European broadcasters unite to fight FAANG

European commercial and public service broadcasters are uniting to create national streaming platforms at a scale they hope can counter FAANG (Facebook, Amazon, Apple, Netflix, and Google).

What’s more, regulators are actively encouraging them to collaborate – a significant change from the fate of such projects in the pre-Netflix era.

The initiatives embrace OTT services, collective programmatic ad sales and the pooling of content distribution and even commissioning budgets.

“Broadcasters should aim to complement the FAANG services with their own local or unique content, rather than challenge directly” - Brian Paxton, Cartesian

But any broadcaster aiming to repel FAANG - currently valued over U$3 trillion - is facing a formidable challenge. The FAANG companies have the financial muscle and customer reach to dominate the market.

However, the broadcasters do have compelling advantages, say analysts. The likes of Netflix and Amazon do not offer all the content customers demand, notes Brian Paxton, Head of Security and Video Consulting at media consultancy Cartesian. “Broadcasters should aim to complement the FAANG services with their own local or unique content, rather than challenge directly.”

European OTT platform launches

Let’s recap the unification initiatives.

On the platform side: French public broadcaster France Télévisions plans to develop an OTT TV joint venture with commercial broadcasters TF1 and M6. Dubbed Salto, it will offer access to catch-up and current content as well as a subscription video-on-demand without a contract commitment. This has been criticised in some quarters for putting content behind a pay wall.

Also in France, Orange and Altice/SFR are expected to merge their premium TV and movie subscription services to improve their content offering and ultimately increase its appeal, in addition to providing an alternative to Netflix.

Spanish public broadcaster RTVE has teamed with commercial broadcasters Mediaset España and Atresmedia and last month launched a joint interactive platform based on HbbTV, with plans for a new OTT TV service to follow. Branded LOVEStv, the platform will be open to other digital-terrestrial broadcasters in the country and will air the content of all three broadcasters in a bid to compete with Netflix, Movistar+, HBO and Sky.

German broadcaster ProSiebenSat.1 has decided it needed a pay-TV partner and announced plans with Discovery to launch a new OTT TV platform uniting ProSiebenSat.1’s 7TV and Maxdome services with Eurosport Player. Due to launch in 2019, the service will include an ad-supported tier as well as premium SVOD access to sports and movies. The door is open for RTL and public broadcasters ARD and ZDF to join the venture.

It’s also worth noting that Discovery, the pay-TV broadcaster in the mix with German broadcaster OTT plans, is hedging its bets. Eurosport Player for example is already present on the Amazon Channels service.

Analysts say it will be a tough ask for ProSiebenSat.1 to take on established OTT players. “The stated aim of gaining 10 million paying subscribers within two years is unrealistic,” says Ovum analyst Tony Gunnarrson. “In 2021, two years after the new ProSiebenSat.1platform will have launched, Netflix and Amazon will each have more than 5 million subscribers in Germany.”

The UK’s PSBs have similarly concluded that collaboration is the only way to combat the digital titans.

This could take the form of a Netflix-style app aggregating live and on-demand content from the BBC, ITV and Channel 4, and branded as part of subscription-free connected TV service Freeview Play. An injection of £125 million over five years will develop new services for Freeview Play.

Digital UK, which runs the Freeview platform, explained that investment will help Freeview adjust to changing viewing habits and “exploit the trend towards cord cutting” as viewers look to build their own TV bundles by combining free-to-view TV with low-cost streaming services.

Reports have also resurfaced that NBC Universal is interested in joining in a joint British streaming service with BBC, ITV, and Channel 4.

The original proposal for a combined VOD platform in the UK, Project Kangaroo, was slated to launch in 2008 but was blocked by the Competition Commission.

Now, regulator Ofcom appears to have relaxed its leash. “The idea that every individual UK broadcaster will have its own, independently produced online player is just not going to happen,” Ofcom group director and board member Steve Unger told the DTG (Digital TV Group) in May. “I think some form of collaboration around the next generation of collaborative player is really important.”

Another attempt to compete with Netflix could see the BBC and ITV bid £500 million each for Discovery’s share of UKTV, a commercial joint venture which operates a range of free-to-air and pay-TV channels such as Dave and Gold as well as a free streaming service.

Content collaboration

Several European PSBs including France Télévisions, Italy’s Rai and ZDF have allied to co-produce a range of high-end programmes across multiple genres.

Other broadcasters, including Belgium’s RTBF and VRT, Spain’s RTVE and Switzerland’s RTS, may also be welcomed aboard. Three co-pros are already in the works including Dubai-set spy thriller Mirage, produced by Lincoln TV, Cineflix and Wild Bunch Germany.

“The arrival of new international players in the fiction market and notably on the SVOD market has disrupted the European audiovisual landscape. Faced with this new and international movement, [established players] are reinventing themselves and envisaging a new era in their collaboration,” said France Télévisions director-general Delphine Ernotte.

