At the unveiling of Apple TV in September 2015, Tim Cook the CEO of Apple prophesied, “The future of TV is apps”. He invoked a vision of viewers cutting the cord and switching from unwieldy channel guides to using apps on TVs just like they did on their mobile phones. Admittedly, many other device manufacturers including Roku, Amazon and Samsung had long championed apps as the defining user interface in the reinvention of TV.
The altruistic promise of the new app model on TVs was to disaggregate the video industry: to enable any video publisher to deliver content directly to any viewer. Tim Cook’s aphorism was widely hailed as the beginning of the end of the industry’s middle-men – the cable and satellite TV companies – notorious for their hefty monthly bills and poor customer experiences. In the TV app world, viewers would benefit from unlimited choice and get personalized experiences and care from various publishers. Video publishers would in turn benefit from the increased reach and direct monetization of their niche audiences.
A few years into this grand movement to appify our TVs, there are clear signals that the app model is actually driving an alarming re-aggregation of the video industry. While a few TV apps (Netflix, YouTube, Prime etc.) are gaining enormous viewership, the vast majority of other apps are struggling for any kind of meaningful scale. Cable TV networks who view their TV apps as an adjunct to their traditional distribution agreements are not yet worried. But many independent publishers whose primary revenue source is their TV apps are disappointed with the low number of downloads and viewership.
While video businesses typically do not publicly share metrics of poor performance, many ad supported publishers privately admit that it has become difficult to even generate $1 ARPU per month (note that $1 ARPU translates to about 2 hours of monthly video viewing time per user assuming an ad CPM of $20 and a high ad load of 4 ads every 10 minutes; now compound this with the fact that the typical monthly active users (MAUs) is at least an order of magnitude less than the total app users). The impact on publishers with subscription based monetization has been starker and more public. Most of these apps have very low subscriptions, more than 50% user churn(1) and some have already ceased operations(2) or gone back to the drawing board.
Consequently, many independent publishers with great video content are now questioning if direct-to-viewer TV apps are indeed a sustainable business opportunity?
Snacking Before Binging
A dominant usage pattern in content consumption is one where users “snack” on multiple options before finalizing a choice to “binge”. Users glance and swipe through multiple posts in their social feeds before tapping and delving into an article. Users search for products and check out multiple search results before taking out their credit card to make a purchase. Cable TV viewers frequently flip through many channels to preview them for a few seconds or a minute before leaning back to watch a selected show.
TVs with app models have severely impeded users in engaging in this “snack before binge” behavioral pattern.
First, users are required to search, download and login to apps before they can view a single video. This is an extremely high bar for casual users looking to discover new videos and apps. Second, devices that have guides for browsing content across apps do not let users easily preview videos or watch clips (akin to showing search results without page snippets). Also, while TV app guides maybe good for searching with text or voice, the relevance of their video recommendations to individual users is extremely poor. These are critical issues that are fundamentally difficult to solve in an app world where each video app is locked in its own silo.
Note that while TVs with apps are terrible for snacking, TV apps themselves are great for binging. Hence, there is a heavy concentration of viewer engagement in just a few TV apps where viewers are browsing and watching multiple episodes in marathon viewing sessions while most other TV apps are left unexplored, uninstalled and suffer from low logins and return visits.
Bill Me Once, Bill Me Twice
Another big issue impacting TV app publishers with subscription business models is the heightened user sensitivity to two or more separate subscriptions. When users subscribe to multiple TV apps, they juggle different logins and also see different monthly bills. And every billing cycle is a time of reckoning for these apps when users decide which subscriptions to continue and which to cancel. Either because the viewer had prior intent to just watch a single show or because of an unplanned hiatus in the usage of the app, users are very aggressively canceling their TV app subscriptions. The high user churn rates have even caused some publishers to redefine churn in the TV app business! If a user subscribes and cancels an app subscription twice within a year, would you call that increased user churn or change your definition of user retention and lifetime value (LTV)?
Arguably, the net monthly budget per individual household for TV viewing is still pretty high ($50 or more but definitely less than peak cable bills). It is the multiple subscriptions and separate bills for various TV apps that are inducing the subscribe-cancel user behaviors. It is also interesting to note that this user behavior seems to be price-insensitive i.e., irrespective of whether the app has a monthly recurring fee of $1.99 or $9.99.
This is yet another aspect where intended disaggregation of publishers with separate TV apps is not proving viable. On the contrary, the industry is re-aggregating towards few apps (chiefly, virtual MVPDs aka cable companies 2.0) that are beginning to own the monthly billing relationship with the user.
TVs with app based user interfaces do have the potential to be open platforms that level the playing field for video publishers of all sizes. But this also requires device manufacturers to more actively nurture competitive innovation to further improve discovery, billing etc. across all apps.
First, publishers are already pulling videos out of their app silos to encourage viewers to easily access and sample their content. Giving free access to the first few episodes of a new show, encouraging fan communities to create and share clips of key moments etc. are all means to get initial interest and brand affinity outside the app world on existing mobile and desktop discovery platforms. Remember that Facebook and Twitter drive millions of app installs and usage on mobile devices and literally none on TV devices. The challenge for TV device manufacturers is to enable an ecosystem of similar discovery apps with high relevancy for videos to thrive on their platforms. There are also emerging technology innovations to seamlessly convert video discovery on handheld devices to binging in TV app platforms that can help all publishers to drive viewership.
Second, there are also initiatives underway to formalize “mini app bundles”. These are essentially a set of apps that are all accessible with the same login and single monthly subscription for a bundled price. App bundles hold the promise of balancing the user need for simpler video subscriptions with a single billing entity and at the same time empower individual TV app publishers to continue to deliver personalized experiences directly to each viewer. There are some similarities to existing cable TV Everywhere model but the goal is to enable an ecosystem of “loosely federated” app groups that are better customized to the exact needs of an individual user and also have the benefits of unified billing and decreased churn. Further, these app bundles could encourage greater disaggregation as video publishers typically have wide content catalogues that are better packaged, valued and experienced by users in separate TV apps.
Overall, while there are significant issues with the new app model on TVs, these nascent efforts give us reason to be optimistic about the future possibilities.
Prashanth Pappu is the founder of Vizbee.