Regional Report: North America - April 2019
IABM Business Intelligence (BI) Regional Reports provide IABM members with insight into the latest broadcast and media industry developments for a specific region. Over the course of each year, these reports build into a full overview of all the major regional markets around the world.
The analysis is undertaken by our Head of Insight and Analysis, Lorenzo Zanni, Principal Analyst, Riikka Koponen and Research Analyst, Chiara Raucci. The report includes the latest news and research findings across a variety of topics, including:
- Business Environment
- Broadcast and Media Technology Industry
- Media Technology Demand Drivers
This edition of the BI Regional Report will include a focus on North America.
- Economic growth in the US was 2.9% in 2018, up from 2.2% in 2017 mostly reflecting stronger-than-expected domestic demand
- The World Bank predicts economic growth to slightly decline to 2.5% in 2019 due to intensifying trade tensions, particularly between China and the US
- During 2018, the US administration imposed three rounds of tariffs on Chinese goods, totaling over US$250bn
- The World Bank estimates that new tariffs may expand further, translating into higher prices and increased political uncertainty
- In 2018, global oil prices averaged US$68 per barrel (bbl), which was about 30% higher than in 2017, mainly due to continuing declines in production in Venezuela and the impact of US sanctions on Iran
- The US Federal Reserve (Fed) is gradually removing stimulus in response to low unemployment and near-target inflation (2%), and it raised interest rates four times in 2018, with forecasts of two to three more hikes coming up during 2019
- Higher bond yields, which partly resulted from the Fed’s rate hikes, and improved economic growth in the US in 2018 led to an increased demand for the US dollar, thus strengthening the currency – as of February 2019, the US dollar index was at its highest level since December 2018 equaling 97.084 index points
Broadcast and Media Industry
- With 119 million TV households in the US, North America constitutes one of the largest markets for broadcast and media technology products and services
- The broadcast industry in North America is now in the midst of a radical transformation and stepping into an “OTT 2.0” era, where media companies are harnessing the OTT lessons learnt over the past few years of experimentation and reshaping their business models toward direct-to-consumer (DTC)
- In the television industry, the until-now solid business model of cable and satellite networks is being increasingly disrupted by competition from OTT operators such as Netflix, Amazon and Hulu
- The number of American adults who have stopped subscribing to traditional Pay-TV services (i.e. cord-cutters) grew by an estimated 33% to 33 million in 2018
- According to Digital TV Research, Pay-TV revenues in the US will decline by 26% from $101.71bn in 2015 to $75.13bn in 2023
- Pay-TV penetration in Canada will go down from 85.1% in 2013 to 74.8% in 2023, according to Digital TV Research
- Disney’s acquisition of Fox highlights how scale is becoming important in the US media industry
- Netflix invested around US$12bn in developing and producing original content in 2018. In 2019, Netflix plans to invest about US$15bn in original content, up by 25% from the previous year
- North American companies are increasingly investing in emerging technologies such as the cloud, AI and IP to achieve greater efficiencies and agility
Media Technology Demand Drivers
- The transition to digital broadcasting has almost reached maturity and therefore does not represent a significant driver of broadcast and media technology spending
- The number of HD channels grew significantly between 2005 and 2012, with HD now mainstream
- Canada is similar to the US with the transition to HDTV reaching maturity in 2012
- Most use cases of UHD have focused on live sports broadcasting
- VR deployments in sports broadcasting accelerated in 2018
- Evidence suggests that OTT penetration is still rising among internet users with a noteworthy share of traditional Pay-TV subscribers “cutting the cord” to rely only on OTT offerings
- The OTT landscape in North America is dominated by Netflix, Amazon and Hulu with Netflix being the clear leader in terms of SVOD revenues
- ATSC 3.0 is the next-generation terrestrial system providing broadcasters with additional spectrum efficiency – at the end of 2017, the FCC voted to allow broadcasters to voluntarily roll out ATSC 3.0
Economic growth in the US was 2.9% in 2018, up from 2.2% in 2017 mostly reflecting stronger-than-expected domestic demand, according to the World Bank. Economic activity in the US was boosted by procyclical fiscal stimulus as well as accommodative monetary policy in 2018. The unemployment rate fell to a near 50-year low in 2018 equating on average to 3.9%, while labor productivity has shown signs of picking up. Hence, the labor market is expected to remain robust bolstering consumption also in 2019.
In contrast with the optimistic sentiment of 2017, the year of 2018 was characterized by increased political uncertainty. At the beginning of 2018, president Trump announced that the government would impose tariffs on imported steel (25%) and aluminum (10%).
During 2018, the US administration imposed three rounds of tariffs on Chinese goods, totaling over US$250 bn. In total, new tariffs have been raised on about 12% of US goods imports. As a response, other countries imposed counter-tariffs on about US$150bn worth of US exports. The World Bank estimates that new tariffs may expand further, translating into higher prices and increased political uncertainty.
The temporary pause in tariff increases agreed between the US and China during the G20 meeting in early December 2018 and the ratification of the new US-Mexico-Canada Agreement have temporarily decreased trade policy uncertainties, but the possibility of an escalating trade war remains elevated. This uncertainty will likely have a negative impact on companies’ investment activity.
Accordingly, real GDP growth in the US is expected to decline to 2.5% in 2019 and to an average of 1.7% in 2020-21.
In 2018, global oil prices averaged US$68 per barrel (bbl), which was about 30% higher than in 2017. This was mainly due to continuing declines in production in Venezuela and the impact of US sanctions on Iran, which contributed to rising Brent crude oil prices peaking at US$86 per barrel in early October 2018. Nevertheless, prices fell sharply in November 2018 after the US announced temporary exemptions from the sanctions on Iran for eight countries, including China, India and Japan. The decline in prices was also partly due to continued rapid growth in oil production in the US, the OPEC countries and Russia.
As of early January 2019, crude oil prices stood at about US$55 per barrel, and markets expect the prices to remain broadly at that level over the next 4-5 years, according to the International Monetary Fund (IMF). The World Bank, in turn, estimates oil prices to average US$67 per barrel in 2019 and 2020, even though uncertainty around the forecast is high due to considerably high trade tensions and uncertainties around the full impact of Iranian sanctions once the exemption period of the eight countries ends. In addition, the ever-increasing political instability in Venezuela and recent demonstrations against president Maduro’s government may result in further declines in oil production in Venezuela. In the US, crude oil output is expected to rise by further 1 mb/d in 2019 after new pipelines come onstream in the second half of 2019.
Heightened trade tensions and weakened demand from China had an impact on other commodities such as metals, whose prices rose on average by 6% in 2018. The price of steel and aluminum in the US rose following the announcement of specific tariffs on imports on those metals from a wide range of countries, while the price of nickel fell by over 20% during the year. According to the IMF, metals prices are expected to decrease 7.4% year-on-year in 2019 and to remain roughly unchanged in 2020. Price forecasts for most major agricultural commodities have been revised modestly downwards amid trade tensions between the US and China.
According to the U.S. Bureau of Labor Statistics, the unemployment rate equaled 4% and the number of unemployed persons stood at 6.5 million in January 2019. This was clearly up from the last two quarters of 2018, when the unemployment rate ranged from 3.7% to 3.9%. The chart below illustrates the latest development of the monthly unemployment rate in the US.