“The global media landscape is going to be dominated by four, perhaps five, businesses on the west coast of America” - Tony Hall, BBC

The BBC has yet to signal its intent to join the pack but Ernotte’s words are echoed by director general Tony Hall.

“The global media landscape is going to be dominated by four, perhaps five, businesses on the west coast of America in the years to come,” said Hall in March. “Companies with extraordinary technical, financial, and creative firepower. Does music streaming spell mortal danger to radio? Can iPlayer keep pace with a rapidly growing Netflix?”

The content crunch has also impacted Europe’s pay-TV telco and cable operators. Orange in France, Germany’s Deutsche Telekom, Antenna in Greece and Scandinavia’s Viaplay are pooling funds for a share of ownership in original drama. Under the financial and production management of Atrium TV, the company set up by former Sony boss Howard Stringer and British television group DRG, the telcos are partners in producing high-end TV drama such as Quasimodo, for exclusive availability on their own platforms.

Pan-European ad sales

Commercial broadcasters are also hooking up at a pan-European level to counter FAANG in the advertising space. ProSieben.Sat1, Mediaset (in Italy and Spain), TF1, and Channel 4 have set up the European Broadcast Exchange (EBX) to allow advertising customers to programmatically buy pan-European campaigns.

Announced over a year ago and scheduled to start trading in early 2018, EBX has yet to go live.

“As to whether these partnerships will be successful, it very much depends on how they go about it,” says Ovum Digital Media Analyst Matt Bailey. “There’s a chance to offer the “best of both worlds” here – i.e. marrying the quality of TV content with the addressability and targeting of digital advertising – but to do this, they will need to focus on improving the consumer experience and innovate, not replicate, the failing TV advertising model on their combined OTT platforms in the world of ad-free premium video access created by Netflix and co.”

Netflix domination

All of this aggregation activity can also be seen in context of the mega-deals which are consolidating other parts of the media industry, such as AT&T’s purchase of Time Warner and Disney and Comcast’s pursuit of 21st Century Fox.

Discovery itself is re-positioning its entire infrastructure online on the back of the multi-billion purchase of Eurosport and its more recent acquisition of US broadcaster Scripps Networks Interactive.

Consolidation is also evident lower down the chain in the US where mergers and acquisitions between broadcast stations totaled $5.11 billion in the second quarter of 2018, according to S&P Global Market Intelligence – the highest quarterly deal volume since 2007.

The right strategy?

The strategies are broadly the same – attempts to achieve the scale needed to combat the truly global power of FAANG. Yet scale is nothing without content and it is content which is still deemed king.

Here national broadcasters and the likes of Netflix and Amazon have distinct advantages. Broadcasters can leverage their unrivalled national reach, particularly around live or as live water cooler programming, plus deep cultural ties with their local audience. On the other hand, Netflix and Amazon can exploit original content rights across multiple territories within their own platform.

Questions are being asked of the approach by broadcasters which seems to be one of circling the wagons around their own content rather than collaborating with digital rivals.

“By working with the likes of Facebook, YouTube, Netflix, Amazon, and Apple, PSBs can benefit from these companies’ immense global reach,” Ofcom chief executive Sharon White told an Enders/Deloitte conference in March. “They may look to share expertise in technology, marketing and programme-making, in return for investment or prominence on digital platforms.”

The growing requirement for major content investment to compete in the increasingly dynamic subscription video sector, particularly among local services, has claimed several high profile casualties.

Canal+ SVOD offer CanalPlay shuttered in June to join other failed OTT ventures with significant parent companies: Shomi (Canada), Watchever (Germany) and KPN Play (Netherlands).

In what was effectively a eulogy, Maxime Saada, chairman of the Canal+ board declared that “we had a French Netflix, it was killed”.

“We shouldn’t underestimate the value of local content and regional differences. Broadcasters should focus on their core offerings and that is content.” Paolo Pescatore, Media Analyst

Arguably, there lies the problem. According to Futuresource analyst Joanna Wright, “Success in the SVOD sector in any country will be driven by differentiation - not trying to be the ‘French Netflix’.”

Independent telecoms & media analyst, Paolo Pescatore agrees: “We shouldn’t underestimate the value of local content and regional differences. Broadcasters should focus on their core offerings and that is content. And as FAANG spend more on local programming, then there is no reason why they shouldn’t partner with each other. A great match for both broadcasters and FAANG.”

Last year the major tech players - Amazon, Hulu, Netflix, Apple, Facebook - collectively injected $18 billion into content, according to media analyst Ben Keen.

Currently, Netflix spends $8 billion annually in contrast to NBCU’s $10 billion (a big chunk of which is sports) but the streamer is poised to outstrip this and take top spot as the world’s biggest content spender.

“Content is the main differentiator in this fragmented market space and will drive viewing on your service,” says Paxton. “In the last few years, the primary challenge has become content discovery. Broadcaster consolidation helps this issue, but does not resolve it.”