Kangaroo on the loose (in the Marketplace)

Yesterday the UK market defining broadband 'player' Kangaroo was announced by the BBC, ITV and Channel 4 (but noticeably not five) and I posted about the service. There’s been talk what this might mean for the future of the BBC Licence Fee as the service is being launched by the Beeb's commercial subsidiary BBC Worldwide. The future of the licence fee is an area I touched upon last week and no doubt will do again, but today I want to look at a different side of the Kangaroo story.

This Kangaroo will be fairly dominant in ‘re-arranging’ the make-up of the UK ‘TV’ market, until/unless he’s joined by another big kangaroo along the lines of one called ‘Hulu’ (due to its Mommy and Daddy being News International & NBC Universal) or some creature as yet unborn..

So where does Kangaroo leave the other players in this new market:

1. Social (Media) Networks
2. The other Nu-TV Aggregators (Joost, Babelgum etc)
3. IPTV Distributors (BT Vision, Orange, Sky Anytime)
4. Other current TV Channels
5. Future brands

Well, here are some headline future gazing thoughts based on the limited information released as of Tuesday evening.

1. Social (Media) Networks

All the major mass market social networks (MySpace, Facebook, Bebo) are becoming more open to 3^rd party content and are actively looking at having either their own content (Bebo & MySpace have both commissioned shows) or promote other media, be that TV shows, music, films or other entertainment.

I reckon the Social Nets will be one of the winners from Kangaroo. Content owners need marketing and ultimately eyeballs on their content, which Social Networks provide; your friends tend to like a lot of the shows you like so it’s the perfect marketing medium. Equally Social Networks need content to hold onto their audiences which provide eyeballs for advertisers. Who hasn’t regularly asked friends – did you see XX last night? It's a mutual back scratching situation. Think of it as a symbiotic relationship like that of the Radio Times with TV Channels.

2. Other Nu-TV Aggregators

The most high profile new broadband TV aggregators are Joost, Babelgum, Sky Anytime and Hulu. Now Hulu I’ll take out of this equation as, no matter what their long term objectives are, it’s looking to be something akin to the Kangaroo of the US market.

Joost & Babelgum are in a more complex situation. Their first player advantage, in the UK at least, has pretty much gone up in smoke. Even if, via non-exclusive deals with content owners they get to have a decent library, the incumbents will just be too dominant to challenge.

If I was those guys, I’d be having sweaty palms right now, but they are young, nimble, well funded businesses and I’m sure they’ve predicted these changes and are adapting their business plans.

Firstly, these guys are international players: As with many international media brands, you can be a major player in one territory, ticking along elsewhere.

Secondly, get enough ‘tier 2’ content and you can still be an effective player. Sign up other major content players (MTV, Nickelodeon, Discovery, Virgin Media TV) and you can still have a reasonable profile and be an effective player. Kangaroo is essentially a ‘national’ player, international media companies may like to do pan-regional deals, especially if that is in conjunction with international advertisers.

Now I know this industry is so new, pretty much all the players are still on the Beta learning curve. However, my third point is, don’t try and be all things to all people. Work out what out which market niches you can exploit most effectively and become a more focused proposition. Babelgum might be more of the ‘South Bank’ or Indie cinema of the industry, Joost might be a more youthful proposition with Music, Extreme sports, ‘underground’ programming. As with MTV or Coke, you change the mix you present for each market.

Sky Anytime is a slightly different proposition as in essence it isn't a stand alone service, its free to those who already subscribe to a Sky package. It has great content, but in the medium term I think its about future proofing Sky's main business and decreasing churn by providing an appreciated value add -and it does that well.

3. IPTV Networks

For the likes of Tiscali, BT Vision and Orange TV Kangaroo is, I would say a mixed blessing.

Kangaroo has said they’d like to deliver their content direct to TV’s, which infers they’re likely to work with the current crop of well funded IPTV Network pioneers.

On the upside, these pioneers don’t need to scramble around doing deals with every company that owns 20 hours of content – you do one deal with Kangaroo and I assume get the bulk of interesting top of the range TV content, all pre-cleared.

On the downside, these competing platforms, and other platforms in the market place will all have the bulk of the same content and differentiators within their offerings become harder to achieve; differentiators which are effective marketing tools will be even harder to find.

