The future of monetising television

While the changes brought about by technology are threatening to dismantle the television industry as we know it, a saviour may arise from a most unlikely place: Video On Demand, or VOD. Because in a world where all programming is available on demand, all the time, there may be hope for the existing models yet.

While the UK has had BBC's iPlayer for several years now, there is no equivalent in the US. VOD is still the red-headed stepchild, something that's reflected in the deals the networks have with the MVPDs (multichannel video programme distributors), most of which limit the current season VOD offering to the last five or six episodes, to the disappointment of latecomers and binge viewers alike. The rationale behind this odd arrangement is that when these deals were struck, binge viewing was just a gleam in Reed Hasting's eyes and the on-demand episodes were viewed as more of a marketing tool than a proper means of viewing: viewers watching VOD were viewers who weren't watching commercials, which meant the networks were losing ad revenue.

But all this is changing now that the networks and MVPDs have discovered the joys of non-skippable VOD. This isn't a new or revolutionary technology – Hulu's essentially been doing it for years – but the sudden popularity of the disabling of the fast-forward button during commercials is all about the ability to maintain ad revenue while adjusting for new viewership habits.

Dynamic ad insertion – the ability to use "big data" to insert an ad into a slot based on when and where the viewer is watching – and increasingly, who the viewer is – should allow networks to reap the same, if not greater, profits from advertising by providing more targeted audiences. At the same time, it will (hopefully) save the viewer from irrelevant ads while cutting down on their frequency.

The idea is that with all this VOD available, viewers will no longer want or need a PVR: everything they'd want to record is already available on demand. It's a decent gamble, since TiVO aside, there aren't many independent PVR manufacturers and the MVPDs can easily switch out set-top boxes with built-in PVRs for ones without them, leaving viewers with no option other than VOD.

The success of this endeavour depends on one key question: will the networks be able to control their desire for ad revenue enough to make non-skippable VOD palatable to the masses or will they continue to insist on lengthy commercial breaks? Should they choose the latter, TiVO will certainly see an uptick in popularity, along with new cloud-based DVR services. But should they choose a more Hulu-like formula, with shorter, 60- or 90-second ad breaks, "Is this ad relevant to you?"-type feedback, and countdown timers, then viewers may well accept the commercial breaks in non-skippable VOD as a necessary evil, one that's well worth it for the convenience of watching whatever they want, whenever they want.

A move to a VOD-intensive ecosystem also opens up opportunities for non-traditional broadcasters, performers with large followings (singers, comedians, YouTube stars) who'll be able to light up their own VOD channels and bring in viewers via their social media channels. With those viewers comes ad revenue they don't have to share with a middleman. Falling production costs make this scenario even more feasible as does the limited risk for the MVPDs who host them: storage costs are low and it will be up to the VOD channel owner to promote their own programming and create their own ad revenue.

The final piece of this VOD utopia will be the ability to create linear channels from a range of VOD offerings, a sort of Pandora for TV, where users can create playlists around a genre (crime shows) or a mix of their favourite shows or have the ability to access playlists created by someone else – a professional critic, an existing TV network or even a celebrity. These personal channels will supplement rather than supplant traditional TV networks and will provide viewers with yet one more personalisation option.

Switching to an all-VOD world will have many effects on the current ecosystem, particularly around the ways shows are produced and marketed. It will be both harder and easier for new voices to be heard: harder because there are so many competing voices, but easier because there will be more ways than ever to find and attract an audience.

Advertising will still be the primary monetisation model, but a system with fewer and better targeted ads is a small price to pay for the ability to watch a greater range of programming, however and whenever we want.

Alan Wolk is global lead analyst at Piksel.

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