Connected threat to free TV’s ‘rivers of gold’

File picture of political rivals Josh Frydenberg and Monique Ryan debate ahead of the election. Picture: Andrew Henshaw

In the 2022 Federal election campaign countless millions were spent by the major political parties on free-to-air television advertising.

But Monique Ryan, the successful challenger to Josh Frydenberg, used connected TV to target the postcodes of voters in the Kooyong electorate.

It was vastly cheaper and carried her targeted messages directly to the Kooyong voters.

The latest PwC Entertainment and Media Outlook report shows that Ryan’s use of connected TV – called BVOD (Broadcast Video on Demand) – is merely a surface indicator of an enormous revolution taking place in television.

The developments are remarkably similar to the decimation some two decades ago of the old print ‘rivers of gold’ classified advertisements.

I watched from close quarters newspaper executives adopting dangerous strategies to maintain print classified advertisement revenue levels.

Eventually, the dam burst.

As I will explain below, I fear today’s television executives maybe falling into the same traps.

These days the vast majority of television sets can be connected to the internet and around 80 per cent of Australians have used internet TV, although the market is dominated by groups like Netflix and Stan where viewers pay a subscription.

The connected TV- BVOD network is different because usually no subscription is charged, but viewers must register their year of birth and gender, while the internet connection picks up the postcode.

The major channels on the BVOD network are in fact the secondary channels of Nine, Seven and Ten plus SBS on Demand.

I learned about the connected TV/ BVOD revolution from my former Business Review Weekly colleague Stuart Simson, who is chairman and the major shareholder in Switch Digital, which has now brought together into a network around 100 internet television channels that take advertisements.

The PwC research shows that free-to-air television revenue is set to decline at a dangerous annual compound rate of three per cent over the next four years.

In the current year revenue was around $3.5bn, but by 2026, it will be down to $2.9bn and could fall a lot further.

The PwC estimates show BVOD revenue skyrocketing to around $1.5m or almost 35 per cent of the combined free-to-air/BVOD total.

PwC describe these estimates as “middle” targets.

They have “high” targets that show free-to-air declining at a faster pace, making it possible that BVOD will be 50 per cent of total TV revenue by 2026.

Meanwhile, joining BVOD in looking to feast on the free-to-air ‘rivers of gold’ decline are advertising video-on-demand groups like YouTubeTV, Netflix, etc.

The newspaper executives of decades ago did not have the advantage of the PwC graphs. They tried to maintain print classified advertisements in property, cars and employment by offering their digital services as “add ons”.

That enabled REA, Carsales and Seek the opportunity to take the digital market, while the newspapers were concentrating on protecting their print classified revenue base.

Today many free-to-air TV executives duplicate the old newspaper strategy and offer their secondary channels as an ‘add on’ to their base free-to-air audience reach.

While the BVOD TV channels can be used to increase reach in the same way as free-to-air television, the new medium is about localised, targeted and affordable TV.

Operating in this space will eventually require the free-to-air business model to be turned on its head because instead of the so called reach/cost per thousand (CPM) models, BVOD revolves around targeted digital TV, which is similar to other areas of digital media advertising.

Free-to-air TV has maintained its market over the decades because it has been almost impossible for potential rivals to get a licence.

But the new digital operators don’t need either a licence or the same expensive operational structure.

Rival conventional media like outdoors and print can easily add digital to their offerings.

But they too can be threatened by the targeted revolution and most are not ready to compete against low costs of BVOD and targeted digital media.

But PwC also has a warning for BVOD channels: “Unlike in the pre-digitised era with simple ABC-7-9-10-SBS on the dial, BVOD apps now must compete with a broader set of apps either pre-loaded or available to download on connected TVs.

“As such, broadcasters are increasingly required to negotiate with TV hardware providers to ensure their BVOD app’s visibility within TV operating systems.

“The greater competition in this space highlights the importance for BVOD providers to differentiate themselves by providing improved user experiences and content options for audiences to remain top of mind and drive usage.

“A government-backed Future of Broadcasting Working Group was launched in early 2022, with the aim of developing an industry view on how this issue may be solved to ensure a fair and level playing field for BVOD and similar platforms.”

Meanwhile for 88 years, only four people held the seat of Kooyong led by Robert Menzies and Andrew Peacock.

Digital media helped change the rules and the result is not reversible.