futurescape connected tv white paper

HOW CONNECTED TELEVISION TRANSFORMS THE BUSINESS OF TV

A white paper based on the Futurescape strategy report Social TV

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How Connected Television Transforms the Business of TV

© Futurescape Ltd 2011 www.futurescape.tv Research and Reports on the Future of Television

Contents

CONNECTED TELEVISION: A NEW MEDIUM AND A NEW BUSINESS .................................. 2

New TV sets and devices offer Internet access and services ..................................... 2 The race to provide connected TV ......................................................................... 2 Competing platforms for connecting TVs to the Internet .......................................... 3 Connected TVs and devices: sales and penetration forecasts to 2015 ........................ 3 Connected television via multiple devices .............................................................. 4 Competitive dimensions in connected television ..................................................... 4

WHAT DO CONNECTED TELEVISION SYSTEMS OFFER THE CONSUMER? ......................... 5

Closed vs open systems ...................................................................................... 5 Connected TV content and services ....................................................................... 5 Apple TV: consumer proposition and content ......................................................... 6 Google TV: consumer proposition and content ....................................................... 6

CONNECTED TELEVISION CREATES SOCIAL TV ........................................................... 7

Facebook’s high penetration in major TV markets ................................................... 7 Social networking is a heavily used Web service ..................................................... 7 UK population: social networking use by age ......................................................... 7 People already discuss TV online while viewing it .................................................... 8 Twitter and Facebook facilitate social interaction around TV shows ........................... 8 Tweeting during the MTV Video Music Awards: a visualization for Web users .............. 9 How social networks affect broadcasters................................................................ 9 Connected TV integrates Twitter and Facebook into the television set ....................... 9 Social TV gives Facebook and Twitter even more power in the TV industry .............. 10 Facebook and Twitter are partners and competitors for the TV industry ................... 10

HOW DOES SOCIAL TV AFFECT TELEVISION ADVERTISING? ........................................ 11

A social context for TV advertising and sponsorship .............................................. 11 Socially-targeted advertising challenges conventional TV commercials .................... 11

HOW DOES SOCIAL TV AFFECT PAY-TV? .................................................................. 13

Pay-TV must enable subscribers to recommend content to friends .......................... 13 Next-generation EPGs need social graph data ...................................................... 13

ABOUT FUTURESCAPE ......................................................................................... 14

Screenshots

Screenshot 1: MTV visualization of tweets during Video Music Awards – note timeline at bottom ..... 9 Screenshot 2: Adidas World Cup HD video ad on Facebook, with Like buttons ......................... 11 Screenshot 3: NDS “Oona” concept user interface with social interaction for TV ........................ 13

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CONNECTED TELEVISION: A NEW MEDIUM AND A NEW BUSINESS

New TV sets and devices offer Internet access and services Home broadband connectivity is ubiquitous in developed nations. Countries with more than 60% home broadband penetration include the majority of Western Europe, the USA and Canada, Australia and New Zealand. In Asian countries, such as Japan, South Korea and Singapore, penetration is 100%. (Source: Saïd Business School, Oxford University for Cisco.) Through broadband, many consumers are already viewing Internet video at home via PCs, laptops and smartphones. Many watch TV and simultaneously use Internet services, such as social networking. The time has now come for the television set too to go online and bring home audiences increased video choice, combined with new interactive services.

The race to provide connected TV Consumer electronics manufacturers, game console firms, tech companies and pay-TV operators are competing to connect home TV sets to the Internet. Each has powerful commercial imperatives for doing so. TV manufacturers see two major opportunities. 1. Internet connectivity is itself a feature that can differentiate more expensive flat-screen sets from cheaper rivals and so maintain margins. 2. Manufacturers also aim to transform their business model from sales to services. They hope to establish a new and continuing relationship with customers by offering them online services. These include video-on-demand and iPhone-style interactive apps (applications) that blend information and social networking with the television experience. The importance of connected TVs to manufacturers is exemplified by Korean TV maker Samsung spending $70m on marketing its Internet TV apps in 2010. This includes a series of international competitions for developing innovative apps: the US competition had a $500,000 prize fund. Major tech companies are partnering with manufacturers to supply the necessary hardware, software and user interfaces. Sony is using Intel chips and the Google TV platform for a range of televisions and Blu-ray players. Seven major CE companies are incorporating Yahoo Connected TV software into their sets. Other companies are similarly pursuing a video and services strategy. Apple, TiVo, Boxee and Roku are selling set-top boxes that provide video content and, in some cases, apps. The Microsoft Xbox Live and Sony PlayStation PS3 game consoles and their online services are capable of delivering video and some interactivity. Microsoft and Sony want to expand the consoles’ role from dedicated gaming devices to entertainment centres. They are beginning to succeed. An estimated 11% of US consumers ages 13-31 view streamed or downloaded video via a console at least once a month (Source: Knowledge Networks’ Home Technology Monitor tracking studies.) Incumbent cable and satellite pay-TV operators face increasing competition from both IPTV operators, such as Verizon FiOS, and all the other new entrants into the market. Their greatest fear is “cord-cutting” – that subscribers will cancel their subscriptions because video via connected TV is a good enough and often cheaper alternative. One response in the USA is the TV

