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Digital distribution disrupts TV

News, 10 June 2016

NEW YORK: Streaming video is changing every existing relationship in the TV value chain, according to the Boston Consulting Group, which argues that the industry can no longer cling to the structured connections of the past.

In the first of a series of articles exploring The Future of Television, Frank Arthofer, BCG principal, New York, and John Rose, BCG senior partner/managing director, New York, point to how the online ecosystem has changed three fundamental components of the television industry: consumer services, advertising, and content development and distribution.

On advertising, they note that broadcast and cable TV premiums are beginning to erode, as advertisers can now aggregate large audiences in real time via OTT entertainment programming.

"These platforms benefit from real-time bidding, with better demographic targeting, at more efficient cost."

Further, around half of online viewing is taking place in subscription-based, ad-free, VOD services such as Netflix. Consequently, the authors suggest, "it's reasonable to ask whether consumers are gradually becoming less tolerant of the ad-interrupted model".

And while time-shifted viewing is not new, it is reaching new heights as technology makes it easier: viewers now watch half of all hit prime-time entertainment after using some form of time-shifting technology.

The problem for advertisers, however, is that "the technology to serve, deliver, and measure advertising in nonlinear platforms lags significantly behind the usage of those platforms".

Most online advertising is going into "digital-native" content that is never seen on TV and BCG expects this area to capture nearly $20bn of adspend by 2020, or 22% of all video adspend.

Non-linear TV content, on the other hand, is projected to amount to $5bn by then, or 6% of total video spending.

"To become more attractive to advertisers, the non-linear TV ecosystem needs to improve its measurement and delivery of ads across DVRs, set-top-box video on demand, and OTT platforms," the authors conclude.

Data sourced from Boston Consulting Group; additional content by Warc staff