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Intelligence Briefs

It’s Time For TV To Sleep With The Enemy

Industry Contributor

Barry O’Brien OAM, Chairman
Atomic 212°

10 February 2020 2min read

The release by ThinkTV of total TV advertising revenue numbers for calendar 2019 once again highlights the tough times the TV networks are experiencing. The 4.8% decline last year reflects a weaker economy, the ongoing decline in free-to-air and pay TV audiences and the relentless rise of the digital giants. It also, once again, highlighted the need for the TV networks to rethink their business models and reduce their still-high content costs.

Key points

  • For decades now, industry “experts” have been predicting the death of free-to-air TV. For decades, those experts have been wrong. Free-to-air TV certainly isn’t dead. It continues to be challenged, of course, but it is incorrect to assume these challenges will be fatal.
  • Right now, one of the biggest issues facing the free-to-air networks is their high content costs.
  • While TV audiences and advertising revenue are declining – albeit not as quickly as the experts predicted – content costs are heading in the opposite direction.
  • The networks need to reduce their cost bases. How? By sleeping with the enemy. It’s time for the networks to join forces with streaming services and telco companies to start sharing the cost of content.

My Takeout

There are some very early signs that the networks are starting to think differently about content production. Late last year, Seven Network’s Seven Studios announced it is making Back To The Rafters, a sequel to Packed To The Rafters, which ran on the main Seven channel from 2008 to 2013. The new series won’t, however, be seen on Seven. It will be shown later this year on Amazon’s Prime Video streaming service.

Back To The Rafters marks the first time an Australian free-to-air TV company has made content for a streaming service. It’s a very interesting development, but it isn’t exactly what I’m talking about.

Now is the time for media companies that have traditionally been viewed as arch-rivals to recognise that people consume content in different ways via different platforms and that there are ways for them to work together to their mutual benefit.

The way someone might watch, say, the Australian Open tennis on Amazon will be different to the way they watch it on Nine Network, the “official broadcaster”. Ditto for rugby union, on, say, Optus, Foxtel and one of the free-to-air networks – or the AFL or Married At First Sight or Australian Survivor.

Most of the debate about the impact of streaming services on free-to-air TV assumes there will be a winner and a loser. But things are rarely that black and white. As ThinkTV CEO Kim Portrate told trade press last year, there is going to be room for everyone.

“I think in any kind of video or broadcast content, it comes down to the content,” Kim said. “There are seven or so really great services with really unique and refined content and if people want that content, they’ll survive.”

It might be a cliché, but content is – and always will be – king. But the broadcast rights and production costs for key sport such as AFL, NRL, tennis, cricket, the Olympics, rugby and horse racing – along with big-ticket productions such as The Voice, MasterChef Australia, My Kitchen Rules and The Block – ensure the cheques being written to cover this content are massive. The Australian Open alone had some 60-plus different camera angels to ensure the viewer didn’t miss a beat. That all comes at a very high cost.

Free-to-air TV has always proven itself to be adaptable, albeit not always fast-moving. It has survived the challenges of videos, DVDs and the Internet to retain a big audience. It needs to remain adaptable. It needs to embrace different thinking and different business models.

But why couldn’t Nine, for example, share the production costs of and broadcast rights to Australian Ninja Warrior with Stan? Why couldn’t MasterChef Australia be funded by, and shown on, both Network 10 and Netflix? The shows’ free-to-air TV audiences would, of course, drop but so would the cost of the shows to the networks (and while binge-viewing is a big part of the appeal of streaming services, there are some shows on those services that are released one episode at a time.)

The free-to-air networks have, of course, launched their own digital services to compete against Netflix, Stan, YouTube and myriad other digital rivals. If the networks decide to join forces with some of those digital giants they would need to think differently about some of their own digital services. For example, they would probably need to drop their BVOD products, which compete directly with Netflix, Stan and others.

In 2019 the BVOD products of the free-to-air networks and Foxtel had combined revenue of $154 million. That number is growing rapidly but it represents less than 4 per cent of total TV advertising revenue. For the networks, sacrificing that revenue in exchange for the money saved by splitting productions costs with their enemy could be a very smart move.

Let’s go. What do you think?

Industry Contributor

Barry O’Brien OAM, Chairman
Atomic 212°

Barry O’Brien OAM is Founder and Chairman of Atomic 212° and one of the most experienced and respected media executives in Australia. Atomic 212° is an Australian independent media agency and fiercely proud of it. Established in 2009, it works with Australia’s largest brands and has offices in Sydney, Melbourne and Darwin. Barry was awarded the Order of Australia Medal in the 2016 Australia Day honours for his contribution to the media industry and his work on behalf of charity.