Connected TV market: a Mediatique study for Ofcom (UK)

posted on 26 August, 2020   (public)

The battleground of prominence: report highlights the bargaining powers of global players

At the request of UK regulator Ofcom, Mediatique, an advisory firm specialised in media and communications industries, conducted a review of the connected TV market dynamics in August 2020. Based on desk research and interviews with stakeholders, this report provides an analysis of the characteristics of the market and a potential scenario for the next five years and in particular how this might affect content providers such as Public Service Broadcasters.

The last years have seen an increase in the use of IP-enabled TV such as smart TV and connected TV along with a proliferation of content – especially on-demand content - and roads to access it. As a result, prominence becomes key, hence the crucial role played by the operating system (OS) and user interface (UI) for enabling user choice.

In the connected TV market, the study identifies five market segments:

Current trends of the market:

  • High pressure on Pay TV which results in a strategy shift (diversification, aggregation of SVOD, investment in content) and linear TV which suffers from decreasing advertising revenues and technological limitations preventing them from effective targeting advertising solutions to offer.  This situation benefits operating systems which can easily catch users' data and provide better targeted and programmatic advertising solutions.
  • ‘Home-colonisation’ effect with major players present, directly or through partnerships, in several value chain segments in order to catch users, control the access of the market or generate more value in other adjacent segments (ex: Amazon which attracts more customers on its e-commerce platform through its Amazon Prime Video service).

Issues at stake:

  • Access to content and prominence, and therefore the user interface, are likely to become a battleground between the different actors as electronic programme guides (EPG) are not the only route to discover content any longer and access to content now depends on negotiations led on other segments (revenue shares on data-enabled programmatic advertising, agreement with the content aggregator and the OS…).

Consequences and potential projections:

  • Whereas high quality and exclusive content remain a key bargaining power for content providers and might allow them to become a ‘must have’, the market is likely to see an increase of international partnerships and negotiations at global level.
  • The market will probably be more and more dictated by global new entrants such as critical-mass content providers and global players with multiple points of presence in the value chain or a global footprint already recognised by users.
  • The balance of power between content providers and distribution partners is likely to evolve in favour of OS providers as main collectors of user's data.
  • Public Service Broadcasters and domestic TV providers will have more and more difficulties to maintain their bargaining powers to secure prominence and access to their content.

As a conclusion, the study emphasises that even though future development will  depend on a range of factors such as consumer preferences, technical development, business model evolution and competition activity, the TV market is likely to see an increase of mobile and connected devices use with a domination of GAFA which tend to gain a foothold across the whole value chain.

Regulation to protect access and prominence might support domestic and national providers but may not be sufficient and joint actions from Public Service Broadcasters should be encouraged to allow, for instance, a withholding of their services in exchange of guarantees on access and prominence of their content.  

Source: Ofcom

Further background on the context of the study and on prominence:
  • In 2019 Ofcom made recommendations for new legislation to protect the prominence of public service broadcasting beyond the EPG, to ensure UK content remains easy to find within the user interfaces of ‘smart’ TVs and other connected devices. 
  • Separately, the UK Government has commissioned a Digital Markets Taskforce, led by the Competition and Markets Authority, to advise on potential regulatory interventions aimed at supporting competition in digital markets. Ofcom, as a member of this Taskforce, is keen to better understand the commercial dynamics, relationships and negotiations that determine which content services are available or made prominent on different internet-connected devices such as ‘smart’ TVs and streaming ‘sticks’.