Connected Broadcasting

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1 Connected Broadcasting Wave 1 white paper The evolving user and emerging landscape 8 September 2014

2 Introduction Television is changing. New commercial and consumer technologies are changing the way television is distributed and consumed. For many years television and broadcast were synonymous. TV can now be delivered and consumed in a variety of ways; as a live linear schedule over the air or over IP, as recorded content on a personal video recorder (PVR), or as an on-demand programme. It can be delivered as part of an all-encompassing TV proposition, with linear, PVR and on-demand integrated by a single provider, or it can be accessed using web technologies from new providers who can cherry-pick movies and TV programmes. TV had previously broken out of the living room to colonise every room of the house. Now, as consumers increasingly buy new screen-based mobile devices, television has travelled out of home and has successfully made the transition from wired to wireless. It is not just full programming that is part of the revolution, viewers increasingly expect access to short-form video, and other complementary web and social media content around a programme brand. However, it is clear that we are nowhere near the end of TV innovation. Technologies are beginning to converge, and content and commercial models are changing to suit the new structures. Internet connectivity of devices is a profoundly disruptive idea, yet no single technology has usurped another and broadcast is still the core of the TV experience. The future of television will include a combination of broadcast and connected content and services a new era of Connected Broadcasting. In this first white paper, in a series to be delivered over the course of 2014/15, Arqiva have worked with media research consultancy Decipher to better understand this evolving TV landscape. The analysis will provide a view of the changing commercial landscape, along with new TV and video consumption habits. Through segmenting and identifying nuances in the consumer landscape, we aim to forecast the developments expected in the market over the coming years. As a summary and imperative step for the next wave in the Connected Broadcasting series, we have looked at the anticipated implications of this evolution on both connected broadcasters and connected platform operators in the delivery and supply of TV. This thinking will be taken to greater depths for out next piece of analysis in Wave 2: The Industry s View. Putting Connected Broadcasting into context It is a common misconception that connected broadcasting is the same as cloud TV, and that we are arriving at a point where the web becomes pre-eminent in TV distribution. This is to misunderstand the recurring power of linear broadcast and the role of the web in the distribution mix. Most importantly it assumes we are significantly further down the road of TV evolution than technical reality will allow. An era of total cloud TV is a theoretical future but first we have an era of combined broadcast and network connectivity to explore. Arqiva define this era of hybrid TV as Connected Broadcasting. So how did we get here? Our analysis of Connected Broadcasting is based on the idea that the TV industry has been through three discrete development steps. The starting point was the 01 Connected Broadcasting

3 pre-set top box era of simple TV. In the UK this meant 3 5 broadcast channels providing all content with limited or no mechanisms for recording or storing programmes. The arrival of set top boxes (STBs) heralded the entrance of multi-channel TV. Over 300 new channels arrived in this era, but delivery was still entirely linear broadcast and recording was limited to non-digital VCR technologies. The most significant aspect of this era was the arrival of digital STBs with on-screen menus. For the first time, on-screen representation of channel and programme information was possible and simple interactivity could be built into channel content. TV was changing. While some consumers still make do with multi-channel TV, most consumers have moved to the next stage which has delivered an array of new consumer functionality into the TV mix. These functions included rich metadata/imagery in EPGs, digital TV recorders: (for this white paper we use the acronym PVR to connote all digital recording devices), and basic forms of on-demand. Characterised as multi-function TV, the concepts of time-shifting and placeshifting have arrived in this era as TV migrated out of the STB onto PC then mobile devices. 5 Stages of TV Evolution: NOW Simple TV Multi- Channel Multi- Function Connected Broadcasting Total Cloud TV This brings us to the emerging development stage in TV Connected Broadcasting. The latest generation of TV devices show that the nature of box and screen connectivity is changing from the closed IP world of the multi-function era into an open-web ecosystem. The rise of the connected device means we are now at a point where TVs and set top boxes are able to blend the best of broadcast and web technology to create a connected and converged TV outcome. This new era requires companies like Arqiva to deliver all aspects of this converged outcome. There are specific features of this emerging Connected Broadcasting era that highlight why we are not progressing directly into a total cloud TV future. Firstly, linear broadcast channels have remained dominant in consumer consumption and look set to remain so. This is not to ignore that total TV and video viewing is increasing as new devices and functionality come on stream. This is set to continue with growing connected device ownership by an increasingly tech savvy population, and the emergence of a connected Smart Home culture, built on high-speed broadband in which TV plays a central role. We explore these trends, and their role in building a Connected Broadcasting future in the next section. The market trends underpinning Connected Broadcasting The most notable feature of the TV evolution over the last five years has been the failure of the much heralded death of linear TV. Scheduled linear is still the most important function in the TV mix and its reach and usage remain robust. UK audience measurement organisation, BARB, report that over the past 3 years ( ), average daily linear viewing has remained robust at around 242 minutes. This varies by age group but the overall story remains strong. More importantly, our research shows that linear broadcast underpins the next two most cherished functions in the TV mix: pause live and record live. Both are symbiotic with a live linear channel. 02 Connected Broadcasting

