jthibeault

One Step Closer to the Tipping Point for Online TV?

Blog Post created by jthibeault on May 4, 2016

In a recent article I wrote for Streaming Media Magazine, I argued that we weren’t at the tipping point yet for the transition from broadcast television to online video. Why? In short, because of a lack of broadband penetration (to support a scale of users that are currently connected to the traditional television infrastructure) and adaptable business models from incumbent broadcasters (shifting to online). But a recent announcement from CBS may have moved us a little closer.

 

As reported in The Atlantic, CBS has announced that it will air the reboot of the StarTrek franchise only on their streaming service, CBS All Access. Yes, you heard that correctly. StarTrek will NOT be on traditional, linear broadcast television.

 

This is an interesting development in the evolving TV experience because it’s an incumbent broadcaster acknowledging a different transmission mechanism—online. No, CBS All Access isn’t one of the OTT powerhouses yet but StarTrek has a loyal, multi-generational following that may very well drive up subscriptions. And by releasing the episodes weekly (much like HBO does with Game of Thrones), CBS can ensure that they’ll at least have that subscriber base, and revenue, for a traditional 13 episode run.

 

But in my Streaming Media Magazine article, I pointed out a big caveat with the state of this tipping point—the business model. Linear television is an ad-supported/subsidized model. With only about 5% of advertising revenues being directed at online video, it’s just a small drop in the revenue bucket. And, as our own consumer research has revealed, consumers (especially Millennials, the group most drawn to online video, as evidence in the graph below) don’t like ads with their streaming services.

 

Screen Shot 2016-05-04 at 10.57.14 AM.png

(Data from Limelight Network's The State of Online Video Report. The data table on the right shows what Millennials feel about advertising in their online video while the data table on the left is the rest of the market. Clearly there is consternation, especially amongst the younger demographic, about advertising leading me to believe that any A-VOD solution will fail over time.)

 

Can CBS totally embrace subscriptions and opt out of ads completely? Well, CBS chief Leslie Moonves, in a Variety article, hinted that just might happen—CBS is considering the launch of an ad-free version of its online platform for a high price point (similar to the Hulu tiers).

 

If CBS is getting creative in their approach to not only delivering content but monetizing it as well, will be it long before other incumbent broadcasters (like ABC and NBC) follow suit? I’m not just talking about launching OTT offerings. I’m talking about those other broadcasters taking a page out of the CBS playbook—putting more emphasis on online delivery through subscription-based business models.

 

ott user growth.gif

(Data from eMarketer that shows a continued, projected upswing in OTT viewership through 2019.)

 

There’s still a lot of runway until we reach a true tipping point. Adoption has to grow (which will happen over time as indicated in the graph above). Broadband penetration has to grow (to support HD, “broadcast quality” online experiences). And before you say, “well, there are still live events…,” CBS worked with DirecTV to ensure that the 2016 Masters golf tournament, not only delivered in 4K, was also available online. It’s only a matter of time before the cost and complexity of delivering live events lowers to the point that it’s simultaneous. When that happens, what’s the need for linear broadcast when consumers have a combination of OTT services, like CBS All Access, that will most likely deliver on-demand and live content?

 

But I don’t want to get ahead of myself. If anything, this transformation is generational. Millennials are spearheading it but it’s the next generation which will seal the deal as they consume most of their content over-the-Internet. So maybe 15 years away?

 

Regardless of the event horizon, incremental changes from incumbent broadcasters like CBS to how content is delivered and monetized will keep us moving closer to the tipping point. There’s a long way to go but I, for one, am excited about this future of video.

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