Commentary
Will The 'Open' Set-Top Box Break The TV Ad Bundle?
- by Dave Morgan , Featured Contributor, April 21, 2016
While you never know how things play out in Washington, most observers think it’s very likely that third-party TV set-top boxes will be available to U.S. consumers in two to three years.
If this happens, there will certainly be a number of big consequences for viewers and TV companies alike.
Many TV viewers will save money. Americans pay $20 billion a year to rent their TV set-top boxes, even more than the $19+ billion they spent last year to buy new TVs. At a $200 rental fee per household per year, you can imagine a lot of people buying boxes that will have one-time costs in the range of what they pay to rent a box for a year or two, or even less.
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Plus, those old boxes suck a lot of electricity. Subscription pay-TV boxes today draw approximately 5% of all electricity used in the home. Energy efficiency will certainly be a new competitive point on the boxes, since open standards will make it easier for more consumer electronic companies to create consolidated devices, with TV service integrated into gaming devices, playback devices or into the TV itself.
TV viewers will get better devices. Given the quality of devices we all get from our TV providers today, and the quality of devices we get from companies like Apple, Google, Amazon, TiVo, Samsung, Sony and LG today, this is pretty much a slam-dunk. No matter what, devices will be prettier and will keep better time.
TV viewers will gain control. It would be hard for the pay TV interface to get any worse than it is today. Third-party boxes will certainly integrate multiple different video packages and digital, social and streaming feeds into the same user interface, probably with lots of cross-service features like Roku’s meta-search and Amazon Echo’s voice control and artificial intelligence.
Might a la carte pricing be an inevitable consequence? As my good friend and Xaxis chairman Dave Moore spoke about yesterday at the ICOM-Global Summit in Seville, Spain, an open TV set-top box is almost certain to bring a la carte channel buying options for consumers. This will have asymmetrical impacts on TV networks dependent on subscriber fees for much of their revenue — if data from recent experiments with “skinny” bundles continues to hold true.
Will it break the TV ad bundle, bringing both chaos and opportunity to TV companies? Today, the TV ad business and the ways you can buy TV ads bundle are pretty simple. It’s all about shows, demos, days, day-parts, CPMs and bundles.
You can buy nationally. You can buy locally (sometimes at the local-cable ad-zone level). And now, you can even buy a smattering of addressable ads on some operator footprints.
However, once you bring in millions and millions of new, cloud-connected set-top boxes, the ad bundle of today will be broken, and simplicity will be out the window.
For sure, we will see a massive introduction of new and different ways to package and sell TV ad inventory. We will have much more measurement and many more insertion points – national programmers will now be able to sell locally, for example. Over-the-top and video-on-demand and linear and digital video will now be much easier to sell together (though nothing will be easy).
How will you do? Without question, we will see many of the digital ad models tested on TV. Some will make it. Some won’t. For sure, it won’t be simple. TV buyers and sellers who have been testing automation and data-provisioned TV ad targeting and measurement today will likely fare much better than those who haven’t. What do you think? Which will you be?
Dave, I'm sorry to say that the answser to the question posed in your headline is probably, "no". At least not to the extent that some---not you, necessarily---keep telling us. The dream of the fully in control viewer able to select only what shows and channels he/she wants and not pay for any others, belies the essential sampling process that allows us to find new channels and shows to watch. Instead, we are supposed to know in advance exactly what we want and buy only that, as if a vast array of options will be out there giving us that opportunity. Actually, they won't be there. Instead, we will end up with mostly the mass audience channels---the broadcast affiliates, indie channels, PBS outlets---for some---and the major cable channels---ESPN, Fox News, CNN, TNT, USA, Weather Ch, Discovery, etc. Most of the others won't survive as 24-hour-a-day services and will have to combine with similar content channels or just fade away. And whose going to control pricing when this happens---the feds?
As for the buying and selling of TV time, yes, there are some interesting targeting and data mining possibilities with the digital approach, which I would be heavily into were I an advertiser. This is especially the case for evaluating the impact of various brand positioning strategies and commercial executions. However, as far as the application of alternative metrics for TV time buying and selling, that wont begin in earnest until the majority of all viewing for ad-supported TV is done digitally as this would force the sellers to comply and accept new sales models. That's a long way off in the future---if we ever get there.
Set top boxes made by private companies to work on a private company sold directly to the public with the costs set by private companies. The objective is to break up the forced renting of boxes like renting of phones from AT&T. You can buy the phone from more choices of companies to work in tangent with different communication companies. That's the ticket.
Dave, I have to agree with what Ed has said. Without a critical mass of subscribing HHs and retransmission fees received from the cable system operators, many of the smaller, more niche networks will not be able to afford to produce quality original programming (we can debate whether they actually do that now), forcing them out of business. Certainly some of that audience will be recaptured by OTT and SVOD, but I fear the end result will be higher cost to the consumer and also advertisers.
The most likely companies to produce these boxes (Google, Apple, Samsung) will be reluctant to share data. This data will be important to create representative pictures of viewing habbits. Purchasers and early adopters will be a skewed population. This will hurt companies like Rentrack, Nielsen and the MVPDs who are marching toward targeting and measurement. It will fragment the emerging landscape of audience based targeting, no?
Ed, Neil, I totally agree. One of the consequences will be reductions in fees for smaller networks. For them, most likely, free will be the new fee. Many of them will become digital streaming networks I suspect and seek a la carte payments directly from subscribers.
Ethan, I think that you're right. It will fragment the audience data, but since so many players will be in the market, I suspect that we will see a lot of data in general available. It will benefit those who can unify the disparate data and activate it. It won't be easy or cheap.