How To Survive The Media Meltdown

  
[Posted by Nick Thomas]

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The lead story on UK news bulletins this morning was the latest results from commercial broadcaster ITV. Two observations, even before we get into the detail of the story: big media companies, due to their prominent role in our lives, have a deep resonance with the public in ways that, say, a ball-bearing company, would never have; and the media meltdown— where traditional media business models based on scarcity and control are fundamentally challenged by the new realities of digital media consumption — is now high on the mainstream news agenda.

 The focus of today’s news is on ITV’s losses and the sale, at a knock-down price, of its social network Friends Reunited.  The broadcaster’s business model, heavily reliant on advertising revenues, leaves it exposed to this shift, whereas rival broadcaster (and major ITV shareholder) BSkyB has succeeded as a platform business, offering telephony and broadband alongside Pay TV. ITV has made the right noises about focusing now on its online video proposition and acquiring more of its own content to exploit. Neither will be easy, however, and successful execution will be the key here. ITV’s track record, looking at its failure to develop Friends Reunited (by no means a bad purchase at the time), is not great.

 Surviving the media meltdown will require a reinvention of some business models, some hard decisions and some bold product innovation. I’ve been writing extensively about this topic in a series of documents, and today we publish my latest take, How To Survive The Media Meltdown: Identifying Successful Content Strategies. I’d love to hear your thoughts on this.

Does ITV understand what its audiences want?

UK commercial broadcaster ITV’s announcement this morning that it would be cutting 600 jobs, slashing programming budgets and selling off a number of its assets, was hardly a surprise. Broadcasters internationally will recognise the picture: the downturn in advertising revenues, to which ITV is exposed more than any other UK broadcaster, has been accelerated by the economic downturn. Current models are not sustainable and hard decisions have to be made.

ITV is also struggling to adjust to fundamental shifts in the way we consume media content. As viewers spend more time online, TV’s dominance is under threat. Moreover, while viewers have hundreds of channels to choose from, mainstream broadcasters like ITV are struggling to deliver to advertisers the mass audiences their business was built on. Long gone are the days in the UK when a top-rated TV show would attract 15 or even 20 million viewers – now even when ITV has a smash hit – a Dancing On Ice or an X-Factor, 10 million is rarely achieved. The future may be in niches but ITV’s strength has always been in delivering those big audiences.

Faced with such a market, ITV’s attempts to manage its decline have been patchy. It has understood the value of delivering strong niche audiences via digital channels such as younger-skewing ITV2 and has seen audiences growing for its online catch up service at itv.com. But the news today that it is to sell off Friends Reunited highlights an area where the broadcaster has consistently failed to understand what its audiences are doing. By acquiring one of the UK's early breakout web successes, ITV made a nod to the future. But it bought too late, for too much money, without a strong sense of how it could leverage Friends Reunited’s appeal to the benefit of the ITV brand. Recent attempts to revive the site, though noble, were doomed. We’re all on Facebook now.

There are smart people in ITV, though whether they are the ones who will still have jobs remains to be seen. It has some fantastic content brands: The X-Factor delivers 10m viewers and is a great driver of traffic to itv.com, but those shows are very expensive and too rare. Elsewhere, even the virtual ‘bankers’ of the schedule have gone the way of real-life bankers, with shows such as Heartbeat and The Bill having been cancelled or cut back, without yet a new generation of shows to take their place.

 

While he was Chairman of the BBC, the current ITV Chairman Michael Grade once argued that success was all about good programmes, to the horror of those at the BBC who were busy creating world-class online content. Has Grade understood that the future is about content brands, not programmes, and that ITV’s online offerings represent a bridge to the future, complementing those strong content brands from its core TV business? Has that bridge been destroyed in an attempt to recreate a leaner version of a business model that worked in the past? Time will tell.

 

Online Video Strategies: Why Now Is The Time To Innovate

This week sees the publication of my new report looking at online video strategies in an economic downturn. The question is - with advertisers and consumers looking to tighten their belts - should companies continue to build and develop their online video offerings? Yes they should.

