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Under construction: The multi-screen video business model

Wed, 06/06/2012 - 12:57am
Craig Kuhl, Contributing Editor

The goal is to satisfy consumers’ appetite for convenience.

Sandvine chartThe evolution of a working business model for multi-screen and mobile content is accelerating. Different companies coming from different angles have got many of the moving parts together, but those parts aren’t yet perfectly aligned.

What are the margins and ROI? What about advertising? DRM? How will not having a multi-screen/mobile model affect cable’s traditional business?

A host of additional tricky questions are being sorted through as the delivery of video over multiple screens and mobile devices passes through a gauntlet of issues, with no shortage of naysayers and optimists.

One thing is certain: The number of consumers accessing their iPads, tablets, smartphones and related mobile devices is rising. And consumers are watching more video on the move and through connected TVs.

The evidence is mounting. Research firm Forrester forecasts 112.5 million U.S. consumers will own a tablet by 2016, which will “disrupt several multi-billion-dollar industries related to TV, including cable, broadcast, advertising and consumer electronics manufacturing.”

Forrester also found that 88 percent of tablet owners use their tablets in their living rooms – yet just 12 percent use their TV less frequently since getting their tablets – while 85 percent use tablets while watching TV, and 18 percent actually connect their tablets to TVs.

Perhaps the most telling number of all, however, is that tablet use adds to overall video consumption for 20 percent of U.S. tablet owners, with 52 percent watching any kind of video on their tablets and 23 percent watching TV shows from their cable provider via a tablet.

Sandvine chart

Small wonder why the cable industry and related video service providers have the multi-screen video model clearly on their radar screens, but not without lingering concerns about whether there’s a definitive business model or if multi-screen is simply a value-add proposition.

“Cable, satellite and IP providers definitely need to get to multi-screen,” said Sam Rosen, principal analyst for TV and video services at ABI Research. “Customers expect it, especially since Netflix. MSOs want to be in that business because they know there’s definitely a shift in total hours of viewing from TV to other platforms, which we consider complementary, and this trend won’t stop. Cable is reluctant to charge for these services, but if they don’t, someone else will. For now, it’s a value-add proposition.”

And value is the operative word for any multi-screen business model.

Added Rosen: “Multi-screen has value from a marketing and advertising perspective to drive individual subscribers to premium packages in the future. Interactive advertising, for instance, just reached 30 million households, so the gears are in place to reach all those audiences.”

Hard at work
The gearing up for interactive advertising in the multi-screen environment is engaging a gaggle of interactive ad companies and services, including newcomer Viggle, which has an ad concept in the multi-screen world that allows viewers to access more information and then earn points – like with a loyalty program – that can be traded for products and services.

“We’re seeing a huge change in media consumption across multiple devices. For cable operators, that could be harmful, but the advertising opportunity is there, like Viggle. Consumers are becoming more receptive to receiving advertising over multiple screens,” said Anna Bager, vice president and general manager of the Mobile Marketing Center of Excellence at the Interactive Advertising Bureau, which recently reported record-breaking Internet ad revenues of $31 billion in 2011.

These numbers aren’t lost on cable’s MSOs. Time Warner Cable is expected to deliver an app for Android-based phones and tablets that will let subscribers watch live TV at home.

Cox, meanwhile, has the multi-screen model in clear view.

“It will allow us to deliver the same content to the preferred platform of viewers, adding value and flexibility to the video service to which they already subscribe. We’ve seen a lot of customer interest in the alternate viewing platforms, and we’re working to expand these options,” said a Cox spokesperson.

Charter, too, is moving deeper into the multi-screen space with its recent deal with FourthWall Media to deploy the interactive advertising program Ad Widgets.

“Cable is trying to populate iPads and tablets with their programming and provide consumers with more benefits while pursuing local interactive advertising. The hope is that cable, with its existing sales force and infrastructure, could deploy advanced, interactive advertising. Will it happen? We think so. But currently there isn’t enough scale of interactive spots, so the model needs to evolve and provide more functionality,” maintained Dan Levinson, senior vice president of marketing for FourthWall.