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Everywhere initiative. This aims to provide an improved service to subscribers by offering television and VOD via the whole range of viewing devices: not only TV, but also PC, smartphone and iPad. Some pay-TV operators are going further, proactively partnering with the newcomers or pre-empting them by launching online services. US satellite operator DISH Network is selling its customers a Google TV set-top box at a subsidised price. International cable and satellite operator Liberty Global is rolling out an “all-IP multimedia home gateway” including Internet content and apps.

Competing platforms for connecting TVs to the Internet

Platforms Companies

TV set, Blu-ray player Sony: partnering with Google TV for Web-on-TV service

Toshiba: using Yahoo Connected TV (which has deals with seven of the top 10 TV manufacturers) for TV apps

Retail set-top box Apple TV: streaming media player for Apple iTunes store

Cable, satellite and IPTV pay-TV

Liberty Global cable and satellite TV (18m subscribers in Europe, Chile, Australia): next-generation set-top box will access Web content and incorporate social networking, 2011 rollout starts with Netherlands, Germany and Austria

DISH Network satellite TV (14m subscribers in USA): offering discounted set-top box for subscribers to access Google TV services

Verizon FiOS IPTV (3.2m subscribers in USA): integrates Facebook and Twitter apps with television viewing

Game console Microsoft Xbox Live and Sony PS3 deliver movies, other video content and some interactive services

PC-to-TV link Living room media centre PCs, such as the Dell Inspiron Zino HD desktop

Source: Futurescape

Connected TVs and devices: sales and penetration forecasts to 2015

Global

2014

54% of flat-panel TVs shipped globally (148.3m units) in 2014 will have Internet connectivity and services. (CE research company iSuppli)

Samsung says that 17% of its TVs shipped in 2010 have an Internet connection and that this figure will jump to 70% by 2014.

USA

2014 57m US broadband households will be viewing full-length online video on TV.

(In-Stat)

2015 More than 43m US homes will have at least one connected TV by 2015. This

represents 37.1% of the USA’s current 115.9m TV households. (Forrester Research)

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Europe

2009-2014 European households with a connected TV will grow from less than 4m in 2009

to 47m in 2014. (Parks Associates)

2010-2014 The number of households with a connected Blu-ray player will jump from 5m in

2010 to 66m in 2014. (Parks Associates)

Germany

2010 36% of TV sets sold in Germany in the first half of 2010 were connected TVs.

(Solon Management Consultancy)

2015 61% of German households will have a connected TV. (Gold Media)

Source: Futurescape

Connected television via multiple devices The connected TV ecosystem is expanding to embrace all sizes and forms of consumer video screens, not just the main living room set. US flat screen manufacturer Vizio is making its VIA apps available in sets as small as 22 inches. This reaches out to specific audiences, such as students taking a TV to college and viewers in the den or kitchen. Connected viewing will soon become widespread via multiple devices. The iPad and competitor tablet PCs will enable TV and Web video viewing and social networking on a single portable screen.

Competitive dimensions in connected television The connected TV rivals are fighting to secure several key advantages in their relationships with consumers.

What will the viewer see first when they switch on their television? An interface and content from the manufacturer? Or a pay-TV operator? Or a new entrant, such as Apple TV or Google TV?

Can any of the competing companies offer exclusive and appealing content, services or features capable of driving sales, subscriptions or ad revenue?

Which company will take the lead role in recommending to the viewer what they will want to watch next?

Which will own the billing relationship with the customer?

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WHAT DO CONNECTED TELEVISION SYSTEMS OFFER THE CONSUMER?

Closed vs open systems Connected television offerings tend to fall into two camps: closed and apps-based vs open and browser-based. The first presents viewers with only pre-selected content and services via apps. It makes for ease-of-use, but denies viewers access to the Internet generally. Apple TV and Yahoo Connected TV favour this approach (sometimes called a “walled garden”). The other incorporates not only apps, but also a Web browser which gives viewers full Internet access. However, the much wider range of content and services arguably comes at the expense of usability. Google TV typifies this open alternative.