• Demand for online video continues to rise among Europeans, especially given a challenging economic climate in which free content will become even more popular.
• Content owners and media companies must seize the opportunity to engage with this audience by making their offerings more compelling in terms of both content and user experience.
• Direct monetization is still nascent and will remain so in the midterm due to the economic downturn. However, rapid advances in the technology for filtering, serving, and syndicating content will accelerate this market, while helping drive users to existing revenue streams such as DVD sales.
• Companies must innovate to gain market share now and to build foundations for future revenue growth once the economy recovers. Those that retrench now risk losing their audience to pirate sites.

I spoke to one company who admitted that their online media offering had been described internally as a "strategic initiative" - a euphemism for a project that tests the water but loses money, and precisely the kind of thing companies are looking to cut back on. Yet 12 months on from launch, it is now a leading revenue centre. Elsewhere a content brand (I discuss this in the report) saw sales of their DVDs via Amazon rise by 23,000% after engaging with their audience on YouTube. The audience is already there and now successful ways of monetizing the content are emerging.

Now is not the time to retrench to business models that worked before. The ground is shifting and the winners will be companies who innovate now. As one of the performers quoted in my report puts it, talking about online video, "Stick with it, there may be money to be made."

If you are press and would like to discuss this with me, please contact PRESS at FORRESTER dot com.

What the Digital Britain report means for the UK

I've had an interesting day digesting the Digital Britain report from the UK's Minister for Communications, Technology and Broadcasting, Lord Carter. My colleague Mark Mulligan will be posting his response to some of the detail of the report, but for now I wanted to reflect on why this is a landmark document.

That job title, for a start, is something we haven't seen before. The UK government has never really given the impression that it cares about the web or digital technology, but perhaps as another benefit of the Obama presidency, Gordon Brown decided it was time to create a new role for a big hitter.

For hard core politicos the Department of Culture, Media and Sport has traditionally been seen as a lightweight gig, derided as the Ministry of Fun. Today we had the Prime Minister acknowledging the wider value of a digital  infrastructure, describing it as a "backbone of the economy." As an analyst know that's true, I just didn't expect to hear it from Gordon Brown.

There will be criticisms of the document's contents - I have quite a few reservations about its analysis  - but nobody can criticize it for lack of ambition or scope. I'm happy enough - for now - to see the UK government recognize that "the digital information and communications sector is one of the sectors in the economy, alongside energy and financial services, upon which the whole of the economy rests."

Negotiating the future

This is my first blog post for Forrester, so let me introduce myself. I'm Nick Thomas and I'm an analyst covering media issues for Consumer Product Strategy Professionals.

The hot topic in the UK media sector at the moment is the future of Public Service Broadcasting, and more specifically what funding model the broadcaster Channel 4 will have in the future. I won't go into the detail of the debate here, fascinating though it is. Instead, let me reflect on the bigger issues arising from it which have struck me in this historic week. We are indeed entering a new era.

Speaking at the Oxford Media Convention this morning, the Secretary of State for Culture, Media and Sport, Andy Burnham, offered a sobering view of the media landscape which may have been obvious for the assembled audience of media types, but which from a UK government minister is nevertheless still fairly radical.

"Old certainties have broken down," he argued. "That much is clear in global finance, but it is equally true in media. And this change is happening on many fronts.

"The change that was coming in the multi-channel, online age – the structural threat to the advertising revenue funded model – has accelerated with the change in the world economy.

"The old media world has ended – and the sooner we say so the better. With it must go old thinking," he said. "But the difficulty we all have is this: it doesn’t yet feel like an era of new possibility, and change we can all believe in, but one of threat and decline."

So where are the new possibilities? How can companies negotiate these new realities when old certainties are eroding? These are the themes we are exploring in our research in the year ahead, understanding how users' media consumption is changing and focusing on new ways for companies to respond to these changes, to create sustainable business models. We'll be addressing these through our syndicated research, our blogs, and our consulting work with our clients. Watch this space.