Media: All about ... the future of video-on-demand

Controversy surrounds the decision to axe Kangaroo.

The Competition Commission's decision to gun down Kangaroo before it even hit the starting blocks has proved unpopular in ad industry circles, with some commentators finding the move shocking and bizarre, even "perversely stupid".

The independent public body, seemingly content to drop off many Christmas card lists this year, felt the video-on-demand joint venture between BBC Worldwide, ITV and Channel 4 had to be canned after more than two years in development because it presented too much of a threat to competition in the nascent VoD market.

Project Kangaroo, announced in November 2007, promised a one-stop shop online video destination to rival the likes of Hulu, the US-owned distribution network for high-value video content.

The venture promised to deliver more than 10,000 hours of programming via broadband internet, broadening the BBC iPlayer model to include programming from the BBC's commercial rivals.

The venture hit a hurdle when the Commission waded in, following complaints from broadcast rivals BSkyB and Virgin Media. ITV and Channel 4 gave assurances to the Commission that each participant would be responsible for selling advertising around their own website content, although general display advertising would be sold centrally. The content would be free and not exclusive to Kangaroo.

But the watchdog remained unconvinced. In the ruling last week, the Commission said the case surrounding Kangaroo centred on the control of UK-originated TV content. The broadcasters would own the vast majority (around 90 per cent) of UK-originated TV content and the potential was there to become a commercial cartel and abuse their monopoly powers.

For the Kangaroo partners, who have, according to Enders Analysis, invested £25 million on staff and development costs between them, the move is a costly let-down, particularly at a time when traditional TV ad revenues are drying up.

1. Kangaroo would have offered advertisers the opportunity to communicate their brand message around the holy grail of BBC content. Broadcasters will miss the chance to share a platform with BBC programmes and benefit from their halo effect. Each broadcaster will now focus on its online offering. ITV's executive chairman, Michael Grade, was expecting Project Kangaroo to help deliver £150 million in online revenues by 2012. That target may need revision. ITV's focus will be directed towards its website ITV.com (the host of its revamped ITVPlayer), the development of which has recently been overshadowed by Kangaroo.

2. Channel 4, looking at a £150 million-a-year funding shortfall, would have counted on Kangaroo to generate online revenues. The broadcaster, which is in the process of relaunching its website channel4.com, will continue to invest in its online offering and catch-up service, 4OD. The possibility of a tie-up between Channel 4 and BBC Worldwide would give Channel 4 a larger market share and strengthen its online offering.

3. Both Channel 4 and ITV are overshadowed by the main VOD service on the market, the BBC's iPlayer. But in a bid to fight off calls for "top slicing" of the licence fee, director-general Mark Thompson stated last year that the BBC may allow other broadcasters to share its iPlayer technology after analogue switch-off in 2012.

4. VoD itself has perhaps suffered a setback now that Project Kangaroo is no longer a prospect. The marketing around the venture might have accelerated the growth of the medium. According to agency estimates, VoD, which took in about £20 million in ad revenue last year, could have achieved 100 per cent growth if Kangaroo had been approved.

5. While the market will be more fragmented as each broadcaster focuses on its own offering, it is expected to grow in the region of 30 to 50 per cent this year. But this will not offset the fall in traditional ad revenues: broadcasters expect TV revenues to drop by between 17 and 18 per cent in the first quarter. Advertisers will be able to buy the same amount of TV space as last year, but for a good deal less, and they can redirect their savings into the VoD market.

6. The Digital Britain report, and its goal of achieving broadband for all by 2012, will help to hasten the growth of VoD, which currently represents just a small fraction (around 0.6 per cent) of the overall TV ad market.

WHAT IT MEANS FOR ...

ADVERTISERS

- The axing of Kangaroo means that advertisers will miss out on the opportunity to advertise around BBC content. The venture would have offered consumers one easy-to-access central hub for the majority of UK TV content.

- Advertisers would have been able to target a sizeable audience and engage on a one-to-one basis with consumers.

- Despite not having this central platform, there is still a growing, if disjointed, VoD market out there, which offers targeted, hard-to-reach audiences for advertisers. Deflation in the TV market means that advertisers could be more inclined to test out this new medium.

BROADCASTERS

- Broadcasters will now be regrouping and launching new strategies for their respective VoD services. ITV and Channel 4 will be looking to bolster their own websites and archives in order to compete with the BBC's iPlayer.

- Jon Gisby, the new-media director at Channel 4, says: "There is a degree of regrouping going on. We are in the market to continue to invest and we are sure that other opportunities will come along."

- BBC Worldwide had planned to commercialise the iPlayer through Kangaroo, and it remains to be seen whether the BBC Trust will approve the BBC's commercial arm's use of iPlayer technology.

- One alternative to Kangaroo is Project Canvas, a venture between BBC, ITV and BT to develop a broadband Freeview service that could see on-demand programming, including iPlayer video content, available through TV sets by early 2010. While the Competition Commission has ruled out three broadcasters entering a deal, there could still be opportunities for two broadcasters to enter into a tie-up. Broadcasters will be seeking to obtain clarification from the Competition Commission as to what alternatives are available.

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Digital marketing executives oversee the online marketing strategy for their organisation. They plan and execute digital (including email) marketing campaigns and design, maintain and supply content for the organisation's website(s).