Levinson and others have no illusions about consumers’ TV viewing habits and the challenges that lie ahead in building a viable multi-screen business model that addresses the new viewing behaviors.

“The basic phenomenon of consumers sitting and watching TV isn’t changing. Cable is simply allowing existing subscribers to access their programming over alternative devices. Smartly, they believe customers can watch programs on iPads and tablets,” he noted.

Sandvine chart

Not so fast, argued Dan Rayburn, principal analyst at Frost & Sullivan. Consumers, he maintained, are not interested in video-to-mobile because of bandwidth caps – and even then, only in short form. Multi-screen viewing is where the action is, or at least where it’s expected to be.

“Most are focusing on multi-screen. They are being aggressive, but there just aren’t enough devices in the market to matter just yet, and how many are actually connected to the Internet? So usage is what should matter,” Rayburn said.

What also matters, he added, is ignoring various research data. “We must ignore stats and research that tell us people want to stop paying for cable and cut the cord,” he said. “They’re not. They just want better choices and flexibility.”

A recent Nielsen report seems to bear that out. It found that while video consumers increasingly are watching video on the best screen available, on more devices and at more locations, 91 percent of anytime, anywhere consumption still comes on traditional TV in real time.

But at the same time, Nielsen reports that 33.5 million mobile phone users are watching video on their phones, albeit short-form.

BlackArrow's Nick TroianoThe result is a fragmented multi-screen ecosystem, according to Nick Troiano, president of BlackArrow, a provider of advanced advertising.

“No one disputes the transition of TV content to multiple devices, and consumers are fragmenting their attention. This is a major challenge for pay-TV providers and that ecosystem. How do you maintain value and relevance in that world?”

Good question. And one that’s at the core of the multi-screen business model.

Added Troiano: “Cable has one significant advantage. They have access to more sub-level data than anyone, and that is an enormous opportunity to leverage fragmented TV viewing on multiple screens, and it opens the door to unique ad and marketing opportunities and increased ARPU. Multiple platform distribution is a must-have. The challenge now is to develop it, which hasn’t been contemplated, along with ad measurement and carriage deals.”

The details
For companies such as Alcatel-Lucent, which is moving deeper into the multi-screen world, the evolving multi-screen model is prompting some fundamental changes.

“A high degree of network management is needed, and the advertising component is very much an ecosystem with lots of participants. With multiple screens, you’re talking about very valuable real estate, and it’s personalized. So now you have two screens to drive other services and ads. But the building blocks are there for a multi-screen model. Now it’s about execution and building a platform for a new business,” said Jim Guillet, head of video and content delivery for Alcatel-Lucent.

It’s also about determining just what the business model should look like.

Sandvine's Don Bowman“The strategy is a defensive play to reduce churn, and it’s working. But it’s not a lucrative new business model for cable operators. The cost of content and to deliver it is a wash. And no one has figured out how to make money from interactive advertising. It will become an offensive play when content is used in ways like HBO Go. And the hope is that interactive advertising will allow user profiles, resulting in higher premiums for ads,” said Don Bowman, CTO for Sandvine Networks.

Building a living, breathing and revenue-producing business model for multi-screen video will require more than hope, however.

Said James McQuivey, principal analyst for Forrester: “The multi-screen model is a bit of a red herring. If service providers think they have to build a multi-screen service to stay competitive, they miss the mark. The real goal is to satisfy the consumer’s appetite for convenience, and multi-screen solutions do that. The challenge is about the business model.”

For now, that business model is under construction, with lots of moving parts swirling around trying to align themselves. Once that happens, experts agree, a new ecosystem will appear.

Concluded Rosen: “Cable is now only offering multi-screen services to higher-end customers. They want them to increase spending and ARPU. That’s where cable is looking to get value. There’s a tremendous effort to increase the value per minute of content watched, and that includes over multiple screens.”

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