17 Conference Report #techonomy17

The Topsy-Turvy World of Media

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  • From left: Turner's Jeremy Legg and Steve Shannon of Roku in conversation with Josh Kampel during Techonomy 2017. Photo Credit: Paul Sakuma Photography

Speaker

Jeremy Legg
Chief Technology Officer, Turner

Steve Shannon
General Manager and Senior Vice President of Content & Services, Roku

Moderator

Josh Kampel
President, Techonomy


Session Description: Once upon a time, media and entertainment companies lived in harmony, with clearly delineated roles in the ecosystem. Now, audiences are scattered across platforms and devices, and tech has turned the industry on its head. Consumers want programming on-demand, online, and commercial-free and newcomers are barging in. Can old media keep up?

Kampel: Last night we talked about the music industry—now we’ll go into a broader [discussion] on broadcast and media. I’d like to introduce and bring on stage Jeremy Legg, who is the CTO of Turner, and Steve Shannon, a General Manager of Roku. Thanks, Jeremy.

Legg: Thanks for having me!

Shannon: Thank you. Wow, they turned the lights up extra bright.

Kampel: It’s getting a little chilly in the rooms—so we’ll warm it up here. So congratulations on the IPO!

Shannon: Thank you. Yes.

Kampel: I said we wouldn’t talk about it, but congratulations. For those here—who aren’t really familiar with Roku beyond the little purple box or the little purple stick—it’s great color branding that you guys have—tell us a little bit about what is the business of Roku.

Shannon: We’re the leaders in North America for streaming set top boxes and also have been leaders in the TV category as well—I think about one of five smart TVs shipped in the U.S. are based on our operating systems. So we have over 15 million active households—and of course, most households have three or four people in them—so tens of millions of users and over five thousand different apps on the platform ranging from Netflix to your local pastor and everything in between. And as it’s been going on—that product’s been shipping for around eight years now and we compete with Amazon and Google and Apple and Samsung and the rest.

Kampel: But when you say you compete, you also have to be friends, right? Because their apps are running on your platforms.

Shannon: Yes. That’s right. That’s right. We have Amazon Instant Video and Amazon Prime for example, and we compete with them. We have YouTube and we have Google Play—in fact, we’re the only non-Google player, I think, that has Google Play on it. We’re famous for being neutral in the ecosystem. Our partners like us for that. Also, our partners like us for that because when you go to search for something, the search results are unbiased. They are in order of how we think you would want to receive them, generally in order of price. If you have access to that show for free, that’s going to be at the top and more expensive as you go down the list. So that neutrality has been perhaps the most important differentiator that we’ve had in the market.

Kampel: And Jeremy, obviously you have to work with companies like Roku to distribute your content. You have your own platforms. For years now, Techonomy’s been talking about this idea that every company is tech company. And in media, obviously, you run a group that is developing products and platforms for the future of television. Talk about why you guys had to go ahead and build it. Steve mentioned that there’s TVs licensing his platform. In your case, you’re building platforms for the future of television. Now, why is that that case?

Legg: I guess if I take a technology lens to look at this, historically we distribute everything through a set top box. And so the necessity to build platforms on front-end consumer devices—I don’t want to call it relatively minor—but it was certainly less important than it would otherwise be.

And as eyeballs have shifted from set top boxes onto those consumer devices, at the end of the day our business is relatively simple. It’s about eyeballs. So we’ve got to be on as many platforms and as many devices as possible, but they’re all different. So the way you build an app on Roku is different than the way you build it on iOS which is different than Android which is different than Xbox. So you end up having to make investments in technology that you never had to make before in order to reach the scale of audiences that you need.

And you further kind of complicate that with the fact that the business model, platform by platform are different as well. And so your back office systems as well as your front-end app dev, web dev, and all the kinds of things that you do to deliver consumer experience. All of that kind of converges and you end up in a situation that is actually vastly more complicated than traditional delivery of video.

