Lessons for broadcasters from music industry’s downfall

The music industry was the “canary in the mine” for determining the impact of technology on the traditional broadcast environment, says the chair of the Bell Broadcast and New Media Fund. Speaking during a recent IBM-sponsored YouTube broadcast (see below) called “How digital is transforming the media and entertainment industry,” Paul Hoffert, a founding member […]

The music industry was the “canary in the mine” for determining the impact of technology on the traditional broadcast environment, says the chair of the Bell Broadcast and New Media Fund.

Speaking during a recent IBM-sponsored YouTube broadcast (see below) called “How digital is transforming the media and entertainment industry,” Paul Hoffert, a founding member of the Canadian band Lighthouse, said that the fate of the major record labels should sound a cautionary note for broadcasters and BDUs as they grapple with the impact of technology and changing consumer expectations on their business.

“The music industry did not react to the evidence that was before them,” he said. “They tried to hold on to the old ways, with the result that the average shareholder value of major music companies is a tiny fraction, perhaps 15%, of what it was 15 years ago.”

Hoppert noted that the music industry was the first to encounter the concept of “unbundling,” which has become increasingly prevalent in conversations about cable and satellite subscriptions.

Twenty years ago, he said, music was “bundled” onto CDs containing 15 songs that typically retailed for around $15. The advent of digital compression, which enabled users to pick and choose the songs they wanted, irreversibly altered the model for record companies.

He said there is “absolutely nothing” cable companies can do to prevent consumers from gravitating towards new models, whether it’s a la carte subscription models or the use of over-the-top TV services.

“If a new technology comes along that allows end [users] to have a better experience… there’s nothing you can do to try to justify anything that’s going to stop them from having that better experience.

“Unless you’re able to look at the viewer as the centre of everything that happens, and unless you’re able to deliver what’s possible to the viewer, they’ll just find another way to do it.”

Hoppert said that companies like Google, Amazon and Facebook have emerged as modern-day media titans because they eschewed short-term profitability to focus on their business model. “Those companies were not interested in turning analogue dollars into digital dollars,” said Hoppert. “They were interested in establishing brands and attracting a large viewing audience and then figuring out how to make money later.”

THE NUMBERS

Peter Pleckaitis, associate partner for the communications sector for IBM Canada, presented several statistics underscoring the profound – and rapid – changes enveloping the traditional broadcast environment:

• More than 400,000 Canadian households, an estimated 3.5% of the market, have “cut the cord” on their cable or satellite subscription since 2011, with that number rising weekly
• More than 40% of TV viewers now have either a tablet or smartphone at hand while watching
• 4.7 million Canadian households used a PVR in 2012, a number that is rising steadily
• The number of zero TV households in the U.S. has jumped to more than 5 million
• In the U.S., Netflix is set to surpass HBO in paid subscribers, transforming a streaming service into a web-based TV network
• Apple sold more than $1 billion worth of its Apple TV unit in 2013, and is investing heavily in next-generation products

Pleckaitis also highlighted a new phenomenon called “cord stacking” in which consumers are complementing existing TV subscriptions with an online streaming service. “They’re spending more, but they’re getting access to what they want when they want it,” he said.

The Buyer Perspective

Shane Cameron, managing director, digital at OMD Canada, said that while his company’s day-to-day function – connecting brands with audiences – remains unchanged, the delivery mechanisms have been profoundly altered.

Cameron said that Netflix’s meteoric rise (the service is now in an estimated 40% of Canada’s English-speaking households) is a beacon for “super-platforms” like Google, Apple, Amazon, Microsoft and Facebook who have amassed vast user bases.

“What they’re all vying for now is content,” said Cameron. “They’re in the same game that traditional broadcasters have been.” He noted that Google spent more than $600 million on original programming that was barely noticed by the public last year, but last year’s announcement that it might bid on NFL Sunday Ticket was a shot across the bow of traditional content companies.

The move of a marquee platform like the NFL to a broadband platform would have profound repercussions said Cameron, not least of which would be audience measurement.

While the traditional broadcast world has relied on industry standards like BBM and ACNielsen – which he called “estimation platforms” – content delivered via broadband would immediately alter the equation since it would be possible to determine exactly how many people watched a program, how long they watched, other shows they watched, etc.

Cameron predicted that the actual audience number would likely be smaller than that for today’s TV audience because today’s TV buying currency – the GRP – is designed to look large because advertisers need large numbers to buy against.

“If [the GRP] becomes a disillusioned currency, the entire industry is different the day after,” said Cameron. “It’s going to be less about how many people, how often are they seeing a message and what is that message? and more about who are the people we’re reaching, what type of medium are we delivering to them, and what is the true value of delivering an absolutely perfect, in-target story to someone?”

Cameron predicted that it would be a difficult transition for marketing departments that have relied on decades of year-over-year comparisons for their ad allocation. “It’s going to be a dramatic transitional period,” he said.

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