Software for hard cash

Monday, September 29, 2014

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The world of TV is rapidly evolving and over the past few years we have  been introduced to the concept of TV apps, both from TV manufacturers and pay-TV operators. Recently we have seen more and more media companies deploying applications on TV to increase usage and reach new consumers.

Over the past couple of years, the main challenge has been about launching attractive applications with great functionality. Now, we have passed the initial launch phase and monetisation is increasingly important.

Starting slowly

Most TV applications are today free of charge, potentially with a subscription, but it makes sense that consumers will be able to pay for applications similar to the case on mobile devices. However, there are a number of reasons why neither the market nor the consumer is currently ready for this.

Fundamentally, the TV is a household device for consumption of content. My personal belief is that this puts a psychological hurdle on each transaction on the device. Transactions on household devices are a household decision, no matter how small they are. This will likely evolve over time but changes in consumer’s mindsets normally take longer than technological changes. I believe that this is a reason why subscriptions have been the most popular business models for TV devices.

Another reason is simply the lack of an integrated payment solution. TV is a consumption device and not an interactive device. Consumers are lazy and an integrated “one-click-purchase” solution is even more important than for example on PCs and mobile devices. TV platforms don’t have an attractive integrated payment solution and the hurdle for consumers to start paying for applications is high.

In-app payments still fragmented

As mentioned, payments of TV applications exist for numerous apps. But almost exclusively these payments are connected to the app publisher’s own payment system. The most common model is the subscription model, with an “all-you-can-eat” subscription for all platforms, the “Netflix model”. In some cases an app publisher has added their own in-app payment system to enable specific functionality. The game provider Playjam is one example of this. From a consumer perspective this is of course confusing, since they are used to an integrated in-app payment system on mobile phones, and on TV they need to connect to separate payment systems for each publisher.

I believe that in-app payments will remain fragmented for OTT devices, which are launched on a multi-national basis. For example, for a Smart TV manufacturer it becomes prohibitively expensive to implement a globally available payment system. For platforms available locally, like TV operators, they can easily implement integrated payment platforms if they choose to do so.

Advertising through TV Apps

The fastest growing monetization method in 2013-2014 will be in-app advertising. It works on an international basis and is easily maintained over time. It will give less revenue per unique user, but it’s quite easy to model the business case for a TV app with advertising.

Today, the implementation of advertising is complicated due to the fragmentation of the market and technical platforms. Publishers want to control which ad network they are using for different markets, applications and platforms, and they want to retain control over this configuration and change it over time depending on commercial and technical realities. The most effective way to address this is by giving the publisher the power to dynamically manage their advertising strategy through an integrated platform. Being able to switch between different ad networks based on business rules they decide, for example, gives publishers the power to improve long-term monetisation of their TV apps.

Companion monetisation will grow rapidly

The usage of tablets and mobile phones as a “second screen” while watching TV has grown significantly over recent months. Up to 70% percent of tablet usage is in the home, with the bulk of this usage in the living room. Parallel usage of a second screen device while watching TV has exploded and consumers use a variety of applications and internet services while watching TV. The opportunity for broadcasters and networks is to provide an attractive companion experience both for live, linear TV and any catch-up or on-demand experience. By “pairing” the TV with the second screen device, it is possible to offer companion advertising and companion payments either alongside traditional spot advertising on TV or to complement the TV apps. This offers a great possibility of using monetisation methods of mobile technologies in a TV context.

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