4 In the previous TV era, new functionality like PVR and catch-up were positioned as alternatives to broadcast. What is key about the emerging Connected Broadcasting era is that functionality is beginning to move back towards broadcast. New backwards EPGs allow broadcast to be the gateway into the timeshift world. The next stage for catch-up is allowing the viewer to jump to content from WITHIN the broadcast stream via interactive overlays. This capability is already live on some boxes in the UK. Further integration will allow true startover, where a viewer only has to press rewind on a live channel to jump backwards into catch-up. In addition, red-button interactivity means that new forms of content can be overlaid and integrated with the linear broadcast experience. On top of the direct links to catch-up described above, these new content forms can include short form and interactive content. Finally, a Connected Broadcasting world brings IP delivery into the linear mix. In the last 12 months 30 new linear channels have been launched in the UK using some form Source: Ofcom Comms. Market Report 2014 of IP distribution. Rather than hasten the shift away from broadcast, the new capabilities available in the Connected Broadcasting era could underpin the role of the linear channel in the TV mix. Total video viewing increases Not only is linear TV resolute in its reach, but non-linear TV and video viewing is growing its share of the media day. Ofcom recently reported that watched media commands an average of 4 hours 17 minutes in the UK, with the majority of viewed content having been created and first distributed by broadcast. The significant development trend for Connected Broadcasting is that the means by which consumers access non-linear TV are also migrating back to mainstream TV. It is now difficult to purchase a TV or set top box without integrated player apps from major broadcasters and OTT providers. The development trend is to integrate them further into the core TV service, and increasingly to link to them via broadcast. At the same time, the core TV platforms are increasingly capturing a share of viewing on second screen and mobile devices, as platform related apps connect mainstream TV to the device world. Growing device ownership and usage Claimed % of the UK online population who watch the below TV content on a monthly basis: Linear Broadcast TV Online Catch-Up PVR Viewing Catch-Up via Set-Top-Box Library VoD via Set-Top-Box Online SVoD Online Rental Online EST Rental via Set-Top-Box Source: Decipher Mediabug Research, Q1'14 Part of the strength in video viewing comes down to a growing mix of devices through which consumers can watch. Research shows that over half the online population in the UK now own a 90% 62% 57% 34% 30% 27% 18% 18% 14% Time spent consuming media & communications per day, 2010/ : :07 11:22 11: :32 9: :42 8:48 8: : Connected Broadcasting

