This post is by Sam Farrand, account/planning director at the7stars.
BT is attempting to buy EE for a reported £12.5bn. The deal, should it go through, represents the latest move within the utilities industry to shore up a company's position across multiple products, bundle them up and sell customers a suite of services.
Big money acquisitions only represent the crest of the wave: Sky offers its customers TV, a phone line, broadband and mobile; Vodafone provides Spotify Premium as part of its higher price contract bundles; and even energy companies such as Southern Electric are now offering products as diverse as broadband on top of power supply. In short, bundling is big business.
However, in the media world there are hints of a very different future, one where content is being actively 'unbundled', with veteran market-disruptor Apple leading the charge. CBS CEO Les Moonves views Apple as 'trying to change the universe' – the universe in question being the traditional satellite or cable subscription TV model.
Apple is widely expected to announce a new version of Apple TV that involves content deals to show catch-up and live TV across the Web. This would allow consumers to sign up to much smaller 'skinny' bundles of TV networks, delivered online and allowing a much more tailored package for customers. Sony too has looked to pre-empt Apple's move with its announcement last month that its PlayStation Vue streaming TV service will allow subscribers to pick the channels they want to subscribe to. Although the offering launched with a very limited selection of channels, like Apple the potential is huge. Nearly 45,000 PlayStation 4s are sold worldwide every day and sales are expected to pass 38m by the end of March 2016. That's a lot of set top boxes ready to go.
Consumers will undoubtedly benefit from the new approach – one look at Netflix's usage stats (accounting for 35% of US internet traffic alone) shows that an appetite for on-demand content is there, as is the threat to traditional pay TV suppliers such as Sky. Also, with the likes of BT winning vital content bids such as the Champions League, the single-source content bundle is becoming a tougher sell. There is a clear trend of content platforms offering premium users ad-free content. Spotify, Amazon and Netflix are all ad-free for their paid subscribers (despite reports to the contrary, Netflix recently reaffirmed its promise to users that third-party adverts will never be shown on the site).
Even the bastion of free content, YouTube, got in on the act in April, announcing that a paid-for ad-free version of its service will arrive by the end of the year. In this environment, the old pay TV model of customers paying for access and still seeing ads begins to look unappealing to viewers.
The likelihood is that many of these 'skinny' platforms will be free of advertising. Any increase in walled gardens, where the best quality content lives ad-free, is clearly not great news for advertisers. More ad-free viewing means supply of ad-exposed consumers will decrease and the price of ads will rise. Brands will have to think more creatively to get in front of audiences.
An emphasis on branded and additional content will form a bigger part of media schedules in an unbundled future. When the content itself becomes ad-free, the opportunities shift elsewhere. Media schedules of the future are likely to include an increased role for product placement and celebrity endorsement. While advertisers will be increasingly unable to place a 30-second advert in the middle of high rating series, that won't stop them signing up the programmes' stars to tweet endorsements to their audience of millions of followers and include numerous product shots within the content (yes, House of Cards, you're not fooling anyone).
Brands are also sidestepping this issue by getting involved earlier in the funding of the content itself. At the extreme end, toy brands Transformers and LEGO have funded entire movies, but brands such as Omega and Aston Martin have been involved in the Bond franchise for years in exchange for endorsement.
Another option is a more transparent approach to how advertising funds content. Spotify video ads, for example, let users watch a brand-sponsored video spot in exchange for 30 minutes of uninterrupted music. Savvy companies will start to explore what other platform partnerships are out there for their brands.
The arrival of unbundling in the UK is more a question of when than if. What's for certain is that Sky won't give up its hard-fought brand dominance without a fight and fledgling media models will have to up their game if they are to stand a chance of taking over the telecoms giant. The race is on.