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In 2017, media companies will finally realize they are being disrupted by the very platforms that distribute their content

“Smart pipes” are changing the way consumers interact with their favorite content — and traditional delivery systems want in on the future.

AT&T recently launched DirecTV Now, a subscription platform that delivers a “skinny bundle” of content for a lower monthly cost for those considering cutting the cord from their traditional cable and satellite service.
James Bareham / The Verge

Last year, I made five predictions, four that were on the mark and one that was wildly inaccurate — but more on that later. This year, I’m making just one: 2017 will be the year the networks (and media companies) realize they are being disrupted by the very distributors of their content — the platforms.

BTIG analyst Rich Greenfield defines a platform as "an application (or service) that has direct access and a relationship with the consumer,” which is an apt description of leading digital platforms like Facebook, Netflix, Hulu, YouTube, Snapchat and Amazon. Borrowing from the vernacular of the past, these platforms are “smart pipes” or “virtual pipes” that deliver the right type of content to the right individual at the right time on the right device.

These “smart pipes” are changing the way consumers interact with their favorite content — and traditional delivery systems want in on the future. Earlier this year, Comcast CEO Brian Roberts made the shocking announcement that Netflix, once considered an existential threat to cable, would be fully integrated into the Xfinity X1. Today, the Xfinity X1 system is capable of accessing live, on-demand, DVR and web programming all from one interface, simple and powerful for the consumer — in a word, a platform.

Last month, AT&T launched DirecTV Now, a subscription platform that delivers a slimmed-down package of content for a lower monthly cost (a “skinny bundle”), which appeals to those considering cutting the cord from their traditional cable and satellite service altogether.

Competing telco giant Verizon is taking an ad-supported approach to its platform strategy. The company boldly declared that, with its acquisitions of AOL and Yahoo, its newly merged platform would compete for brand dollars with Google and Facebook. It’s a courageous statement, given the fact that 85 percent of all incremental advertising dollars is being spent with the duopoly of Google and Facebook.

But why is this proliferation of platforms so disruptive to networks and other media companies? Shouldn’t it be creating more opportunities and more fees for the distribution of their content? More fees, yes; bigger profits, no. Networks rely on the size of their audiences to garner higher distribution fees and drive their advertising business, and the new platforms are drawing audience members away by offering them more personal content choices. More content choice means more competition among content.

At this year’s WSJ Live Conference, Marni Walden, president of product and new business at Verizon, zeroed in on another problem facing the old-media guard. She said that in a recent survey of millennials by Verizon, they didn’t even bring up networks. They talked about content in terms of a specific show or an individual — oftentimes, an individual who started their career in social media.

Game on. In this world of open access to content, network shows such as “Modern Family” are fighting for eyeballs right alongside videos from YouTube stars like Dude Perfect and Netflix originals like “Stranger Things."

Media companies have responded to this new reality by investing in or acquiring other media companies that have additional audiences on these digital platforms, like BuzzFeed and Vice Media, which have received separate $400 million investments from NBCUniversal and Disney, respectively. But this strategy is akin to putting a Band-Aid on a gunshot wound. If networks really want to attack the cause and not just the symptom of viewership erosion, they only have two options: Become a platform or more fully leverage the platforms that exist.

Becoming a platform

HBO is enjoying a modicum of success with its standalone streaming platform, HBO Now, which has an estimated 1.5 million subscribers paying $15 per month to get access to original series as well as some recent film releases. If anything, the modest subscriber numbers prove how difficult it is to build a direct-to-consumer platform — and this is when you have “Game of Thrones."

Jason Hirschhorn’s Media Redef newsletter provides a compelling analysis in an article published earlier this year from authors Matthew Ball and Tal Shachar, who propose that a platform can never achieve success without one of three “feeds": A scale feed (driven by a vast library of content), a social feed (driven by social networks) or an identity feed (driven by a bundling of niche multimedia experiences).

Leveraging a platform

The second option is for networks to fully leverage the platform with data and technology. That means investing in and developing advertising solutions that take advantage of the entirety of the platform (even non-owned and operated content). Additionally, the networks need to build technology that harnesses the deep trove of data on these platforms. The data and the understanding of the data are the key advantage the platforms have over the networks.

Rich Greenfield, in his blog post, “Content Dethroned,” meticulously spells out how the platforms are successfully producing content utilizing all these tools and will continue to do so. But the networks can leverage each one of the platforms in unison with data informing the what, the when, the how and the where of content creation and distribution. Only the networks and media companies are in a position to take advantage of a true cross-platform strategy by building a content-decision engine.

I recognize that these options represent daunting challenges for the networks, but they must be dealt with if they hope to level the playing field. That means picking a lane and sticking with it — the toe-in-the-water approach we’ve seen in the past will never get them there.

This brings us back to the one prediction I made in 2016 that was way off base. I said that in 2016, media companies would awaken to the market disruption and start to look more like data and tech companies. They didn’t. And because of it, the platforms have been laughing all the way to the bank. Let's see what 2017 brings.

Rich Raddon is the co-founder and co-CEO of ZEFR, a video technology company that uses data to identify, filter and organize videos for content owners and brands on social platforms such as YouTube. For more industry insights, look to ZEFR’s blog and @RichRaddon.

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