Amazon’s Channels and the Platform Plays are Still Far from Being TV-Killers

Amazon PrimeOne of the most common assumptions I hear  — and read in parts of the trade press – -is that the TV industry will be killed off in its entirety to make way for a host of new web-native alternatives. Whilst the impact of OTT apps and platforms has undoubtedly had a significant impact, the fundamental mistake the doom-mongers make is they fall down at the first hurdle by failing to differentiate between Pay TV platforms and individual broadcasters. The former group are set to face unprecedented levels of direct competition in the coming years, the latter are set to enjoy unprecedented competition for their content.

So yesterday’s news that Amazon is adding linear TV channels to its Amazon Prime service – such an ad-free version of ITV for £3.99 or Discovery (£4.99) and Eurosport (£6.99), in addition of course to the £79-a-year subscription fee — shouldn’t be interpreted as broadcasters or pay TV operators waving the white flag to their Silicon Valley (or in this case, Seattle-based) overlords. Quite the opposite in fact, it’s a sign they’re still in a position of strength. Here’s why:

Tech Platforms can Only Win by Working with Broadcasters, Not Against Them

Pay TV competition will only be be healthy for broadcasters. To take the UK TV industry as an example, there has been a longstanding (and perfectly healthy) tension between broadcasters like ITV and Channel 4 and pay TV operators like Sky and Virgin Media (Liberty Global). They broadcaster-pay TV operator relationship is the classic frenemy relationship, even if the friendship part has been amplified in recent years as they found common cause in the PR spats with the tech giants.

However, YouTube is now ten years old and most have come to realise that the economics of the platform are ill-suited to high-cost productions. That’s not to say that YouTube hasn’t been a revolutionary platform in its own right, or that it hasn’t given rise to new forms of content and new ways of interacting with it, but TV it ain’t. Which is why when YouTube TV, a cloud-based pay TV replicant launched in the US earlier this year, it was largely dependent on channels from ‘traditional’ broadcasters like CBNC, MSNBC, USA, FX, Disney Channel and even Silicon Valley’s enemies at Fox News. Because nobody in their right mind wants to pay a monthly subscription for PewDiePie.

The platform winners will be those that best nourish the broadcasters they depend on. Flagship proprietary shows and original content will always have their place as a means of differentiation for the likes of Netflix, Amazon, YouTube TV or Facebook’s imminent equivalent, but for the foreseeable future they’ll only be a small slice of the wider offering. Platforms that try to go it alone and produce all of their own content will quite simply fail.

The Content Wars are Only Just Beginning

It’s no secret that OTT apps are heavily dependent on TV content, which is often branded with the channel they first appeared, so for example when you see UK TV content on Netflix you’ll often see something like this:

UK TV Shows on Netflix


However, broadcasters aren’t only making money by redistributing their hand-me-downs. Even when you’re watching seemingly ‘exclusive’ content on an OTT app or platform, there’s often still plenty of money flowing into TV coffers behind the scenes. Take Amazon’s latest flagship show, American Gods. It was produced by Fremantle North America, which is owned by RTL Group, Europe’s largest broadcaster. Then over on Netflix even classic binge shows like Breaking Bad and its successor Better Call Saul were both produced by AMC.

The larger broadcasters have been waiting for this day and have had years to prepare. As we’ve mentioned on VAN many times before, one of the main pillars of ITV’s transformation strategy has been an investment in content production studios. So even if ad revenues decline, which they have been lately (albeit based on just one quarter), the company will be able to play its content strengths as competition hots up between the various OTT apps and platforms.

Broadcasters are Becoming Increasingly Diversified

As with any specialist area, as an industry many of us are inclined to see things through the lens of our own experience, which if you’re reading this is probably advertising. But ultimately every company is primarily in the money-making business, not just the advertising business, with the end goal of delivering returns to shareholders and investors. As we’ve already mentioned, content production is one route that lends itself to the existing TV model. But others have been making more interesting investments. RTL has invested in ad tech (SpotX, Clypd, VideoAmp) and multiple MCNs (including StyleHaul and Broadband TV).

Another German giant, ProSiebenSat.1, now generates more than half of its revenue from non-TV advertising revenue. Looking at the company’s Q1 revenue alone, it grew by 13  percent to €910 million (compared to €802 million last year). The company’s ‘Digital Ventures & Commerce’ division heavily contributed to that growth, accounting for 14 percent of the total. One of the core areas for growth has been the online dating business via investments in Parship and ElitePartner, which made the largest contribution to ProSieben’s growth in Q1.

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