Why Networks Must Stream to Survive
The Meteoric rise enjoyed by Netflix, Hulu and other major direct-to-consumer (DTC) streaming platforms is threatening to eclipse traditional television networks entirely. According to a recent forecast from research firm The Diffusion Group, every major TV network will turn away from expensive linear TV bundles and toward a direct-to-consumer streaming model in the next five years.
Traditional media and broadcasters have spent years creating their brands and products, and to support their services, they have set up an extensive web of back-office systems and processes. In spite of their efforts, though, the American Customer Satisfaction Index reports that subscription TV satisfaction has fallen 3.1% from 2017, hitting an 11-year-low score of 62. Traditional broadcast networks need to make bigger changes if they want to reclaim consumers — and it will start with a shift to a direct-to-consumer model.
TV broadcasters haven’t been able to deliver a superlative customer experience for a number of reasons, but one that stands out is the inability to reach international customers. Broadcasters traditionally operate domestically because they’ve purchased licensing rights in their home countries and their systems don’t readily allow for international consumption. Still, expanding reach across borders can be a high-margin opportunity because it allows them to leverage assets they’ve already created — and demand is increasing.
The Pew Research Center reports that more than 200 million expatriates are currently living and working abroad. That’s millions of potential customers who want to stay connected with their homelands through television. They might not be able to take their cable boxes abroad, but they can watch TV online anywhere with just about any device. Unfortunately, while broadcasters are great at TV production, they typically don’t have the technical development resources to distribute and sell their products in multiple geographical locations.
Accepting payments and collecting revenue internationally can also be a technical challenge. Both require multiple payment gateways, extensive knowledge of tax laws and the ability to process different methods of payment. While credit cards might be the most common payment method in the United States, it’s a different story in many other countries.
International customers might write checks, use vouchers, rely on online payments with PayPal or Apple Pay, or even pay in cash. Despite what you might have heard about cash falling out of use, researchers from the Federal Reserve Bank of San Francisco have found that the share of cash in circulation in 41 out of 42 countries actually went up between 2006 and 2016. For broadcasters to win a share of the vast potential revenue around the globe, they must prepare to make big changes.
Overcoming the Obstacles
Whether a traditional media company decides to build new systems on its own or to seek third-party help, catching up with the direct-to-consumer streaming giants will be a challenge.
To start, for each new region, the company should weigh the new cost of operations against the potential revenue brought in by the expanded customer base. It’s important to account for costs such as billing and revenue management systems, demand for new support staff in specific locations, and potential changes in daily operations. Setup costs might apply only initially, but it’s important to pay close attention to cost per product once a new system is up and running.
Traditional media isn’t dead, but it is facing a crisis that can be overcome only with action. Creating direct-to-consumer services is a promising step for broadcasters because it allows them to tap into a global market and compete with existing rivals. It won’t be an easy transition, but there isn’t much choice: To survive into the next decade, these providers must analyze costs and start building profitable systems now. There is little doubt that their future depends on it.
Vijay Sajja is the founder and CEO of Evergent, a Sunnyvale, Calif.-based provider of lifecycle management services for cloud video providers.
The smarter way to stay on top of the multichannel video marketplace. Sign up below.