Connected TV content and services Both closed and open systems vary widely in the content and services they offer. A specific connected TV set or device may have all or only some of these.

Content and services Examples

Video-on-demand libraries TV shows and movies, typically from major

broadcasters and studios

Web video Programming via aggregators (eg YouTube)

Content from independent producers, often for niche audiences

Audio Pandora online radio

iTunes music store

Information services Content such as news and weather, typically

presented on screen via iPhone-style apps

Interactive services Apps that blend services such as Twitter and

Facebook with the TV viewing experience

Video communications Skype video calling via Panasonic and

Samsung TV sets (with additional Web cams)

Web-on-TV Google TV, offering viewers enhanced video

search and access to Web sites

Source: Futurescape

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Apple TV: consumer proposition and content Apple focused its launch strategy on an easy-to-use device with TV show and movie rental as the main consumer proposition. All content is delivered by streaming rather than downloading. Few partners were required to launch, as Apple provides a great deal of content from its existing iTunes service. Movies and TV shows that consumers bought from iTunes for PC viewing can also be viewed on Apple TV. Other Apple devices (iPod, iPhone and iPad) can act as a remote control for Apple TV.

Source Content

iTunes library

High definition movies from major studios, many available the same day as DVD

TV shows, many episodes available the day after they air on television

Titles are rented individually

Netflix Movies, TV shows via monthly subscription

YouTube Video from some major content owners, plus

independent and user-generated video

Flickr Online photo album service

Source: Futurescape

Google TV: consumer proposition and content The Google TV consumer proposition is offering enhanced search for Web content and video, including content from pay-TV partners such as US satellite operator DISH Network, together with access to specific-function apps and Web sites via the TV set. This approach led Google to sign up a range of major content partners. Mobile phones using the Google Android operating system and iPhones can act as remote controls. Apps such as Twitter can be accessed while viewing television.

Content type Partners

TV shows and movies on demand

Amazon video-on-demand

HBO

Netflix

Web sites and services optimized for Google TV viewing

Information CNBC Real-Time stock tracker

News The New York Times

USA Today

Music

VEVO

Pandora

Napster

Online video YouTube

blip.tv

Photos Flickr

Picasa

Social networking Twitter, via a dedicated app

Sports NBA Game Time live scores app

TV Turner Broadcasting: TBS, TNT, CNN,

Cartoon Network and Adult Swim sites

Source: Futurescape

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CONNECTED TELEVISION CREATES SOCIAL TV Internet connectivity fundamentally changes the nature of television by giving viewers access to video-on-demand, Web video and new online services, such as social networking. The last of these, using Facebook and Twitter with TV, has radical implications for the future of television viewing and the business of TV.

Facebook’s high penetration in major TV markets Facebook in particular is so large that it has a user base in some countries equal to or even larger than the audience for the most popular broadcast TV programming.

Country Facebook users Total population Percentage using Facebook

USA 165.00m 309.11m 53.37%

Canada 15.49m 34.07m 45.48%

UK 26.54m 62.04m 42.78%

Australia 9.00m 22.23m 40.52%

France 18.94m 65.44m 28.94%

Germany 9.94m 81.75m 12.17%

Selected countries, with population over 20m

Source: Futurescape, via BusinessWeek and Nick Burcher, Global Head of Social Media, ZenithOptimedia

Social networking is a heavily used Web service Research by UK media regulator Ofcom reveals how very important social networking has become in online activity generally. “Social networking now accounts for nearly a quarter (23%) of all time spent online in the UK. This has been driven by the growth of Facebook, whose reach rose by 31% to reach a unique monthly audience of nearly 25m in the year to May 2010.” “In April 2010, 24.8m unique individuals visited Facebook, compared to 4.1m for Twitter and 3.1m for MySpace.”

UK population: social networking use by age Ofcom also found that social networking is more prevalent amongst younger age groups, but is still widely used in the 35-54 year-old age range.

Age range Using social networks from home

15-34s 61%

35-54s 48%

55-64s 20%

Source: Futurescape, from UK media regulator Ofcom, August 2010

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People already discuss TV online while viewing it Significant numbers of TV viewers are simultaneously online while watching television, many of them using a laptop. Given the popularity of social networks, this two-screen activity means people are talking about TV shows at the same time as they are watching them. A September 2010 survey conducted in the UK for Intel found almost half (45%) of individuals use social networking services such as Twitter and Facebook to discuss a programme while it is being shown. Second-screen devices used when viewing TV include a laptop (57%), a desktop computer (23%) and an Internet-enabled smart phone (19%). Two thirds (63%) said they would like their TV to access the Internet to:

Find more information on the shows they are watching

Access social networking sites

Shop online Compared with laptops, PCs and smartphones, the television set has so far been the unconnected screen. However, connected TV sets and devices will remedy that.

