2018: A Year of Defining Uncertainty
John Buffone, Executive Director, Industry Analyst ;
Consumer Electronics Connected Intelligence
What do you do when your boss decides you should write a “crystal ball” blog about the upcoming year? Well, if you’re anything like me, you procrastinate until something strikes you. The predictions that follow aren’t necessarily going to tell you what to expect next year; rather, they will describe why 2018 will be characterized by large industry-wide disruptions in markets facing uncertainty. The direction of these events will define content distribution and viewership trends in the coming years. As such, there are three core dynamics we’re watching: the merger and acquisitions climate, mobile carrier’s impact on video distribution, and the influence of artificial intelligence on content discovery and viewer engagement.
2018s M&A climate is red hot, driven by a pro-big business GOP in control of Capitol Hill, and declining traditional business models in Hollywood and the pay-TV industries. This sets the stage for a year shaped by mergers and acquisitions, yet not quite the previously expected light touch approval process. The buyers, largely mobile carriers and Silicon Valley tech giants, are looking to gobble up content to flank their positions and aspire to new levels of scale. As such, there could very well be a triple play of consolidation in the movie industry.
Leading the charge, the AT&T-Warner Bros. merger, initially thought to pass through scrutiny due to being vertical in nature, remains in limbo with pending culmination in early 2018. Approval would bring together mobile carrier, pay-TV, and content assets, although it remains to be seen what, if any, concessions will get this deal past the Department of Justice. If thwarted, Silicon Valley giants such as Apple, Amazon, or Facebook, with cash heavy balance sheets, will likely swoop back into Hollywood. Indeed, they may very well do so anyway, as one is bound to find the right movie studio asset, be it Warner, Lions Gate, or another major content producer. Amidst these dealings, the marriage of FOX and Disney may be on a fast track. Disney is set to accumulate FOX studios, home video, cable networks, and their stake in joint ventures such as Hulu. Behind the deal is a strategy to consolidate content assets and thrive in the streaming era by building a market share leading movie studio coupled with TV network, sports, and most importantly, digital distribution assets positioned to take on the likes of Netflix.
Let’s be clear, the TV is here to stay as the staple of home entertainment, yet mobile represents a growth engine that, if executed well, will further change the construct of content creation, distribution, and advertising. An increasing number of direct-to-mobile opportunities are beginning to surface that are opening up new advertising and distribution channels to reach, and expand, audiences. For example, Snap already partnered with NBC, ESPN, NFL, ABC, BBC, A+E, Discovery, Turner, Vice, CBS, and others to produce original content that extends existing franchises and creates new ones. Coupled with 10-second vertical ad spots, these new mid-length form (~10 minute) videos offer creative ways to expand an audience. And the ship is already sailing for some content distributors, such as Viacom, who are staffing a 100+ person unit to take advantage of new direct-to-mobile opportunities such as this.
With the migration to a mobile focus, the distribution burden falls more heavily on carriers who control the pipes and consumer relationships. Yet there remains uncertainty as to how effectively they will be able to integrate mobile and content assets in a manner that grabs viewer attention. Will T-Mobile be able to integrate Layer3 and become a player in TV without unraveling the un-carrier? Will AT&T successfully migrate DirecTV Now to 4K without streaming latency on a platform whose technical infrastructure struggles to keep up with subscriber growth and surge viewing? Will Verizon actually get into the streaming TV business in a way that differentiates from the growing list of virtual MVPDs? Ultimately, will consumers discover the new direct-to-mobile programming and that’s about to release across social media platforms?
These investments have little meaning if the viewer doesn’t find the programming. It’s no longer as simple as organizing channel groups on a cable set top box, as viewer attention is drawn from Netflix to Snapchat and Amazon Prime. This coming year will be the one where discovery defines success or failure. This is where voice assistants or rather their artificial intelligence, has the potential to be the next disruptive discovery tool. Telling Alexa to fast forward a video is cool, but the real game changer will come if and when digital assistants can keep viewers in front of the TV longer or get them to next cool video on Facebook. Voice control is the gateway, but true artificial intelligence is the future as today’s basic functionality must wow users enough to encourage exploration of more advanced discovery capabilities on the horizon.