Viacom's acquisition of Channel 5 reignites the linear vs. non-linear TV debate
-By Julie Meyer, Founder and CEO & Stuart Poyser, Director of Corporate Finance & M&A Advisory
It is common amongst media commentators to hear the view that the continued success of free-to-air ("FTA") broadcasters is a temporary phenomenon and that, like every other traditional medium, changing consumer behaviour and audience fragmentation will lead to a fundamental shift in the business model: in other words, linear TV - that is, watching TV "live" rather than using catch-up services is dead.
So why has US-based Viacom, home of MTV, just paid £450m for Britain's Channel 5 (number 5 in audience share as well as name)? This deal follows hard on the heels of AMC Networks paying $1bn for Chellomedia, the international channels unit of the pan-European cable company Liberty whose acquisition hugely expanded AMC's footprint in Europe, which - whisper it - some industry observers didn't think was that high quality. And why are investment firms successfully progressing on several capital raisings for businesses that involve launching new, predominantly linear TV channels?
Essentially there are three answers to this: first, if linear TV is indeed dying, then it will take an incredibly long time. For every person who has gorged on Netflix's House of Cards, there's one who has slumped on the sofa to watch a repeat of QI on the UK's Dave Channel. In the metropolitan world of media-commentating-on-media, no one knows anyone who would admit to watching linear TV. But across the world, billions of people coming in from a hard day's work just want to lean back, not forward. There is a strong argument for why a huge number of people, will continue watching linear TV for many years to come.
Second, there's the live "event" element of television that cannot be captured in a recorded and viewed later environment. This year's Superbowl in the US had its highest ever figures, as did the UK's Brit Awards. Social media is reinforcing, not destroying these unifying, mass-audience events. But while Channel 5 carries event TV like Big Brother, its audience is predominantly watching Australian soaps and classic movies.
There is also a third reason why businesses like Viacom and AMC are buying TV networks, regardless of how they are distributed. Most of the audience will still want a curator - someone to help them pick out what, from the available choice of every TV programme ever made, they might like to watch. And a big part of that decision will be based around brands.
The traditional broadcasters are incredibly valuable because of their scarcity - there are only a handful of FTA channels occupying rare media "real estate" on the cable networks. But look around you to the worlds of retail and fashion where there is no restriction in supply and yet no one would question the value of a Weetabix, or a Britvic, or a River Island, even if they aren't as famous brands as Kellogs, Coca Cola or Zara.
In the future, content providers will be increasingly competing to attract audiences, but human nature is not changing. We will look to brands to guide us, seek out the ones which
reflect our own values, to help us discover content we want to watch. Media will be another fast-moving consumer good (FMCG), and that's a world where no one has ever questioned the necessity of a brand.
Whether the recent deals have been done at the right price is another question. Not all brands are created equal, and the degree of success of those recent deals is left to be seen in the years to come. The success test to apply could be this one - will people who watch a channel's programming today think of that name when they want to watch something similar in the future? For Channel 5, the answer is arguably yes, and that means cementing the connection with the audience which can be translated across content distribution platforms and generate revenues long in to the future.