Twitter and Facebook facilitate social interaction around TV shows Real-time discussions, whether via a second screen device or a connected TV set, create opportunities for people to become even more socially engaged with TV programming. This has enormous significance for broadcasters, as viewers can discuss shows via the TV set and influence each other’s viewing. This interaction also enhances the whole TV experience for viewers, as they can actively engage with each other, particularly around live event programming. Broadcasters such as MTV are embracing the potential for such audience participation. The MTV Video Music Awards in September 2010 featured extensive Twitter integration so that music fans could respond to the live show in real time. The 2010 VMA attracted its highest viewing figures since 2002, with 11.4m people watching and simultaneously sending 2.3m tweets during the broadcast. Tweets about Lady Gaga peaked at 9,200 per minute. The Twitter-TV integration comprised three elements:

Tweets appearing on stage during the show, via a screen 95 feet wide

Tweets being narrated at the entrance to the awards venue, on the VMA white carpet, by MTV’s first Twitter Jockey, Gabi Gregg

A visualization for Web users – a live Twitter scoreboard for people watching the VMAs at home

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Tweeting during the MTV Video Music Awards: a visualization for Web users

Screenshot 1: MTV visualization of tweets during Video Music Awards – note timeline at bottom

How social networks affect broadcasters Audience interaction with television via social networks has crucial implications for broadcasters. Facebook and Twitter buzz influences TV ratings, while broadcasters that use the social networks for viewer engagement are effectively sharing their audiences with them. The social networks know in real time how people react to TV programming. This is an essential supplement to Nielsen-type viewing data. Facebook in particular has a highly-developed social graph of people’s relationship with entertainment content. Much of this data comes from the ubiquitous Like button and other social plug-ins that broadcasters have integrated into their Web sites. Both it and Twitter own considerable, detailed information about people’s behaviour, such as discussing TV shows and sharing links to videos.

Connected TV integrates Twitter and Facebook into the television set Many connected TV systems are either integrating Twitter and Facebook directly as apps or have browsers that can bring the social networks’ Web sites to the TV screen. Social network apps on the television itself enable viewers to interact about and with TV shows even more readily than via a second screen. Viewers can also use social networks and apps on the TV to recommend shows or movies to family and friends. They can equally discover shows and movies from them.

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The flood of online video available via connected TVs makes conventional EPGs irrelevant, even redundant in the long term. This means that platforms which facilitate recommendation and discovery will have an increasingly vital role for the television business.

Social TV gives Facebook and Twitter even more power in the TV industry Social television comprises much more than social apps on the TV screen. Facebook and Twitter have already assumed highly significant positions across the TV industry value chain. They can involve individuals in the production of programming, influence viewing via people recommending TV shows, build fan bases and facilitate the viral sharing of video. The whole connected TV ecosystem (TV sets, retail set-top boxes, consoles, pay-TV platforms and middleware) greatly amplifies the social networks’ influence on and through television. The rise of social television particularly benefits Facebook and Twitter. The companies are now fighting for participation in multi-billion dollar segments of the international television market – particularly TV advertising and pay-TV.

Facebook and Twitter are partners and competitors for the TV industry The Facebook-Twitter battle is radically re-shaping twenty-first century television and challenging the TV industry’s existing business models. The winner will take a dominant strategic position in:

Socially-targeted TV advertising

Pay-TV content recommendation

TV show marketing

Next-generation EPGs

Interactive viewing The social TV future is one in which all the major television industry players – IPTV, cable and satellite operators, middleware providers, CE manufacturers, broadcasters, studios and advertisers – must negotiate new relationships and resolve unanticipated challenges in order to seize major commercial opportunities.

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HOW DOES SOCIAL TV AFFECT TELEVISION ADVERTISING?

A social context for TV advertising and sponsorship On-screen apps have major implications for television advertising. They create a social context in which commercials will be discussed and appraised by consumers via the television, while they are watching them. Content recommendation will be crucial for sponsors. Confronted with near-infinite choice, viewers will increasingly rely on each other to discover all forms of video, including advertiser-funded programming, sponsored Web shows and branded online video accessible via the connected TV set.