Part of 2018’s robust growth was driven by fiscal expansion following the Tax reform and Bilateral Budget Act in 2018. This year, however, fiscal stimulus will be fading, and additional tax cuts or spending increases look unlikely in the new political constellation following the result of midterm elections in late 2018. The US Federal Reserve (Fed) is gradually removing stimulus in response to low unemployment and near-target inflation (2%). For the first time since the 2008 financial crisis, the main US policy rate is approaching its neutral level. Marking the new era of tighter monetary policy following a decade of stimulus after the financial crisis, the Fed stopped its Quantitative Easing (QE) program – a mixture of low interest rates and an expansionary stimulus program – and raised interest rates four times in 2018, with forecasts of two to three more hikes coming up during 2019. The hike in interest rates highlights the confidence in increased growth for the US economy on the back of the tax cuts and government spending. The Fed last raised its benchmark interest rate in December 2018 from 2.25% to 2.5%, and its projection now is for 2.3% real GDP growth in 2019 and an unemployment rate of 3.5% in the fourth quarter of 2019, even with two interest rate hikes.
Higher bond yields, which partly resulted from the Fed’s rate hikes, and improved economic growth in the US in 2018 spurred foreign investors to shift funds into the US, which led to an increased demand for the US dollar and thus a strengthening of the currency – as of January 2019, the US dollar index was up about 5.9% against other major currencies including the euro, pound and yen. Since November 2018, the euro weakened about 2% amid slower economic growth in the Euro Area and concerns about Italy’s fiscal policy, and the pound depreciated about 2% due to increased uncertainty around Brexit.
Even though a strong dollar can be interpreted as a sign of a strong economy, the stronger dollar is a problem for many large American companies, because it reduces the value of their international sales and profits. The stronger dollar may also have a negative impact on large American firms in the US, because it makes products from overseas cheaper and US goods more expensive in international markets. This is particularly a concern for giant technology hardware companies like Apple, which rely on international markets. Taking into account forecasts of two to three more possible interest rate hikes during 2019, the value of the US dollar could lift further this year. On the other hand, it is also possible that, with US economic growth forecast to slow in 2019, the Fed will take a break from hiking interest rates in the middle of the year, which would weaken the US dollar.
In Canada, economic growth remains relatively strong, even though it is expected to slow down from 2.0% in 2018 toward 1.9% in 2019, according to the IMF. The unemployment rate of 5.6% in 2018 was a multi-decade low, and monthly employment growth has been robust averaging over 20,000 new jobs over the past three years. Canada’s economy is export based, with exports accounting for 45% of its total GDP. As the world’s seventh largest oil producing country and a net exporter of crude oil (accounting for 10% of total Canadian exports), Canada’s economic growth is influenced by global oil prices. In January 2019, the Bank of Canada (BoC) estimated that lower oil prices would detract 0.5% from real GDP growth in 2019. The BoC’s 2019 real GDP estimate relies upon a robust export forecast thanks to the new US-Mexico-Canada Agreement (USMCA) replacing the former NAFTA.
Since the financial crisis in 2008, economic growth in Canada has been mainly fueled by consumer debt, with consumption and residential housing investment accounting for approximately 93% of real GDP growth since the crisis, according to Allianz Asset Management. However, there are concerns that the housing markets in Toronto and Vancouver are becoming overheated and hence both cities are facing new local regulations designed to cool them. Moreover, new federally mandated rules are intended to tighten mortgage credit. The mix of these developments had already slowed Canadian housing markets in 2018 and this trend is expected to continue in 2019. With housing markets cooling, consumption is expected to decline in the course of 2019, as many indebted consumers will likely have to decrease their spending due to higher interest rates.
The Canadian dollar lifted to US$ 78 cents in October 2018 amid news of the USMCA deal, but it soon weakened as oil prices fell and markets became concerned about global growth prospects. At the end of December 2018, the Canadian dollar stood at US$ 73.3, helping export competitiveness and making imports more expensive. The forecast for the Canadian dollar is bound to changes in commodity prices and the differential in short-term interest rates between Canada and the US. As there is little change to be expected in interest rates between the two countries, the currency fluctuating range will depend on the development of commodities prices in global markets, which are subject to significant uncertainty amid the elevated trade tensions between the US and China. Nevertheless, Deloitte estimates the Canadian dollar to fluctuate in a range of US$ 73-76 cents in 2019.
- GDP growth in the US was 2.9% in 2018, with World Bank predictions of 2.5% in 2019 and 1.7% in 2020
- The unemployment rate fell to a near 50-year low of 3.9% in 2018 in the US and the strong labor market is expected boost consumption also in 2019
- During 2018, Trump’s government raised tariffs on imported steel (25%) and aluminum (10%) worth about US$300 billion, affecting imports mostly from China
- The World Bank estimates that new tariffs may expand further translating into higher prices and increased political uncertainty, which will likely have a negative impact on companies’ investment activity in the US
- In Canada, economic growth remains relatively strong, even though growth is expected to slow down from 2.0% in 2018 toward 1.9% in 2019
- The ratification of the new US-Mexico-Canada Agreement (USMCA) in November 2018 replacing the NAFTA agreement is expected to boost Canada’s exports in 2019
It is worth noting that the Canadian economy is highly dependent on economic activity in the US – about two-thirds of Canada’s exports go to the US. Hence, implementation of the new USMCA agreement as well as the outcome of tariff-related disputes between the US and China will affect the course of Canada’s economic growth in 2019.
The Broadcast & Media Industry
Compared to Europe, where broadcasting mostly started as a state monopoly, and with many public service broadcasters (PSBs) still playing a major role in many European countries, North America’s broadcast and media sector has favored private offerings of radio and television services. Initially, the broadcasting industry was financed only through advertising, but it later developed into a complex ecosystem of different networks, Pay-TV operators, affiliates – and most recently, over-the-top (OTT) players.
In Canada, the Canadian Broadcasting Corporation (CBC) – a public broadcaster – was the first network to be established in the country, but from the 1960s onwards the broadcasting industry started to diversify thanks to private networks entering the market, and CBC’s market share was diminished.
- With 119 million TV households in the US, North America constitutes one of the largest markets for broadcast and media technology products and services, and hence it is home to a number of very large broadcast and media organizations. In 2018, the top three North American broadcast and media organizations - Comcast, Disney and AT&T - generated media revenues of US$86bn, US$59bn and US$48bn respectively. The size asymmetry between end-users and technology suppliers in this region has often caused pressure on broadcast and media technology product prices.
The traditional broadcast landscape in North America is structured around the relationship between media networks and distributors:
- Media networks are broadcast and cable/premium programmers that derive money from advertising and distribution fees charged to third-party distributors. Media networks can be divided into:
- Distributors are free-to-air terrestrial stations, station operators and Pay-TV operators carrying a mix of original content and programming from external media networks. They derive money from advertising and fees charged to subscribers.
The emergence of OTT is now radically changing this traditional model, and the broadcast industry in North America is now in the midst of a radical transformation. It is stepping into an “OTT 2.0” era, where media companies are harnessing the OTT lessons learnt over the past few years of experimentation and reshaping their business models to increasingly deliver their original content direct-to-consumer (DTC), bypassing traditional means of distribution. According to The Diffusion Group, all “major” TV networks in the US will introduce standalone DTC OTT services by 2022, driving total DTC subscriptions close to 50 million by 2022. Moreover, Akamai estimates that over 50% of publishers view DTC video services as a primary or secondary revenue source. Hence, broadcasters’ DTC initiatives are crucial, as cord-cutting continues to outpace projections.
In the context of rapidly rising competition, media companies are increasingly focusing on original content investment and trying to find ways to deliver new services as efficiently as possible. Competition from powerful OTT operators such as Netflix, Amazon and Hulu is pushing broadcasters to launch their own OTT offerings to reach out directly to viewers – particularly the millennials – whose tastes increasingly run to mobile and social offerings.
Pay-TV operators have responded to fierce competition by announcing smaller, cheaper “skinny bundles” of content packages priced lower than their traditional offerings. In addition to video-on-demand (VOD) services, new formats and strategies for monetization are gaining ground, and the fragmentation of content presentation and consumption continues, as devices proliferate and diversify.