Kampel: So you mentioned eyeballs. Eyeballs equate to advertising dollars. So there’s a constituency there around brand advertisers. There’s the consumer experience. There’s the platform and then obviously, there’s the content creator. In this world where we talk about unbundling and cutting the cord and all that—you know, who’s winning, right? Of the distribution platforms, the content creators, the brand advertisers, the consumers—who wins in this world where we decouple and deliver to all these different devices?

Legg: I’d say Google and Apple seem to be doing well, in terms of at least financial metrics. But I think what’s really happening is that you still have a pretty vibrant TV ecosystem. While it’s declining—the number of eyeballs in it certainly hit their apex and are on the downside—there’s still an enormous amount of viewing that actually happens there, whether it’s on a TV set through a set top box or it’s a connected device connected to a TV. I haven’t seen the latest Netflix numbers in the last year or so, but most of their video streams are actually going through TV sets—gaming consoles, Roku boxes, and the like. So the way the consumers consuming the content, at least for long form professional video, actually isn’t all that much different than it was before. But the types of technology that consumers access to get to the content have completely changed. And so their expectations are now really much more digital and software-based than what the traditional television industry did a very poor job of—they didn’t innovate the set top box. And because they didn’t innovate the set top box, the consumer moved the other way.

Kampel: And you know—we talk a little about this idea that no one wants to watch ads, right? But no one wants to pay for the content—

Legg: They should though—it’s important that they watch it.

Kampel: Roku has looked at new business models by which you could subsidize content with targeted personalized advertising. Talk a little about what you’re doing to address this. People don’t want to subscribe to Amazon, Netflix, and HBO Now, and they’re paying for all of these unbundled channels. How do you get around and how do you integrate the advertiser to help subsidize some of that content?

Shannon: Yes. That’s a good question. And it combines with your earlier question about who’s going to win in the ecosystem. So the first question—the customers clearly win. I think music is an interesting analogy—more extreme, but where the music experience has always gotten better with a lot of disruption on the business side. I think actually less disruption on the video side, but generally what happens is distribution becomes a weaker part of the overall system and the ends—meaning the consumers over here and the producers, the copyright holders over here—end up being better off because of more competition and distribution.

So we have this intense competition in the distribution set where we compete with Apple and Amazon and Google, like I said. So how do we differentiate ourselves—what do we do for the content providers to help them as a distributor—which is what we are. And ad tech has certainly been a really promising area that we’ve been investing heavily into. We believe that people like free stuff. And the beauty of it is that we can make the experience better by reducing the ad load pretty dramatically while keeping the ad dollars at the same level because we’re just getting rid of waste. We’re not sending dog food commercials to people who don’t have pets. Things like that.

Kampel: So they’re willing to pay a higher rate for contextually relevant and targeted—more personalized [ads].

Shannon: Absolutely. We can measure it better. We can target it better. It can be more interactive—all kinds of analytics and whatnot. So that delivers a lot of value to the advertising ecosystem which goes back and funds the content which is then delivered free to the user. So that is a very virtuous cycle that Turner have been leaders in. We believe that free TV will live strong. That’s not to say SVOD is going away anytime soon—we certainly root for SVOD, it’s a very important part of our platform—but the ad-supported experience is going to keep getting better from a consumer standpoint and from an advertiser standpoint.

Kampel: And is everyone buying into that idea, right? So are the advertisers there? I mean, they’ve seen this happen in traditional digital, right? So they’re used to buying it that way, in digital.

Legg: That’s right.

Kampel: So are they starting to see that move towards VOD and sort of all these other digital channels and willing to pay more knowing that it’s more targeted?

Shannon: Yes. CPMs are going up, for sure, and that’s because we can demonstrate the ROIs being better than the traditional TV buys. So you’re right—there’s a ton of momentum and the traditional $70 billion dollar U.S. television ad market doing things the way that they’ve always done—and scale is very important to advertisers. You’ve got to be able to move the needle. And traditionally, OTT, streaming television, has been more early adopter-ish or just relatively small compared to TV—so the scale hasn’t been there.

But that’s changing now—now streaming is mainstream. Tons of millions of people—tens of millions of people are doing it—and so they really can move the needle and in a more effective way than they have been able to historically. So yes, it’s a very popular product with advertisers and the whole industry is coming around to it finally.

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