NewTV, but same old challenges

Small but perfectly formed

The entrepreneurs behind the imaginatively-named NewTV, Jeffrey Katzenberg and Meg Whitman, will be feeling encouraged by their recent round of investment having closed at $1bn. The service promises entertainment providers an avenue onto the world’s billions of smartphones, being specifically designed for mobile use with short-form series of 10-minute episodes. And it seems they have Hollywood and Wall Street convinced, according to Variety:

“Backers include a who’s who of Hollywood studios: Disney, 21st Century Fox, NBCUniversal, Sony Pictures Entertainment, Viacom, AT&T’s WarnerMedia (formerly Time Warner Inc.), Lionsgate, MGM, ITV and Entertainment One. Tech investors include Chinese internet giant Alibaba Group; strategic investors include VC firm Madrone Capital Partners, which led the round, along with Goldman Sachs, JPMorgan Chase & Co. and John Malone’s Liberty Global. The funding officially closed July 31.”

Encouraging, sure. But will it really be enough for to penetrate an already saturated market where similar offerings have since failed? Securing $1 billion from such famous brands is no mean feat but it does rather pale in comparison to the budgets of the SVOD giants who are glaringly absent from the list. And even if NewTV’s business model is focused on partnering with the traditional entertainment producers, it’s difficult to reconcile this with their own divergent aspirations. I have already made a case for the monopolistic tendencies of NewTV’s soon-to-be competitors but if you need reminding, see my blog from April, or Michael Ball’s more comprehensive piece about Netflix from July.

The proposed freemium model will give them two revenue streams, a model which worked for the streaming services like Spotify who revolutionised a music industry dogged by the CD. But for this to work for NewTV, they’d have to have a pretty hefty chunk of the commute/sandwich break/waiting-for-your-tardy-mate market, which is great deal simpler for a music streaming platform featuring an endless catalogue of short tracks. In the more saturated streaming market, it means competing with the likes of Netflix, who currently have no ads at all, or even YouTube’s almost 80% streaming market share.

While digital ad sales have overtaken those of TV, people still watch more linear TV than streaming. And it will be harder to kill TV ads than print ones because TV isn’t a less convenient alternative to digital information delivery – it’s entertainment. TV is at heart an advertising business: advertisers spend some $70 billion a year on TV, while consumers spend only $10 billion paying for TV content. So while the strategy is tried and tested, the problem will be convincing advertisers that this is a cheaper, and more effective alternative to a 30-second spot on a linear channel. And how could it be? According to Nielsen, people still only spend 25 minutes a day watching video on their phones on average, against 4+ hours of linear.

To make a compelling case for advertisers, NewTV will need to win significant market share from the likes of Youtube, Netflix and Amazon, and demonstrate that mobile viewing is eating into linear viewing time. This ultimately leaves their business model vulnerable to the whims of broadcast giants who are increasingly moving away from partnerships – a la Netflix vs. Disney, UKTV vs. Virgin Media, Amazon vs. Google. With all things considered, $1bn is a drop in the ocean. I think it’s a genuinely great concept, one I am eager to sample, but they’re going to need a knock-out marketing campaign and fantastic content from the start to get their revenue streams flowing.

 

Rhea Mills

rhea@trippassociates.co.uk


Martin Tripp Associates is a London-based executive search consultancy. While we are best-known for our work in the TMT (technology, media, and telecoms) space, we have also worked with some of the world’s biggest brands on challenging senior positions. Feel free to contact us to discuss any of the issues raised in this blog.