Content and Devices

We found plenty of news this week, so we have two separate issues of the newsletters this week. The news is starting to build up towards IFA and IBC, with Gamescon in between, so there should be plenty of news over the next couple of weeks.

My attention was caught this week by the news that Netflix would spend $7 billion on content in 2017, with Apple also reported to be planning to spend $1 billion. Although not directly linked to displays, the news has got implications for smart TVs. Back in February 2009, I gave the keynote talk for Panasonic, when it launched the VieraCast smart TV to the European press. One of the points that I made was that one of the megatrends, that I had previously identified in around 2007, was that the launch was part of “the end of geography for TV”. At that point, the TV and cinema content businesses were entirely national in their structure.

Global TV brands, already down to just a half a dozen or so even by then, had the potential to develop huge audiences by making content available to their customers that was only available that way. Over a period of seven or eight years from the start of the mass roll out of Smart TVs, the big TV brands such as Samsung and LG have developed huge shares of the installed base with their Smart TVs. That has given them a way to deliver content and also to develop on-going relationships with their customers, rather than the ‘sell and forget’ business model that had been the TV business for many years.

As it turns out, the TV brands have not done this. Although all except the cheapest sets have smart TV functions (and many of those that don’t are connected via STBs or dongles), the set makers have not delivered much in the way of exclusive content. It’s Netflix which has been the leader in creating unique content for its services – and that was a key factor for me in subscribing to the service. I have an expensive satellite contract with Sky, but I wanted some content that is only available from Netflix.

Netflix is able to exploit the “lack of geography” for its services and content. That gives it huge advantages in scale. Even HBO only invests around $2 billion in content annually.

That TV brands haven’t gone down this route suggests to me that content companies are different kinds of businesses than device makers and will probably remain so. The skills needed are quite different and it’s hard to imagine the same management running both. As I have said many times over the year, Sony makes big claims that its ownership of both devices and content is a real advantage, but the results from Sony over many years mean that I’m still happy to say that Sony has yet to demonstrate this!

Sony says it is on target to have its most profitable year for twenty in fiscal 2018, but that’s based on its device businesses. In February of this year, the company wrote off $1 billion in its film business. As I say, the case for owning content and devices has still to be proved!

Apple, which in its early days often tried to identify itself with the values and marketing of Sony, is now trying the content + devices formula. Of course, the iPhone and other devices have done well out of iTunes, but of course that platform used other peoples’ content and it could be argued that Apple’s approach has not helped the content providers that have supported the platform. I shall be watching closely to see if Apple can demonstrate what Sony has claimed!