Collective and Maker, companies that work with native digital producers that are experts at producing with smaller budgets. Second, it’s not clear that syndication and windowed revenue streams will be matched by the long tail of single downloads, VOD, or licensing from Netflix and Amazon. That means production budgets overall will likely shrink. Third, the TV pilot system of today will evolve. There simply won’t be enough concentrated revenue, and content will get riskier to produce. There has always been talk of digital as a farm system for TV, and that may come true in new ways.
Back when 20 million people watched each network every night, it was easy to promote the latest TV series. But convergence will decrease broadcast networks’ influence. TV networks still have the scale to inform us about new content today, but coming generations see ABC, CBS, and NBC as random numbers among 500+ channels. Broadcast networks offer a mash-up of scattered material without meaningful consumer branding, which no right-thinking person would design from scratch today.
In contrast, cable networks, balancing between niche and scale, are doing exceedingly well at building audiences for new content. AMC, MTV, and Bravo have figured out how to build rabid, dedicated audiences at near scale using a much smaller megaphone. They build anticipation and make water-cooler conversation the same way the broadcast TV networks used to, but their brands each have a meaning that generation next understands. A cable network like Comedy Central offers me a compact, on-target, narrow set of content that is meaningfully grouped: it has built a brand.
On the digital side, there is an effort to use social networks to organically inform discovery. Or these mechanics may revert to whatever entity owns a primary feed to your device, which could include Samsung, Comcast or Netflix, among others. Today, large networks like The Collective, Maker, and Alloy are aggregating audiences at scale across demographics and in some cases, vertically around interests. Stepping back, this looks similar to a broadcast TV network relying on individuals like RayWilliamJohnson and KassemG, but with the advantages of deeper measurement and meaningful engagement.
As of now, I don’t see this model informing consumer discovery or content investment. I see a smarter approach (and one more like the cable networks) in a company like Machinima, which is developing its brand by focusing on a certain type of content. This may be a more sustainable way of building an audience --and a strategy that may flourish under convergence.