Socially-targeted advertising challenges conventional TV commercials Social ads on television will disrupt the global TV ad market, now mainly based on broadcast commercials. Advertising is the main revenue source for Facebook and Twitter. Facebook overtly aims to tap the $180bn worldwide TV advertising spend. Its users can opt in to get commercial messages from companies by “Liking” a brand’s Facebook page. They then receive status updates from the brand, with product information and contests. As well as status updates, Facebook distributes HD video commercials for brands such as Adidas.

Screenshot 2: Adidas World Cup HD video ad on Facebook, with Like buttons

Twitter focuses on brand communication via its promoted tweets (sponsored messages). Its users see tweets sent by brands in the Trends section of the Twitter site, clearly indicated with the label “Promoted.” The users can pass these tweets on to their own followers.

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Connected TV apps for Facebook or Twitter show a viewer the status updates or tweets that they are receiving. Viewers will therefore see brand updates or promoted tweets on the TV screen – directly alongside television programming and commercials. The next logical development will be apps that display whole Facebook pages for TV shows and brands, likely incorporating video. Twitter too can display video. In this case, television and online video will be vying for viewer attention. Connected TVs with browsers, such as Google TV, will show Facebook users display ads that are personally targeted to them when they visit the Facebook site. Again, these can lead to video. Broadcast commercials and sponsored programming will inevitably share screen space and have to compete for viewer attention with socially-targeted advertising. Longer-term, display ads and online video on TV are just the forerunners of new forms of socially-targeted television advertising that will transform the TV ad market.

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HOW DOES SOCIAL TV AFFECT PAY-TV? Beyond consumer-facing TV apps, Facebook and Twitter have crucial B2B roles via the social systems and personal data that can make connected TV a commercial success.

Pay-TV must enable subscribers to recommend content to friends The global pay-TV market, estimated at $250bn in 2014, needs social recommendation and discovery services. These can encourage viewers to subscribe to more expensive packages and to buy more video-on-demand content. The TV manufacturers’ strategy to provide video-on-demand direct to viewers similarly requires social recommendation. Facebook and Twitter now have key roles in pay-TV. They have the brands, systems and social data to facilitate such recommendation and discovery. For any pay-TV operator, the nexus between social networking and television poses major issues, particularly as rival platforms and the CE manufacturers move to define their own social TV offerings.

How can a pay-TV operator provide the optimum social experience for viewers – to see and send Facebook status updates and to tweet about what they are watching?

What relationships will they have with the social networks, either directly or via middleware providers such as NDS?

Can they pioneer innovative services using social data to improve their competitive stance? Pay-TV’s challenge and opportunity is to create a winning formula for social TV.

Next-generation EPGs need social graph data

Screenshot 3: NDS “Oona” concept user interface with social interaction for TV Note links to viewer’s Facebook friends and their comments on the Entourage TV show, also access to YouTube and IMDb (Internet Movie Database)

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Internet connectivity opens TV sets to a torrent of Web video, in addition to linear broadcast and VOD. Conventional electronic programme guides (EPGs) cannot navigate so much extra content. Solutions include suggestions based on an individual’s previous viewing preferences and critics’ choices. However, personal recommendation is thought to be even more effective. EPG and middleware providers are already integrating social networking tools and data into their software. This enables EPGs to incorporate recommendations to viewers from their Facebook and Twitter friends when planning viewing. In addition to overcoming the problem of excess choice, such recommendation can also help boost pay-TV average revenue per user, as described above. Content recommendation via EPGs again gives the social networks a significant role in that sector. The European EPG market alone will be worth $555m by 2014. For more research on connected TV and social TV, contact Colin Donald: [email protected]

ABOUT FUTURESCAPE Futurescape publishes strategy reports on the future of television. For senior executives making key decisions on the fast-changing digital media future. Buyers are industry leaders at:

International advertising and media agencies

TV broadcasters and producers

Cable, satellite and mobile operators

Media owners and publishers

Industry analysts and government agencies Global companies purchasing reports include AT&T, BBC, CBS, Digitas, Disney, Eutelsat, Fox, HBO, ITV, MediaCom, Ogilvy, Orange, Publicis, UBS, Virgin Media, Warner Bros. Worldwide customer base: Austria, Australia, Canada, France, Germany, Hungary, Ireland, Israel, Italy, Netherlands, Norway, Singapore, Spain, Sweden, UK, USA. Futurescape's research is regularly quoted in media and marketing publications such as Media Guardian, Broadcast, Televisual, TV Week, MediaPost, Campaign and the World Advertising Research Center (WARC). Our latest report is Social TV: How Facebook, Twitter and connected television transform global TV advertising, pay-TV, EPGs and broadcasting. Custom reports can be commissioned for specific research interests. Please contact us with your requirements.

Find out more at www.futurescape.tv Contact us: [email protected]

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