Pay-TV penetration has declined in the US recent years, particularly due to the high costs associated with Pay-TV subscriptions. Pay-TV profit margins continue to erode as programming licence fees increase far ahead of subscription rate increases. According to eMarketer, the number of American adults who have stopped subscribing to traditional Pay-TV services (i.e. cord-cutters) grew by an estimated 33% to 33 million in 2018. In total, there were 186.7 million Pay-TV subscribers in the US in 2018, which was 3.8% less than in 2017. The chart below illustrates the long-term trend of declining number of Pay-TV subscribers in the US.
In terms of Pay-TV revenues, Digital TV Research estimates that revenues will decline by 26% from US$101.71 billion in 2015 to US$75.13 billion in 2023. Canada is expected to face a similar situation as the US, but the decline of Pay-TV is slower – Pay-TV penetration in Canada will go from 85.1% in 2013 to 74.8% in 2023, according to Digital TV Research. Nevertheless, it is important to note that despite its continual decline, the cable and satellite Pay-TV business is still very large in North America.
To attract millennials, who are reluctant to pay the cost of a full cable or satellite subscription and prefer to watch video content on multi-devices, many traditional networks and cable companies are offering their viewers the option to binge-watch their favorite series and movies with the same convenience as the top streamers. For example, the legacy TV and radio network CBS launched its direct-to-consumer offering, CBS All Access, in 2014 while its Showtime subsidiary, a premium cable and satellite television network, launched its own OTT service SHOWTIME in 2015, soon followed by the cable giant HBO launching its own direct-to-consumer services, HBO Now and HBO Go. The satellite provider Dish Network also launched its own OTT platform, Sling TV, in 2015, which offered a selection of Dish Network’s subscription channels for US$20. Later in 2015, Verizon launched go90 – a free, ad-funded online platform accessible only via mobile devices.
After purchasing DirecTV for US$48.5bn in 2015, at the end of 2016, AT&T launched its own direct-to-consumer skinny bundle offering, DirecTV Now. However, with a monthly price of about US$40, DirecTV Now operates at a loss, and cannot generate enough revenue to offset fast-rising programming costs. This is in line with Deutsche Bank’s calculations that skinny bundles’ profit margins are a negative 6% versus a positive 38% for traditional Pay-TV, and thus less appealing to cable companies. With DirecTV Now’s customer growth decelerating, AT&T is preparing to launch a new IP-based “OTT thin-client service” in the first quarter of 2019. The new OTT service will run on the open internet, with users plugging in a proprietary set-top box that connects via USB port. AT&T has not announced a price point for the new service, but it is expected to be more expensive and to offer more channels than DirecTV Now, which in turn will likely fall in the middle of AT&T’s video value proposition – between the new OTT service and its bottom-end AT&T Watch streaming service.
As the competition around original content intensifies, TV networks and broadcasters are adopting a holistic method of monetizing their inventory. Instead of working in silos, traditional media companies are increasingly combining different monetization methods such as ad-funded, subscription and transaction, which allows them to have more transparency and a better understanding of their whole inventory and how it works across different delivery systems. This also means that TV networks’ core business is converging, as they are overlapping on more fronts than ever before. For example, AT&T, which is also the largest phone company in the US, now owns cable network HBO, satellite provider DirectTV and Time Warner (now WarnerMedia), which enables AT&T to both produce and distribute content. In the fourth quarter of 2019, WarnerMedia plans to launch its own streaming service, adding to a growing list of OTT services that bypass cable providers and bring TV series and movies directly to viewers. In the intensifying competition over original content, WarnerMedia is well positioned as it has several TV-content networks under its umbrella including HBO, Warner Bros and Turner. HBO produces original series like Game of Thrones and Westworld, while Turner’s assets include CNN, TNT, TBS, Cartoon Network and Turner Classic Movies. Warner Bros, in turn, produces series such as The Big Bang Theory, The Voice, The Bachelor and movies like Crazy Rich Asians, Dunkirk, Wonder Woman and Blade Runner 2049.
In November 2018, satellite provider Dish Network’s customers lost access to HBO due to an ongoing licensing dispute between the premium cable channel and the TV distributor. This was the first time in HBO’s over 40-year history that it went dark. This could signal that AT&T, which now owns HBO through WarnerMedia, is demanding more money for carrying its channels, which Dish would not want to pay. During the Dish shutdown, HBO commented that it hopes that “the situation with DISH changes soon, but in the meantime our valued customers should take advantage of other ways to access an HBO subscription”. This could be interpreted as WarnerMedia aiming at sending customers to another cable company, which will agree to pay its new prices or meet its subscriber quota. The negotiating power of cable and satellite distributors over content deals will be increasingly challenged when AT&T’s WarnerMedia launches its own direct-to-consumer OTT platform later in 2019.
In 2017, Disney announced that it will pull its content from Netflix starting from 2019 and launch its own direct-to-consumer offering, Disney+. It also decided to launch an ESPN-branded sports streaming service from 2018. To bring in-house the necessary technology development capabilities, Disney acquired streaming technology provider BAMTech at the end of 2017. Moreover, in July 2018, Disney and 21st Century Fox shareholders approved a US$71.3bn deal, in which Disney purchased Fox assents and got control over Fox’s entertainment properties and a 39% stake in Sky, India’s Star and Hulu. Fox, in turn, announced in September 2018 that it will sell the remainder of its stake in Sky to Comcast. Disney’s acquisition of Fox highlights how scale is becoming important in the US media industry.
Slated to be launched in late 2019, the new Disney+ streaming service will charge a monthly fee and provide access to TV shows, movies and other content from the world of Disney, while its other streaming services – Hulu and ESPN+ – will run on the same technology platform. Most of the programming planned for the new Disney+ is likely to leverage Disney franchises such as Marvel and Star Wars. The Disney+ monthly subscription is expected to be slightly cheaper than Netflix’s, and the first film to stream on Disney+ instead of Netflix will be Captain Marvel, which is opening in theaters in March 2019. ESPN+ will continue to focus on sports and Hulu is expected to continue to stream content from three of the broadcast networks and its own original series like The Handmaid’s Tale.
In September 2018, Comcast – America’s biggest provider of cable and broadband services – won the bidding war with Disney over Sky in a deal worth US$40bn. Through Sky, Comcast is able to strengthen its footprint in Europe, where Sky has around 27 million users – and data about its customers’ interests. Compared to ad-funded broadcasters in Europe, Sky has had a strong couple of years with growing revenues thanks to its major sports rights deals, significant partnerships with BT Sport, Spotify and Netflix as well as its strong, world-class production capabilities. Given that Disney now owns Fox, which already owns 39% of Sky, Comcast had to secure the remaining 61% for itself. These mega deals among the largest media companies during 2018 illustrate that the battle over original content is intensifying. The chart below illustrates increase in the number of original scripted TV series in the US.
Another reason for the consolidation among traditional broadcast and media companies is that they require sufficient scale to compete effectively with the new media and OTT players such as the FAANGs (i.e. Facebook, Amazon, Apple, Netflix and Google). According to research firm MTM, the premium OTT market in the US is expected to reach US$21 billion by 2020, significantly up from US$16.4 billion in 2017. New media players with big budgets and scale are also increasingly stepping on traditional media companies’ toes in the field of sports – the crown jewels of linear TV. Sport has been the missing piece of the content portfolio for the new media giants, but this likely to change soon. There are rumors that Amazon would be interested in acquiring DAZN, a sports OTT platform, through which Amazon would gain strong sports rights in key global markets including Germany and Japan. As consumers continue to adopt OTT and connected TV viewing, the next big opportunity for the new media companies will be live OTT particularly in the field of sports.
