NAB 2012: Time to ask embarrassing questions …

18/04/12

The 2012 NAB show in Las Vegas started with the highlight of the first two days being a talk by a TV industry outsider - Stephen Dubner, co-author of the best selling Freakonomics.

Dubner warned the broadcasting industry that although it was going through a period of profound change, it was all too easy for companies to base their strategies on predictions about the future that were essentially wrong. Making predictions is incredibly difficult and a fools’ game, he argued, as change comes from surprising and unexpected places, new technologies have effects that we can’t predict, and what are “industry norms and assumptions” can suddenly get overturned out of nowhere.

Some people in the audience shuffled uncomfortably in their chairs at this last point. At NAB 2011, I recall one speaker (I won’t name him, to spare his blushes) vehemently saying that OTT would never pose a threat to pay TV – and many in the audience agreed wholeheartedly with that assessment. One year on, and there are few people here in Vegas who would argue that OTT isn’t affecting pay TV subscriptions in the US; the data on the rise of Netflix and others while cable subscriptions remain flat is clear. In Europe many people similarly argue that OTT is not a threat to cable and satellite operators as – to quote the usual line – “Europe is very different to the US”. Well, only time will tell on that one, but to my ears that sounds very much like an “industry norm and assumption” that Dubner was referring to.

I have anecdotal evidence to back that up. A few months ago I held an impromptu focus group with a class of 15 year olds, and found that the majority of them hadn’t a clue which channels make or broadcast their favourite TV shows, and they didn’t care either, because other than for X Factor many of them hardly ever watched TV with the family in the living room. Instead they took laptops or tablets, hid in their bedrooms and streamed their favourite shows (made in the US and in the UK) through free legal websites and what might be considered “semi-legal” sites and TV directories – pirate sites that many people in the industry I talk to have never heard of. Now you can argue that once those 15 year olds grow up and can afford to pay for content, their attitude will change. Maybe. Or maybe not.

In the US, there is a small but growing group of “cord-nevers” that stream or download from legal or illegal sites and don’t pay for cable or satellite subscriptions. They initially do this because they can’t afford a subscription, but the really worrying trend is that these same people are now out of college, in reasonably well paid jobs and even with young families – and they still see no need to pay for a subscription. This trend was a wispy undercurrent in hushed conversations among delegates at the NAB show in Vegas in 2011, and it will be interesting to see how much the topic is discussed at this year’s NAB over the next few days. Of course I’m not saying that the cord-never phenomenon will happen in the UK anytime soon. But if those 15 year olds are representative of others of that age, there’s going to be a wave of consumers that care little about channels’ “brand equity”, about linear schedules and - unfortunately for the industry - about legality.

So back to Dubner – he finished his talk by saying that broadcasters and content owners can best prepare for the future by asking questions that they may be too embarrassed to ask. Surely the threat posed to traditional business models by the rise of OTT piracy is one of those embarrassing questions? Let me know what you think in the comments below

Nick Moreno, Head of Market Intelligence