4. Other TV Channels

The one question that hasn’t been answered just yet is just how open, or closed the Kangaroo platform will be. My guess a ‘bloated’ proposition will be harder to navigate and won’t be in the best interest of the founder partners, so I think they’ll definitely be a limit to which channels are invited, or allowed to join. So, UKTV and Viacom may get a yes, but Chart Shows’s Bliss or True Movies channels may find it harder. The only certainty I have is that the ‘shake-out’ of smaller TV players (which I discussed back in June) will continue as the crowded multi-platform marketplace makes it harder for small players to achieve and keep a commercially viable mass. I do expect Channel 5 to be part of the Kangaroo deal eventually, unless their parent RTL has something up its sleeve.

5. Future Brands

So how easy will it be for new media brands to break through, or will the major players, now that they generally have their act together, be just too dominant to be challenged. I think people will always find ways to break through, and if its not through Kangaroo, the Social (Media) Networks and Google’s Open Social networks will be the new route to market.

The Shake-Out? Multi-channel in the UK

There's always lots of media coverage when a new channel is launched, but that's less true when a service shuts down - no boastful press releases then. The economics of running a TV business are tough, no matter if you are a big player or running a station off a laptop with a staff of 2 interns (literally, I've visited those stations ).

Many TV businesses were launched on business plans that looked at breaking even in 2 to 5 years. Many were there as 'placeholders' to gain market share, to vainly help with ratings slides, through to simple 'squatting' holding onto valuable EPG slots in the entertainment section looking for a buyer.

The market is being squeezed and in many cases broadcasters and bumping along either side of break-even. Investors and parent companies are now getting itchy feet.

The squeeze on channels and their revenues has been getting much more intense: The rise of Freeview; the massive squeeze on subscription revenues (if you've managed to get them at all); the rise in Sky EPG costs; the collapse of participation revenues; getting shunted to EPG dead zones; attracting advertising; costs of running a subscription service on Sky being uneconomic for pretty much any player (Film 4 included) at a price the public are willing to pay; negotiating your way onto cable; a glut of pitifully bad competition drowning out mid-size quality players; the rise of the internet and social networks; the rise of Joost, BT Vision and other new distribution platforms; the rise of the long tail VoD business model; rights issues and costs; technology changes and free content (does anyone pay for ring-tone specific downloads anymore?), the list just goes on and on.

We are beginning to see the changes, but like the UK housing market will there be a collapse (say prompted by a Sky rule change) or a gentle slide?

I don't think this in the end of multi-channel but I do see 2 things happening. A greater polarisation between 2 distinct business groups. One, well funded, with multiple, well marketed 'brands' featuring 'expensive' content and run by large, funded businesses on all major platforms who are either a top 5 player in one market (eg: Virgin Media's, ITV's or Five's bouquet of channels who all have a Freeview window), or a significant player in multiple markets (MTV, Discovery, Turner). Mass market with one shared back office infrastructure and able to attract advertising, sponsorship and of course audiences. In here you'll also have the businesses who use TV as some kind of shop window, from gambling and bingo,through to shopping channels and pure advertiser strands like Audi TV.

Secondly I see a big mass of properly niche players featuring targeted content, distributed via 'secondary' methods where distribution costs are lower, where capabilities of charging subscriptions, 'accounts', one off payments and targeted advertising are within realistic reach. These will be the entrepreneurial businesses, the niche content players, distribution and production companies. Already Ten Alps is becoming a major player in this emerging market and expect Joost, BT Vision, You Tube and others to be names to look out for as well as 'new' broadcasters like the National Union of Students and the like.

So is this pointless musing, or is the middle market really being squeezed?

In recent weeks both Optimistic and Life TV have essentially disappeared having sold their valuable entertainment EPG slots. We've had channel's like London TV move over to broadband, the Simply group change focus as they become a broadband distributor, DITG/YooMedia moved away from being broadcasters. A whole swathe of adult, shopping and participation and gaming services shutting down or imploding. There are rumours of Channel 4 taking over one or more of EMAP's music channels - perhaps no surprise as those channels revenue streams of a £1 a pop to request a video on a channels that plays out the ostensibly the same music on a 2 hour loop. Channels like Extreme Sports moved from a 'bespoke' service to be put under the wings of Zone Media who specialise in buy-by-the-100-hours library programming with minimal brand building and marketing, surviving on low risk, low cost, lower return models with little ambition.

Looking at comments by Jonny Webb and Malcolm Wall I'd expect a rejig (and loss of?) channels in the Virgin Media stable, Turner had a re-jig recently and how much longer will NBC Universal keep backing Sci-Fi UK as a stand alone brand when any break out hit it has gets pinched by the competition (Heroes). This mass market is going to have more 'strong' players as Virgin 1 and MTV's General Entertainment services launch and squeeze the value in multi-channel and dig their claws deep into the emerging platforms.

I of course, could be wrong and your comments are appreciated as always.