Even though Amazon has not spent as much on original content as Netflix, its market cap is six times bigger than that of Netflix, its main rival. According to internal documents obtained by Reuters, Amazon Prime had over 100 million subscribers worldwide, of which 26 million were in the US. Hence, in terms of subscriber base, Amazon is still far behind Netflix, but it has the advantage of having in place a platform ecosystem of partners and a digital platform that invites third parties to make money on the Amazon platform, which Netflix still has yet to build.
In 2019, Netflix plans to invest about US$15bn in original content, up by 25% on the previous year. According to BMO Capital Markets, Netflix’s content spending will reach an estimated US$17.8bn in 2020. Ahead of facing serious new streaming competition from Disney, WarnerMedia and NBCUniversal starting later this year, Netflix has dramatically increased its marketing spending to promote its originals – its marketing costs grew 65% in 2018 to US$2.4 billion. To compensate for its massive spending on originals, Netflix raised the prices of its streaming plans in the US and in some Latin American countries. For example, Netflix’s Standard plan (two HD streams) increased from US$10.99 to US$12.99 per month for new subscribers, and the new price is also taking effect for existing customers in Q1 and Q2 of 2019.
Compared to Netflix’s continuing strategy of relying on a monthly subscription-based revenue model and heavy investment in original content, Facebook is strengthening its position as an interactive video platform provider for user generated content (UGC) and live videos. According to Forbes, over half a billion internet users globally now watch online videos daily on Facebook, while other established video platforms like YouTube, Twitch and Vimeo are losing their users to the “new” market entrant, Facebook. With the Facebook-owned Instagram Live and Facebook Live user base increasing, the popularity of live video for business is increasingly growing – daily watch time for Facebook Live broadcasts grew by four times during the course of 2018, according to Facebook. With live video, viewers seem to feel that the presenter is speaking directly with them and that they can engage in a conversation by commenting and asking questions in real-time. Moreover, the added personalization in live videos is estimated to significantly lengthen time spent watching the live content.
Apple, which already produces some original shows such as Planet of the Apps and Carpool Karaoke, is also expected to launch an OTT service later this year, and the company has already publicly announced an investment of US$1bn in original content in the project. Apple is looking at investing in original content because iTunes, its music and entertainment sale and rental service, has suffered from increased competition from on-demand subscription offerings such as those provided by Netflix, Amazon and Hulu. Apple’s new OTT service is expected to debut in the US in the first half of 2019 and expand to over 100 countries in the following months. According to a CNBC report, content will be free and ad-supported, and the new service will be available through its devices including Apple TVs, iPhones and iPads, but not computers. However, Apple will not do anything to jeopardize its product sales and hence streaming is not expected to become its primary business. With its OTT initiative, Apple can respond to the intensifying competition and find new revenue sources. For example, Netflix is no longer allowing new customers to subscribe via iTunes in-app purchase from their iPhones and iPads to avoid paying a 30% commission to Apple.
Google has been investing in original content through its YouTube division in recent years, launching subscription services YouTube Red in 2015 and YouTube TV in 2017. YouTube Red is an ad-free subscription service that also includes Google’s originals, while YouTube TV is a skinny-bundle of live premium channels. However, according to recent reports, the company may have decided to cap its investment in content for the next few years. Google’s investment in original content amounts to a few hundred million dollars according to recent reports.
As a developed broadcast and media market, North America’s transition to digital broadcasting and HD have reached maturity with technology spending now focusing on multi-platform, IP, AI and cloud-based technology – however, HD spending has not halted as demonstrated by recent HDTV channel launches. The rollout of the next-generation terrestrial standard, ATSC 3.0, by broadcasters in the US is also expected to drive spending, particularly with regard to transmission-related equipment. This will provide broadcasters new tools to reach consumers in a multi-platform world although there may be some constraints preventing the standard taking off immediately – a major one being consumer adoption of compatible equipment.
The emergence of OTT and adoption of new direct-to-consumer business models naturally changes media companies’ content delivery strategies. Accordingly, broadcasters and media companies are seeking to increase their operational efficiency by deploying IT-driven solutions. Large US broadcasters like Fox and ABC-owned ESPN have built new facilities based on IP rather than traditional broadcast products. Already in 2015, Disney and ABC announced during the NAB Show that they will virtualize their master control infrastructure by using technology from Imagine Communications to be able to playout from the cloud and to provide pop-up channels. In 2018, Telemundo opened its new headquarters in Miami, with its infrastructure based on advanced IP technology (ST 2110). The facility now hosts Telemundo Network, Telemundo Studios, Telemundo International and the cable network NBCUniversal as well as the company’s digital media operations.
The next chapter will discuss the major technology trends in the North American broadcast and media technology market more in detail.
Media Technology Demand Drivers
We examine specific trends driving broadcast and media technology spending in North America. The trends we discuss are:
- Transition to Digital and HD Broadcasting
- New Viewing Experiences (UHD and VR)
- OTT and Multi-Platform Delivery
- ATSC 3.0
The transitions to digital and HD broadcasting are mature trends in this region and do not represent significant spending drivers for vendors to exploit. The transitions to new viewing experiences, multi-platform delivery and ATSC 3.0 are instead now the principal spurs.
Transition to Digital and HD Broadcasting
In North America, the transition to digital broadcasting has almost reached maturity and therefore does not represent a significant driver of broadcast and media technology spending.
In the US, the Federal Communications Commission (FCC) started running tests of digital transmission in 2008. The requirement was set for full-power TV stations to shut down their analog transmissions by June 2009. Low-power TV stations were given an extended deadline of September 2015 and continued to broadcast in analog. However, the FCC suspended this deadline due to the Incentive Auction, which required the repacking of TV spectrum, and meant that some stations may have had to go off air or change channels. On completion of the auction in 2017, the FCC announced a new date of July 13, 2021 for low-power TV stations to shut off analog transmissions.
After the completion of the spectrum auction in March 2017, the FCC issued a new channel allocation table for US broadcasters. This meant the start of the FCC-mandated 39-month timeframe for repacking the spectrum, during which broadcasters must move their transmission frequency to a new position on the spectrum. The process of repacking the spectrum impacts nearly 1,000 TV stations in the US and should be finished by 2020, according to the FCC. The work during the repack process consists of upgrading transmission infrastructure such as digital TV transmitters, broadcast antennas, RF components, and any required structural engineering work on TV transmission towers.
Initially, the US government allocated US$1.75 billion to reimburse broadcasters for reasonable expenses incurred during the repack process. Congress allocated an additional US$1 bn to repack expense reimbursement at the start of 2018.
In Canada, the CRTC set the initial deadline for the transition to digital of full-power TV stations as the end of August 2011. A total of 28 markets were involved with the exception of some CBC transmitters which were given a one-year extension to continue analog transmissions. A deadline is yet to be set for low-power TV stations. The remaining analog over-the-air television signals across Canada are scheduled for shutdown no later than 2022.
According to Digital TV Research, in 2016 only 2% of North American TV households received analog TV – through analog cable. Analog cable TV is expected to decline with no North American households receiving it by 2021.
Both the US and Canada rely on the American ATSC standard for terrestrial broadcasting. A discussion of the next-generation terrestrial standard ATSC 3.0 is provided below.
The transition to HDTV has been a major driver of broadcast and media technology spending in North America. It drove a wave of spending on digital equipment in the 2000s, although tests of high-definition television had already been carried out in the 1990s. The arrival of ATSC 3.0 will allow terrestrial broadcasters to deliver a greater number of HD channels - ATSC 3.0 will provide more efficient terrestrial transmission. Also, established Pay-TV operators will be looking to increase the number of HD channels available to their subscribers.
