When Generation Alpha consumes content in the not-so-distant future, their notion of video will probably be very different than ours today. The media industry has experienced tremendous changes in recent years. Technology and viewing habits are constantly evolving as competition intensifies and drives major shifts in market dynamics. To start off this new year, we’ve listed 4 trends we believe will shape media in 2018:
So much more than video
Competing for viewers’ attention, broadcasters find themselves in the midst of an arms race to create the most engaging and innovative experiences for their audience. HBO, Netflix, Disney and other major Hollywood players spend serious funds on immersive and interactive content including VR, AR and 360° video. These expenditures drove 79% year-on-year growth in entertainment VR investments in the second half of 2017, leading to a total of over $2.3 billion investment in AR/VR over the year.
As broadcasters begin to unlock the possibilities VR has to offer, we are beginning to witness some interesting experiments that challenge the traditional concept of storytelling. While the past couple of years, broadcasters have offered VR as complimentary content, this year VR is moving to prime-time. The BBC recently announced the launch of its own VR production studio, and NBC revealed its plan to live-stream this year’s Winter Olympics in VR. These combined with other signals indicate that the chasm has been crossed and VR is on its path to become mainstream. At the same time, traditional video quality standards keep rising; 4K UHD adoption in US households is rapidly growing, with more than 33 million homes – 1 out of 4 in the US – enjoying 4K TV and an SVoD subscription offering UHD content. While 4K is picking up speed, some players in the industry have already laid the ground for 8K streaming. Japanese public broadcaster NHK plans to roll out the ISDB-S3 standard this year to provide 8k coverage of the Winter Olympics as well as the 2020 Olympics in Tokyo.
Some players can have it all
New content types, sophisticated interfaces and a continuously growing device selection require heavy investment in both content creation and technology. It has also led broadcasters to branch out vertically along the value chain. Streaming platforms do not only distribute content; they create it. Meanwhile, entertainment companies are building their own, direct distribution platforms. More than ever, expertise in both content and technology are crucial for competing in the online video market. This realisation has brought continued consolidation in the industry and the emergence of mega-groups. These include the AT&T – Time Warner deal, the recent T-Mobile- Layer3 TV transaction, and of course – Disney’s acquisition of Fox. Though they may still face regulatory hurdles, the current administration and FCC have shown marked leniency; only recently the FCC significantly eased up broadcast ownership regulations, eliminating, among other things, certain cross-ownership rules.
These media giants in formation will have to face companies like Google, Amazon, Apple and social networks like Facebook and Twitter, as they complete their move into content creation and distribution. Amazon, the first among these tech companies to enter the SVoD market almost a decade ago, recently started acquiring sports-related content and broadcasting rights. Its acquisition of US Open rights in the UK makes it the only platform to deliver all four 2018 grand slams in Great Britain. As part of its strategy to become a “video destination”, Facebook is fighting hard to secure rights to stream sports. Though they lost out on their bid to stream NFL football, Facebook still got its hands on some world-class soccer matches, college basketball games and WWE fights, which it will be streaming on its new video section “Watch”. With these new content offerings, TV viewing on social media is expected to triple by 2027.
Cashing out on explosive video growth
As revenues from subscription fees fail to cover increasing content expenditures, current business models must adapt. Industry players must come up with creative ways to tap into marketers’ growing appetite for video advertising. OTT video ad spend grew 18-fold during the past year, and this growth is expected to continue. According to a recent survey, 80% of marketers plan to increase their video advertising budget this year.
Some providers will move towards AVoD models, where we anticipate fewer – but more relevant – TV ads. This principal will rule live and linear TV as well, thanks to technologies such as Automated Content Recognition (ACR) and improved linear TV ad insertion. These targeted ads will be more interactive and will allow direct purchases, enticing audiences with personalized limited-time offers, or the possibility to “shop the look” of the pop star they’re listening to, a service already available on Spotify. We can also expect to see more commercial content on SVoD platforms; the entire Amazon library as well as 74% of Netflix programs, already contain at least one product placement. Hybrid subscription and ad-based models are also becoming popular, Hulu ad-supported SVoD being the most prominent example. Amazon is also testing the hybrid waters, currently offering free ad-supported content on its platform in complement to its Prime SVoD; it is also expected to expand the current free content selection to include Amazon originals with unskippable pre-roll and mid-roll ads.
Finally, pursuing a career in gaming is a valid life choice
ESports has been popular for a while, but in 2018 it will become part of our everyday culture. Over 364 million unique viewers watched the 2017 League of Legends Mid-Season Invitational – an audience 3 times greater than the Super Bowl’s, and 10 times that of the NBA Finals. High-ranked eSport players earn millions in prizes, on top of impressive compensation packages, complete with benefits and 401k (!).
With jaw-dropping ratings and total eSport revenues predicted to reach $2.5 billion by 2020, traditional sports organizations have started paying attention. The NBA is launching the NBA 2K eSports League this May, while the NFL is recruiting its Head of Gaming & eSports. When high level executives leave traditional sports to join the eSport movement, it’s pretty clear – eSports has become mainstream.
2018 is set to be an exciting year for video, with both opportunities and challenges in store; higher bitrate formats will incur higher delivery costs that can impair profitability. At the same time, shifts in market dynamics are changing the industry as we know it, and may push smaller companies aside while competition fires up between players in the rising media oligopoly. Meanwhile, the growing appetite for online content – from VR series to eSports – offers a wealth of opportunity for platforms large and small. Finding the right balance between appealing content, innovative viewer experiences and maintaining profitability is the key to tapping into this market.
What trends do you think will have the biggest impact on the industry this year? We’d love to hear your thoughts, let us know in the comments below.