The lion and the tiger of the media industry do battle - no bloodshed ensues
| 20 September 2014
Christopher Schouten, senior director product marketing NAGRA Kudelski, reports exclusively from CTAM Eurosummit 2014
schout2There has been a tremendous amount of discussion about the "frenemy" relationship between pay-TV and SVOD services, so for anyone interested in that debate, the chance to hear Netflix CEO Reed Hastings and Liberty Global (LGI) CEO Mike Fries talk about the topic live on the same stage together is a dream come true.
I'm one of those people, so I jumped at the opportunity during the Day 2 Keynote Interview at the CTAM Eurosummit in Copenhagen to hear the two share views on their businesses, their relationship, and the future. The two were generally extremely cordial and friendly with one another, but there were a few points of contention. Here is my recollection of the most important points discussed:
SVOD vs. pay-TV
In general, the two agreed that the addition of SVOD to any market doesn't cannibalise pay TV, it just makes the pie bigger. When asked what pay TV had to learn from SVOD, Fries said that LGI had learned a lot from Netflix regarding consumer desire to have a great app, which it now delivers as part of its Horizon product, as well as creating LGI's own SVOD service, MyPrime. In general, the two both seemed satisfied with the success of adding Netflix to LGI's Virgin Media platform in the UK, saying that it was a win-win for both parties, a sentiment that Swedish cableco ComHem's CEO later expressed as well. Fries said that LGI is in the business of creating connections for its consumers, and that any content that adds value to LGI's service is welcome. Hastings also expressed that the set-top box was a great device on which to aggregate logs of great content and that Netflix's presence on Virgin's TiVo box helps ensure that cable stays connected to "Input 1" on the TV.
Hastings clearly remains a champion of Net Neutrality and argued for the ability of Netflix to be able to deliver its service to all consumers. Fries generally agreed and said that LGI would be shooting itself in the foot if it were to limit the availability of a popular service that consumers want Ė and that it would probably lose subs if it tried to do so. But he went on to say that the economics of the situation shift when a single provider is occupying 30% of all internet traffic at any given moment, and the debate finally started to get a little more heated. There wasn't any real conclusion to the discussion, and the gentlemen clearly agreed to disagree on the topic. They did however agree that it was incredibly complex, with Hastings pointing out that the economic burden has largely been shifted in recent years to smaller ISPs who are carrying an increasing burden for paying interconnection fees.
Both parties continue to be committed to smart content production where it makes sense. Netflix has scored huge success with House of Cards and Orange is the New Black, and is hoping for success among millennials with the recently unveiled, ultra-quirky BoJack Horseman. As Netflix expands into European markets, it will start to locally produce content, especially in places like France where it is obligated to do so. This will include Marseille, a new 8-episode political drama set in the aforementioned city. But with an incredibly fragmented European territory, Hastings seemed hesitant and perhaps somewhat daunted at the prospect of having to invest in original production in each country.
LGI sold its primary content arm, Chello, to AMC at the beginning of this year, and Fries explained that this was because it did not contribute directly to the core business of increasing subs. Going forward, Fries said LGI would continue to invest in content production, but that successfully bringing unique content to the platform did not require them to own content production companies. He sees LGI's investment in ITV as a smart investment and not a road to acquiring controlling interest in the UK broadcaster.
Netflix recently announced expansion into six more European countries, and Hastings seemed to imply that the company would now step back and take time to adjust the service to local markets based on consumer feedback, focusing particularly on the largest markets in France and Spain. But he also expressed that he sees Netflix becoming a global company in the next 3-5 years.
schout1I couldn't resist the opportunity to ask the 4K question of two such illustrious captains of our industry, but I made sure to frame my question both in terms of consumer adoption as well as user interface and user experience. They addressed the first half of my first question pretty fully, but didn't touch the second half.
Hastings started off enthusiastically stating that Netflix will clearly have the advantage in 4K because its delivery infrastructure is better suited for rapid innovation. He went as far as to say that 4K is the first "internet-native" video format. Netflix is already working with Samsung and Sony to embed its 4K service in connected TVs, and is already offering its award-winning content House of Cards and Breaking Bad in 4K format. Seeming very proud of taking an early lead in 4K, he threw one bone to Fries: by requiring 15 Mb/s of bandwidth to deliver, 4K should help drive LGI customer upgrades to gigabit broadband packages.
Fries didn't have as much to say about 4K, perhaps mirroring the industry trend where technology providers are trying to push the technology aggressively into the marketplace while most pay-TV providers still haven't fully formulated their strategies around the new format. 4K also exacerbates debates around net neutrality and carriage fees, with Netflix set to gobble up even more of LGIs bandwidth in the future.
Neither one said a word about the user experience opportunity that 4K brings with it, which I consider a missed opportunity. At NAGRA, our view is that the adoption of 4K will at best be limited and at worst prevented altogether unless the industry radically re-imagines the user experience in parallel to improving the quality of the content. NAGRA's OpenTV Gravity Ultra demonstration at IBC showed what you can accomplish with the radically expanded screen real estate, including innovative new forms of content display and discovery, search, social interaction, and even home automation integration. Netflix and Horizon will have to strive to look this good as well if they want to succeed in a 4K world. inShare1