In the US, the number of HD channels grew significantly between 2005 and 2012. After 2012, spending on digital equipment waned with broadcasters focusing on other priorities such as multi-platform content delivery. Similar to other developed broadcast markets, HD is now mainstream in the US with hundreds of channels being delivered over satellite, cable, IPTV and terrestrial. For example, a satellite operator such as AT&T’s DirecTV carries over 200 HD channels to its subscribers. According to Leichtman Research Group, 81% of households in the US had at least one HDTV set in 2015. Today, the adoption of HD equipment by American consumers is estimated to have reached the 90% mark with a significant share of viewers possessing more than one HDTV set in their homes. Simultaneously, consumer adoption of 4K has increased significantly over the past few years and almost all new TVs launched in 2018 were 4K. Even budget TVs have started to offer a decent 4K viewing experience.
Digital & HD Broadcasting
- The transition to digital broadcasting has almost reached maturity
- According to Digital TV Research, analog cable TV is expected to decline with no North American households receiving it by 2021
- The number of HD channels grew significantly between 2005 and 2012 in the US with HD now mainstream
- After 2012, broadcasters started focusing spending on other priorities such as multi-platform content delivery
- Canada is similar to the US with HDTV transition nearing maturity in 2012
Canada went through a similar experience with the transition to HDTV nearing maturity in 2012. Penetration of HDTV sets is also very high in Canada. Most of the broadcasters that transitioned their operations to HD between 2005 and 2012 will likely be looking to replace their equipment within the next five years - if a 10-year useful life is assumed to be the norm. This is expected to drive new spending on HD equipment.
In September 2016, Cogeco, a Canadian Pay-TV service provider, announced that it would start offering a broader range of HD channels to its customers, thus bringing the total number of HD channels offered by the company to 135. In December 2016, Altice USA added more than 30 channels, most of which are HD, in Gladewater. In 2017, Pay-TV operators such as AT&T’s DirecTV and Comcast continued to add HD channels to their lineups too – DirecTV added about eight new HD channels in 2017. In February 2019, RCN announced its commercial launch of Ultra HD services through a partnership with SES. RCN is currently featuring seven dedicated 4K channels from the North American SES Ultra HD Platform, which will be available on RCN’s Signature TV channel tier for new and existing customers. RCN’s initial launch will feature a broad range of Ultra HD channels, including Insight TV, Travelxp 4K, The Country Network, NASA TV UHD, C4K360, NatureVision TV and UHD1.
New Viewing Experiences (UHD & VR)
According to Strategy Analytics, by 2023, North America will continue to lead in adoption of UHD TVs – 71% of homes will own one. By then, 3.9% of UHD TV homes in the region will own 8K displays. As Pay-TV operators continue to differentiate their offerings and terrestrial broadcasters increasingly adopt the new ATSC 3.0 standard, the adoption of 4K/UHD is expected to accelerate over the next few years. For example, in South Korea, the adoption of ATSC 3.0 has facilitated 4K/UHD adoption among terrestrial broadcasters.
The first 4K/UHD live broadcast in the US was the Masters Tournament in April 2016. The broadcast was offered by DirecTV on the first 4K/UHD channel in the US. DirecTV also offered its subscribers access to 4K/UHD broadcasts of some MLB games.
NBC offered 83 hours of the 2016 Summer Games in 4K/UHD and 4K HDR. However, only some Pay-TV operators (Comcast, DirecTV and Dish Network) carried the broadcasts.
In 2017, Fox Sports announced that it was going to produce one college football game per week in 4K, for a total of 13 games. The broadcaster distributed the content through DirecTV and it only needed one production crew. Replays instead were still done in HD and upconverted for the 4K telecast.
In Canada, the cable Pay-TV service provider Rogers broadcast a series of major live sports events such as some NHL and NBA matches. In 2017, Rogers made additional investments in 4K/UHD programming with the delivery of over 100 live sports broadcasts.
It is worth highlighting that 4K/UHD content continues to be offered by OTT operators such as Netflix and Amazon both in the US and Canada - as in most of the countries in the world. In July 2018, Netflix tested a new high-end streaming plan – dubbed “Ultra” – to see whether North American consumers were willing to pay more for four Ultra HD streams or content in HDR format. At the end of 2018, Netflix increased the price of its monthly subscription in the region, offering content in UHD to premium plan subscribers.
According to IABM research, deployments of 4K/UHD infrastructure have increased significantly over the past two and half years. In July 2018, 4K UHDTV households’ penetration rate was 31% in the US – almost doubling since February 2017.
4K/UHD offerings have so far been mostly launched by major Pay-TV operators. The uptake of 4K/UHD content delivery is lower in the US compared to countries such as Japan, South Korea and the UK, where Pay-TV operators have launched regular offerings. In February 2018, Celebro Media announced the launch of its new Washington DC live broadcast studio with a view of the White House. The studio is fully 4K/UHD using IP technology and it gives news broadcasters the possibility to create an instant pop-up studio to cover breaking news from the US government or national stories.
While 4K/UHD is increasingly used in content production, linear delivery of the new format appears not to be a priority for North American broadcasters. There is more interest around HDR and some broadcasters are experimenting with adding the HDR element to 4K broadcasts.
At the end of 2017, DirecTV launched live 4K HDR coverage of select sporting events, including 13 NBA games, a live concert, and the Rose Parade. Furthermore, in 2018, DirecTV broadcast the National Hockey League and the National Basketball Association games in UHD HDR. Also, various end-users committed to supporting HDR for broadcasting major sporting events in 2018.
The Winter Games in PyeongChang, South Korea, was the largest ever live 8K UHD production. NBC covered some of the 2018 Winter Olympics in 4K HDR. The coverage was provided by Olympic Broadcasting Services (OBS) and Japan’s NHK. NBC Olympics distributed the content to U.S. distribution partners, who then decided how to provide the content to their consumers. The coverage included the Opening Ceremony, hockey, figure skating and many other sports.
In the US there were different ways of enjoying the 2018 FIFA World Cup in UHD. One of the broadcasters offering the content in 4K was DirecTV. It broadcast 64 matches in 4K HDR. DISH Network covered 56 games - rather than the full tournament - in UHD.
Another way to watch the 2018 World Cup in UHD HDR was through the agreement between Fox Sports and the Chinese manufacturer Hisense. Owners of Hisense 4K HDR TVs who also downloaded the Fox Sports Go app, were able to enjoy the event in UHD 50p with HDR color.
Most use cases of UHD technology highlight how this is being applied (in delivery) to live broadcasts, particularly live sports broadcasts. A similar consideration can be made for VR, which is mostly being used in sports where it could represent an alternative, or surrogate, to watching a game in the stadium. In fact, advances in the technology are allowing real live experiences to be reproduced much more accurately in a virtual world. VR deployments in sports broadcasting accelerated in 2018.
In August 2016, NBC provided 85 hours of Rio Summer Games content in VR - for the first time ever in a Summer Games’ broadcast. In 2018, NBC presented more than 50 hours of virtual reality content from the 2018 Winter Games in South Korea. It was the first time that Olympics programming in VR was delivered live in the US on a wide range on devices and platforms. The coverage was powered by Intel true VR technology which used multiple camera pods to create 360-degree interactive virtual reality environments. The content was available on the NBC Sports VR app. This includes the possibility for viewers to modify their vantage points, interact with games’ stats and access the natural sound captured by each camera.
In 2018, NextVR in partnership with Relevant Sports, let fans experience the Champions Cup in virtual reality. The viewers were able to watch two marquee match-ups live in VR and, they had the chance to relive ten International Champions Cup matches in high resolution VR.
Fox renewed its commitment to VR broadcasting in 2017, when it decided to collaborate with Livelike on a “social” VR experience for the CONCACAF Gold Cup – an international football tournament of the North and Central American and Caribbean regions held every two years. Through the Fox Sports app, viewers were able to communicate with each other – via their avatars – while watching the games. Connections to other avatars could be made through Facebook or, alternatively, at random. In 2018, during the 2018 FIFA World Cup in Russia, Fox Sports & LiveLike provided four matches in VR through Oculus Go and Gear VR headsets.