5 tablet and over three-quarters have a smartphone. Smart TV screens are now in almost a fifth of homes. Importantly, it is not just ownership but usage which continues to grow. Since Q usage of tablets to watch consumer video-ondemand has risen from 10% to 23% of the UK online population, with 17% of users accessing some form of video-on-demand whilst on the move. The challenge for main-stream TV providers in this next stage of TV evolution is to harness the power of remote viewing to support and enhance the relationship with mainstream broadcast TV. Arrival of the Connected Smart Home The TV innovations that arrived as part of the previous multi-function era of TV have often resulted in an unconnected and fragmented TV experience. Viewing activity on set top boxes had no connection to subsequent viewing activity on other devices, and it was hard to deliver STB content around a home without complex multi-room packages and wiring. The roll-out of new wifi and other home network technologies are set to radically change the landscape. In the UK, there are now less than 1 in 10 homes without a wireless home network and the TV industry is realising it may be in prime position to exploit this. This means that the functionality and benefits of a connected STB will be delivered to any screen around the home or to mobile screens out of the home. The PVR and TV at its core will increasingly resemble a media server and a viewer will be able to access all linear channels, recorded content and on-demand services via every fixed or mobile screen around the home. If a screen is smart it will connect automatically. If it s not then one of the new generation of wireless dongles will make sure it is connected to the TV network. Connected Broadcasting will be one of the defining services of the new connected smart home. Summary of market trends Ownership and usage of smart devices in the UK 14% 14% 17% 20% 6% 6% 8% 11% 10% 15% 18% 23% 12% 12% 12% 16% 14% 17% 20% 20% Q3 12 Q1 13 Q3 13 Q1 14 Q3 12 Q1 13 Q3 13 Q1 14 Q3 12 Q1 13 Q3 13 Q1 14 Q3 12 Q1 13 Q3 13 Q1 14 Source: Decipher Mediabug Research, Q1'14 Smart TV & Blu-Ray Player Feb-13 Sep-13 Mar-14 of the UK online population access online VoD services on the move The developing trend for Connected Broadcasting is toward an increasingly networked and converged TV ecosystem, spread across multiple screens and devices. It is a broad vision encompassing a range of commercial and technology innovations, and many of the products and services that will eventually come to market are yet to be defined. What is intriguing, after a decade of claims for the death of linear TV, is the central role of broadcast channels in this evolution. 22% Monthly VoD / EST Usage 43% 35% 54% 13% 16% 17% Connections (millions) % 53% 52% 53% Ownership 61% 76% 78% 72% Superfast connections (left axis) Superfast as a % of all connections (right axis) Per cent Connected Broadcasting

6 Firstly, it is likely that the broadcast EPGs will enjoy a significant functionality and presentation improvement in this world. Web presentation techniques, and network delivered metadata, are already creating a new generation of dynamic, interactive TV interfaces. Recent functionality improvements, such as the backwards EPG and deep links into catch-up, are only the first hints of the EPG s potential to make a rich connected broadcast vision come to life. New functionalities like channel start-over and links to short-form video from within the EPG are just around the corner. Secondly, and a defining feature of the emerging ecosystem, is that linear TV itself, whether broadcast or delivered over IP, can increasingly act as the gateway into a rich mixture of complementary programmes and services. As we have seen from recent on-demand use, linear TV seeds a significant amount of non-linear consumption. New forms of interactive menu and channel overlays already being rolled out, mean that broadcasters will increasingly be able to use the linear channel to give viewers more content, or direct them around the various channel options they offer, including greater opportunities to monetise content. In this context the channel brand returns to, and expands on its core editorial and promotional function. The repositioning of catch-up content is a key component of this. Previously a disruptive alternative to broadcast, catch-up has gradually been separated off from the bulk of VoD and repositioned, within backwards EPGs, as a support function for broadcast channels. The new technologies identified in our analysis show this process of catch-up converging with broadcast set to continue. Connected Broadcasting also builds on the idea that the full TV experience will increasingly be delivered in and around connected homes, with the STB playing a central media-server role. The first generation of platform apps for mobile and tablet show that the future EPG described above, will be available for every device around the home. A counter-intuitive outcome of this improved access may be a greater share of linear within the total mix as greater availability of channels improves their access to viewers. Finally, while resisting the urge to jump to a total cloud TV service in the current evolutionary phase, the TV industry is slowly learning to bring the benefits of the cloud into the current service mix. On top of network supported EPGs, remote management services, and links to web players and short form content, the TV industry is bringing cloud storage into the mix. Whether it results in network PVR, movie hosting accounts or more complex on-demand offerings, cloud storage is being firmly connected to the set top box and smart screen. 05 Connected Broadcasting

7 Summary Our analysis suggests that reports of the death of linear TV appear to have been premature. After years of claims that broadcast TV is dead because of the impact of PVR and VoD, it would appear a new generation of TV technologies are set to reverse the trend. Specifically, we would argue that the next wave of Connected Broadcasting technology will drive audiences back to linear TV and reinforce the role of channel brands in the consumption mix. The linear channel is suddenly the focus of a huge amount of innovation. In this report, we have defined a new era of Connected Broadcasting that captures the full impact of this innovation and defines what a 21st century broadcaster could and should look like. We believe that a connected vision for broadcasting has to encompass every potential functionality and content type in the emerging connected home. Our Connected Broadcasting programme is intended to help our clients define what those could or should be, and how to deliver them to the end user. The next paper in the series will examine the different needs faced by different players in the value chain, and look at the opportunities this landscape offers our range of international clients. Contacts Matthew Neale Head of Marketing, Digital Platforms Arqiva Nigel Walley Managing Director Decipher 06 Connected Broadcasting

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