In 2017, the partnership between NBA Digital and NextVR marked the first time VR technology was monetized in broadcasting. The two organizations partnered to deliver a game a week in VR, which was charged to consumers through a subscription model (the NBA League Pass). Some of the features in these VR broadcasts included volumetric telestration, live infographics and dynamic stats.
New Viewing Experiences
- By 2023, North America will continue to lead in adoption of UHD TVs – 71% of homes will own one
- Evidence that ATSC 3.0 will facilitate 4K/UHD adoption by terrestrial broadcasters
- 4K/UHD content continues to be offered by OTT operators such as Netflix and Amazon both in the US and Canada
- Most use cases of UHD have focused on live sports broadcasts
- During FIFA World Cup 2018, VR deployments in sports broadcasting accelerated
In July 2018, Copa90 announced a new partnership with NextVR. The International Champions Cup match between AC Milan and Manchester United was the first virtual reality live broadcast. NextVR had also a dedicated Copa90 channel through its app, debuting with behind-the-scene access to a US soccer star Christian Pulisic. Tom Thirwall of Copa90 said: “NextVR’s technology is mind-blowing, and for the first time ever, fans can watch Copa90 in high resolution VR, providing them an unparalleled viewing experience. Copa90 wants to unite the world through soccer and this partnership and technology will only bring fans around the world closer together.”
In 2018, the NBA, Turner Sports and Intel launched a new VR partnership, airing seven games in VR during the regular season and twelve more during the playoffs. Viewers were able to select the camera angles, which were active rather than static, experiencing the game as if they were part of it, feeling players’ emotions and fatigue.
Intel and Turner Sports are returning for the 2018-2019 NBA season with virtual reality broadcasts via NBA on TNT VR app. It is available for Oculus Go and Samsung Gear VR headsets, bringing the fans onto the virtual set of Turner Sports with access to replays, live game action and highlights.
Digital Domain is tackling virtual broadcasting. The company has produced a 360 camera with 4K, 60fps video capture – a new solution for broadcasting and publishing.
These use cases highlight how VR technology is so far making inroads only into sports broadcasting. Aside from the possibility for viewers to have an immersive experience and watch matches from different vantage points, the increased reliance on games’ stats highlights how interactive visualizations of sports data are becoming an important part of the VR experience.
OTT and Multi-Platform Delivery
During 2018, OTT and new media offerings continued to grow in North America, and the region is the OTT industry leader globally. North America constitutes a developed broadcast market with a solid broadband infrastructure. OTT TV & Video Forecasts estimate that 73.5% of TV households will subscribe to at least one SVOD platform by 2023.
Leading streaming services in the region are concentrating on increasing their customer base by providing content through different channels as dedicated OTT services and smartphone apps. Furthermore, the United States and Canada have huge budgets allocated to the creation of animated content. Fox is one of the largest companies devoted to the creation of animated content for prime-time TV, with popular programs such as “Family Guy” and “The Simpsons”. In order to monetize the increasing popularity of animated content, leading animated content providers are signing distribution deals with US-based OTT platforms.
The “cord-cutting” effect on media companies is accelerating as North American consumers are prioritizing OTT video services over traditional TV. Pay-TV providers are now offering packages that include TV, internet and phone services as well as an OTT video subscription for a single and lower price.
OTT & Multi-Platform Delivery
- OTT and new media offerings continue to grow in North America
- Disney decided to change its strategy due to the subscriber losses of ESPN – they will offer their own streaming services in 2018 and 2019
- The OTT landscape in North America is dominated by Netflix, Amazon and Hulu with Netflix the clear leader in terms of SVOD revenues
- The changing landscape in North America has seen traditional broadcasters launch their own OTT/online catch-up services
- A number of mergers and acquisitions were announced in 2017 as traditional broadcasters and media companies look for scale, including Disney’s acquisition of Fox’s entertainment assets
In Q3 2018, the leading 10 Pay-TV companies lost over 970,000 subscribers in the US. However, the Pay-TV sector is still very large in the country with a total of over 90 million subscribers. Comcast is the region’s biggest player with over 22 million subscribers, even though it recently lost 106,000 video subscribers while gaining 363,000 broadband subscribers. In Q3 2018, the biggest drop registered was by Canal+ International, which lost 608,000 subscribers once the FIFA World Cup ended. As a result, Pay-TV service providers such as DirecTV, Dish Network and Verizon have started offering OTT subscriptions at a much lower price than their traditional Pay-TV offerings. Sling TV and DirecTV Now gained 26,000 and 49,000 subscribers respectively. Other companies such as Sony and Google started offering similar products. Sony started offering its PlayStation Vue service in 2016 while Google launched its YouTube TV bundle in 2017.
EMarketer projects that by 2021, 51 million people will have ditched their cable or satellite TV subscription plans. YouTube and Dish Network’s Sling TV are two of the main reasons for the expected drop.
To respond to the losses, traditional broadcasting networks are debuting their own paid subscription services. HBO and CBS have launched successful direct-to-consumer offerings (HBO Now and CBS All Access respectively) which have gained many subscribers in recent years. HBO Now launched in April 2015 for $14.99 per month, and by 2018, the service had surpassed five million users. Amazon started to pitch HBO subscriptions to Prime customers in late 2016. Since its launch in November 2017, DirectTV Now, AT&T’s OTT TV service, has been offering HBO as a premium add-on, for $5 extra per month. With the introduction of HBO’s VoD services on Apple devices, iPhone or iPad users can now access swaths of original HBO content for a nominal subscription fee. In this way, HBO decreases its dependency on the cable TV providers and increases its customer base.
In 2018, CBS All Access and Amazon launched the ability for Amazon Prime members to add the CBS All Access commercial-free offering to their prime account.
In 2018, Discovery bought Scripps in a deal worth $14.6bn to alleviate the pressure of cord-cutting on its revenues. By combining forces, the two large networks hope to have more leverage in fee negotiations with distributors and, possibly, launch a direct-to-consumer offering focused on lifestyle/reality content. Discovery’s CEO, David Zaslav, told the Financial Times:
“We’re looking at it [streaming]; we think there’s an opportunity for a global service because almost all other subscription video on demand services look the same. We’re looking at whether we should do it alone or with others.”
Because ESPN accounts for most of Disney’s operating profits, its ratings are viewed by investors as a proxy for the healthiness of the general television business in the US. In August 2016, Disney invested US$1bn in BAMTech, a streaming technology service provider. A year later, in August 2017, Disney took a majority interest in BAMTech and made two important announcements:
- In 2018 it started offering an ESPN-branded multi-sport video streaming service
- It would pull its content from Netflix starting from 2019. This will be included in a new Disney OTT offering to be launched in the same year
In fiscal 2018, ESPN lost two million subscribers. It now has 86 million subscribers, down from over 100 million subscribers in 2011. The ESPN+ streaming service generated more than 1 million subscribers up to November 2018. In January 2018, the Disney-To-Consumer & International (DTCI) segment and ESPN have released a series of enhancements to the ESPN+ streaming services within the ESPN app. Some of the enhancements include personalization with content recommendation to keep users on the platform, offline viewing and watching in VR on Oculus Go.
In December 2017, Disney announced it would buy Fox in a deal worth $71.3bn (including debt) to boost the appeal of its upcoming direct-to-consumer offerings. Disney will acquire the majority of Fox assets, including the 21st Century Fox movie and TV studios, cable networks and Fox’s stake in streaming service Hulu. The deal also includes Fox’s international entertainment assets, India’s main network Star and Fox’s stake in British satellite broadcaster Sky, which will see Disney expand its international presence. The transaction is expected to be completed by early March 2019. When the deal is finalized, Disney will become the largest media company in the world. It is evident that Disney sees streaming and multi-platform delivery as the future for television and media and it is actively re-positioning its business to accommodate changing consumer expectations in an effort to compete with Netflix.
As part of the deal with Disney, Fox will retain ownership of its news assets, including Fox News. In February 2018, Fox decided to go direct-to-consumer too with a paid video streaming service focused on news to be launched later this year. In the announcement, Fox News described it as an “over-the-top opinion platform” called Fox Nation. This won’t include livestreaming of the Fox News channel, but rather, it will be a platform for long-form exclusive news content. This deal highlights how scale has become a key factor for success in the media industry. A series of both horizontal and vertical acquisitions have been witnessed particularly in the US market.
The acquisition of Time Warner by AT&T for $85.4bn proposed in October 2016 also aimed at battling Netflix for streaming customers as AT&T intend to leverage Time Warner’s content (including HBO & Warner Bros.) to support its OTT offering. This deal has encountered several regulatory hurdles. AT&T started offering three separate streaming services (DIRECTV NOW, FreeVIEW and Fullscreen) at the end of November 2016. At the end of February 2019, the three D.C. Circuit Court of Appeals judges delivered their verdict rejecting the AT&T acquisition of Time Warner.
Jodie M. Williams, antitrust specialist at MoginRubin LLP said that the AT&T-Time Warner merger would have set the stage for more vertical acquisition in the future, empowering big businesses and potentially eliminating the remaining few independent players. Big companies getting bigger tends to bring stagnation to formerly dynamic markets where innovative technologies can gain traction.
AT&T and Time Warner claimed that they needed the merger to compete with Netflix, Google and Facebook and to bring cost savings and innovation to their customers.
Another telco operator, Comcast, competed with Fox to acquire Sky. Comcast outbid Fox by $3.6 billion in a three-round auction process. Comcast offered £17.28 per share, while Fox offered £15.67 per share. Comcast successfully won the battle paying US$39 billion. Many argued that this acquisition will empower Comcast to launch a global OTT service. These examples show how North American end-users are increasingly investing in the deployment of new media offerings such as subscription video on demand services.
Despite the reliance of some viewers on over-the-air broadcasts for local news and sports, terrestrial broadcasters are not exempted from the toll of declining ratings. Sinclair Broadcast Group announced at the end of 2016 that it would launch TBD in 2017, a digital multicast network featuring various forms of short-form content, to appeal to younger viewers. In 2018, TBD announced that it had a new partner, Jukin Media (Jukin). With the partnership Sinclair Broadcast Group will deliver digital-first content to over 76 million homes across the U.S.
TV stations’ terrestrial programming is also increasingly included in OTT offerings. For example, Nexstar signed a deal with Fox in June 2017 to distribute 17 Fox-affiliated stations over-the-top. Sinclair’s Fox-affiliated stations made a similar move.
The OTT landscape in North America is dominated by Netflix, Amazon and Hulu with Netflix being the clear leader in terms of SVOD revenues - these companies are pure OTT operators. Netflix is the leading subscription OTT video service; in the last quarter of 2018, the OTT giant had 60.55 million viewers in the United States.
86.8% of US subscription OTT video service users watch Netflix at least once per month. In Canada, there is a doubt with regards to Netflix position in the list of OTT providers. It was the first non-US market for Netflix and it has reached more than 50% of English-speaking population. Its penetration of the French-speaking population is however much lower, due to having less programming tailored to this audience and some in-country regulation around local content creation with more cultural relevancy.
Amazon Prime Video is another giant in the North America OTT market. As Netflix, Amazon doesn’t offer the same content to US and Canadian viewers. Canada for example didn’t get access to Prime Video or Prime Music at the same time as the US; Amazon Prime in Canada still falls short compared to the US when it comes to content offered. This is due to the fact that cable companies own Canadian rights and users have therefore been opening accounts in the US to get more content choice. Over the last year, however, this trend has waned as Amazon is now providing more and better OTT services to Canadian users.
One more OTT provider in North America is Hulu. Hulu is owned by NBCUniversal, Fox, Time Warner and Disney. Like Netflix and Amazon, Hulu is growing at an unprecedented rate, and demand for its original series has grown by over 230% since 2016. In April 2018, the company claimed to have spent more than US$2.5 billion on content and to have added over US$1 billion in revenue. In the same month, Hulu announced a partnership with Spotify that allows its users to purchase Hulu’s OTT streaming services for a discounted price per month.
In 2017, the launch of the Facebook Watch platform in the US gave Facebook users a dedicated platform to find their favorite shows and video creators, and to start conversations with friends, other fans and the creators themselves. This not only challenges online video platforms like YouTube, but also takes on OTT streaming services like Amazon and Netflix.
With Watch, users can have their own personalized Watch feed consisting of the latest videos ranging across sports, news and entertainment. Users can also save videos from their news feed if they do not have time to watch the content immediately. According to Facebook, over 50 million people in the US watch for at least one minute in Facebook Watch every month, and total time spent watching videos on Facebook Watch platform had increased by 14 times during the first half of 2018. In September 2018, Facebook announced the international launch of its Watch platform making it available globally on iOS and Android, Apple TV, Samsung Smart TV, Amazon Fire TV, Android TV, Xbox One and Oculus TV.
Niche OTT providers are a new trend in recent years. They are specialized streaming services which provide content to small but passionate audiences who share an interest or a hobby. Those niche services offer flexible and inexpensive pricing plans to compete with giants like Netflix and Amazon. Furthermore, they build online communities by tailoring their content to specific demographics. Kun Gao, CEO of Crunchyroll, one of the niche streaming providers said:
“Niche OTT services offer everything for someone, rather than something for everyone.”
Crunchyroll is one of the most popular niche OTT service providers. It was launched in 2006 in the US by a group of University of California, Berkeley graduates. Later on, the company started to license agreements with Japanese broadcasters and stream their shows outside their home country. Moreover, Crunchyroll offers East Asian video content like anime, manga and drama to 35 million online community members worldwide. Netflix has now also started to invest in content from Japan, but Crunchyroll has not seen it as a threat so far and claimed that it was able to better serve anime fans due to its singular focus. Today, Crunchyroll is a subsidiary of Otter Media, which is a subsidiary of AT&T’s WarnerMedia.
Niche OTT viewers can watch movies and series from drama to manga, and from opera to romance. Passionflix, which turns novels into movies, was launched in September 2017 in the US raising US$ 4.75 million in seed funding. It is now streaming its content in 150 countries worldwide, but most of the licensed content is from the US only. The founder, Tosca Musk, said that the focus is on “positive relationships between men and women”. Users can browse the library based on the type of emotion they are looking for and use a “barometer of naughtiness”. The streaming company is now producing movies for less than US$1 million per film and the goal is to release an original movie or series every two months.
Not all the niche OTT services are having success. DC Universe (DCU) was launched in September 2018 by Warner Bros. DC Universe designs experiences for DC fans, streaming DC comics series and movies from Aquaman to Zod. In the first two weeks of its launch, DCU registered 143,000 users. However, only 24% subscribed to the platform. DCU is struggling to gain the audience that executives were hoping for; since its launch, the service has attracted only 700,000 subscribers. Two of the problems for the platform have been accessibility and availability. With regards to accessibility, the service has not so far been able to scale well, being U.S. only. Its series are being distributed internationally by Netflix. Furthermore, the availability promised when the service launched was not what users actually received. DC Universe said it would stream a massive list of DC comics from various eras of the company, but not all of them are complete. DCU needs its own breakout show to truly distinguish itself and standout in the OTT crowded market.
Sports leagues and federations are thinking about launching their own OTT platforms to offer a flawless user experience and niche value to viewers. In March 2018, for example, the NBA announced plans for its OTT League Pass service. The new offering is called NBA Digital and it is available for the 2018/19 season. Premier League football teams have been in talks to do the same. Having more content and options is good news for sports fans, and European sports fans are more likely to pay for sports services, so these look set to make an impact in 2019.
It seems like there is still more room for niche services in the crowded OTT market; the challenge is to find and meet a real demand for a particular genre of content. Once achieved, viewers definitely appreciate the curated libraries and specific genres offered by niche OTT services.
Transition to ATSC 3.0
ATSC 3.0 is the next-generation terrestrial standard system that will provide broadcasters with additional spectrum efficiency. It provides broadcasters increased flexibility and new market opportunities through enhanced transmission and reception functionality, delivery of 4K UHD TV, immersive audio, and interactive services using a mix of Internet and broadcast connections. Some South Korean broadcasters have already launched ATSC 3.0 broadcasts in February 2017.
Work on the new DTV system began in 2010 with an initial study on what it should provide for consumers. Between 2012 and 2014, a broad group of technologies was examined and selected by ATSC experts. ATSC 3.0 emerged as a complex suite made up of separate standards. From 2014 to 2016, the suite was developed with various elements/standards being approved.
At the end of 2017, the FCC voted to allow broadcasters to voluntarily roll out ATSC 3.0. FCC Commissioner, Mignon Clyburn, specified that no subsidies would be provided by the government to consumers for the purchase of ATSC 3.0 compliant equipment. The FCC vote was divided as part of the regulatory body argued that the standard could leave OTA viewers being charged for acquiring new TVs and equipment to watch the ATSC 3.0 broadcasts. The FCC will require broadcasters that adopt the standard to simulcast both standards (ATSC 1.0 and ATSC 3.0) for at least five years. It also didn’t exclude ATSC 3.0 signals from retransmission negotiations.
Early this year, the Advanced Television Systems Committee (ATSC) approved the final standards for ATSC 3.0 with March 5 marking the official launch of the new suite. The complete set of ATSC 3.0 DTV transmission standards was celebrated at CES 2018. ATSC President Mark Richer explained that the 20 individual standards of ATSC 3.0 “will give broadcasters the ability to utilize new transmission methods and finally bring together innovations in both over-the-air and broadband services.”
Although the rollout had officially begun, the new reporting requirements were not enforced before the Office of Management and Budget (OMB) approved them in July 2018. This was to ensure that the benefits of additional reporting requirements outweigh the costs.
There has been a huge amount of interest in deployment of the new standard and its various benefits. Sinclair announced that it would go nationwide with the standard after the FCC approved the voluntary rollout at the end of 2017 - Sinclair created a subsidiary, ONE Media, to deploy the new DTV system.
In March 2017, the two largest broadcast station owners, Sinclair and Nexstar, formed an ATSC 3.0 consortium to coordinate the launch of ATSC 3.0. Other broadcasters such as Univision and Northwest Broadcasting later joined the group, which now boasts coverage of 90% of US households. Early this year, WRAL-TV Raleigh, N.C. provided the first Winter Olympics broadcast in 4K/UHD using ATSC 3.0 – this example highlights how the deployment of ATSC 3.0 can lead to more spending on 4K/UHD.
In November 2017, seven broadcasters across 10 stations in Phoenix launched a “model market” to demonstrate the viability of the next generation ATSC 3.0 ecosystem, while at the same time continuing to serve over-the-air viewers with legacy ATSC 1.0 digital television. The broadcasters included E.W. Scripps Company, Fox Television Stations, Meredith Local Media Group, Nextstar Media Group, Tegna, Telemundo Station Group and Univision. The Pearl TV consortium became the coordinator of the “model market”. Phoenix was chosen for the project due to the fact that more than 20% of the city’s 1.8 million TV viewers receive OTA television and because the consortium has a good relationship with cable operators in Phoenix making it easier to test MVPD interoperability. Accordingly, Phoenix was chosen to serve as a testbed for the business models and the consumer testing needed to prepare go-to-market strategies for next generation television. In October 2018, the Pearl TV consortium announced the addition of seven broadcasters in the Phoenix area, bringing the total of participating stations to 14. In addition to technical tests, Pearl TV is collecting data on how consumers interact with ATSC 3.0, as well as their preferences. The new survey conducted by Pearl TV in October 2018 indicated that 42% of those consumers interested in ATSC 3.0 are likely to buy a new TV to enable next generation TV services.
At NAB Show New York in October 2018, executives from Fox Television Stations, NBC and Telemundo Owned Stations Group, Univision, TEGNA Inc (for Pearl TV) and Nexstar Media Group (for SpectrumCo) expressed their commitment in collaboration to support the rollout of ATSC 3.0. Initially, there was a concern that big owners of valuable spectrum could not work together, commit resources and stick to the collaboration plan. However, the announced collaboration illustrates broadcasters’ willingness to team up to compete together with the new media players.
- ATSC 3.0 is the next-generation terrestrial system providing broadcasters with additional spectrum efficiency
- The complete set of ATSC 3.0 standards was announced and celebrated at CES 2018
- The Office of Management and Budget (OMB) approved the new reporting requirements in July 2018
- Deployment of ATSC 3.0 has begun with several companies having completed tests
- The new standard provides a range of benefits for terrestrial broadcasters
ATSC 3.0 will include single frequency network (SFN) technology, which enables broadcasters to send the same signal over the same frequency, which in turn improves coverage on different devices. This will allow broadcasters to take advantage of the benefits of mobile video. ATSC 3.0 will also support several advances including 4K UHD, high dynamic range, high frame rate and wide color gamut picture quality, as well as immersive audio. Perhaps most importantly for broadcasters’ bottom lines, ATSC 3.0 will give terrestrial broadcasters the potential to target advertising on the basis of viewership characteristics – i.e. targeted advertising. The new standard was designed to significantly enhance over-the-air services for viewers while bringing together broadcast and broadband functionality to give audiences more content and choice. Hence, ATSC 3.0 will be able to bring together OTT and live linear programming in a new way enabling broadcasters to be better positioned in the competition with new media services.
While on the broadcast side there is a major interest in deploying the new standard, there are still doubts over consumer adoption. In fact, consumers, who will have to purchase new TVs and equipment to watch ATSC 3.0 broadcasts, will need to be informed and enthused on how the standard will give them a more compelling television experience. Also, from a demographic perspective, broadcast-only reception is more widespread among low-earners, making the switch even more unlikely for them. This is a major concern for US television executives.
Another concern relates to the cost of deploying the new standard, which is not backward-compatible. A 2017 study by WideOrbit concluded that the broadcasting industry has not fully assessed the size of the investment that needs to be made to ensure a smooth transition to the new standard.
North America won’t be the first country to adopt ATSC 3.0 as some South Korean broadcasters launched it at the beginning of 2017. SBS, the South Korean terrestrial broadcaster, aired its first broadcast in the ATSC 3.0 UHD standard in 2016. SBS launched ATSC 3.0 DTT services in February 2017. Towards the end of 2017, the first ATSC 3.0 DTT network was launched in South Korea by SBS, Korea Broadcasting System (KBS) and Munhwa Broadcasting Corporation (MBC) - viewers are able to watch free UHD content. However, even though South Korea was a great case study, there are many elements that will be rather different for the US market.
The interest in the new standard remains high as the rollout of ATSC 3.0 has now begun in the US. It remains to be seen if consumers will embrace it and how broadcasters will deal with the high costs associated with this transition. Moreover, another obstacle for the adoption of the new standard is the support it is able to garner, as there are other companies that are creating apps and other online solutions that are standalone and could compete with ATSC 3.0. Such thinking could result in a hybrid of traditional broadcast technologies being used side-by-side with new delivery options.
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