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YouView is finally on sale: 7 reasons why it may fail

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Boxes for YouView – the UK IPTV JV comprising the BBC, ITV, Channel 4, Channel 5, BT, Talk Talk and Arqiva – have finally gone on sale, four years after conception.

When YouView chairman Lord Sugar presented them recently, he said: “The audience, to me, is Mrs Smith on the seventeenth floor of a tower block in Newham.”

Sugar’s brand of plain talking has made him a national icon. On this occasion, however, it is not so helpful. Most observers believe YouView, which consists of an Ethernet-enabled Freeview DVR with broadcasters’ catch-up apps, will struggle in its current form. Here are seven concrete reasons why:

1. Failure To Understand its Addressable Market

  • YouView’s stated target audience of mass-market consumers appears to have been defined more as last resort than through careful design. Perhaps long delays ruled out other, more lucrative avenues – people who will pay subscription for lots of TV are already Sky or Virgin Media subscribers.
  • Most Freeview TV viewers appreciate extra choice, but not enough to pay a regular subscription. Additionally, viewers who already refuse to buy a Freeview+ DVR are unlikely to pay £300 for YouView’s similar delights.
  • Perhaps BT and TalkTalk will offer new broadband subscribers a free YouView box. Will that lure Mrs Smith on the 17th floor? Is she really tempted enough both to take broadband and to consider YouView more appealing than other TV-broadband bundles available, like satellite?

2. Failure To Devise A Sufficiently Compelling Consumer Proposition

  • YouView never presented a clearly articulated service or strategy until Lord Sugar came on board last year. The external public mission statement was that YouView is the natural, internet-connected long-term upgrade to digital terrestrial’s Freeview standard – but its internal hopes were pinned more on YouView’s use by its ISP stakeholders to prevent short-term broadband customer churn.
  • Both make sense. But a glaring problem remains: how will YouView and the existing Freeview+ DVR brand compare in Mrs Smith’s eyes? YouView is not a bargain at £300.
  • Pretty soon, both YouView and Freeview+ boxes will be competing to win new customers. How can Arqiva, Channel 4, ITV and the BBC be shareholders in both when they seem so similar? And is that a good use of investor and license fee money?

3. Failure in Estimating Reliable Sources of Value and Revenue

  • Any pricing strategy requires your customers to pay you for something, at some stage. But profits are problematic when YouView will have to compete on price, given how fiercely competitive the already crowded UK broadband and TV markets are.
  • When it does try to compete on price, how can it match its rivals who have much more structural headroom to do so? Unless there is a thoughtfully considered and well executed profitable pathway to paid content, does YouView even have a real business?
  • Advertising would be a limited source of potential value because broadcasters will not share their linear-channel revenue. So are the investments from ITV, C4 and C5 recoupable through its own increased advertising CPM? If so, would that necessitate first replacing Freeview?

4. Failure To Recognise The Formidable Competition

  • There does seem to have been an underestimation (or wilful blindness) to what’s already out there, and what’s coming.
  • Can YouView compete for Mrs Smith’s attention against Sky, Virgin, Freeview, BT Vision, Amazon, Apple and Google’s content libraries, proven service capabilities and marketing budgets?

5. Failure To Build A Pathway Toward Network Effects

  • Success (or survival) for YouView requires critical mass to encourage network effects that would persuade Mrs Smith to make the switch. But it’s difficult to see what type of ecosystem can develop around YouView.
  • Third parties need incentives to spend their own resources and forgo other opportunities to build products and services for YouView.
  • But, despite earlier talk of on-board “apps”, opportunities for developers to even consider building them for YouView are absent. The box is closed and there are no developer tools or info discussed or cited anywhere.

6. Failure In Capital Budgeting

  • YouView faces significant customer acquisition costs in order to educate its target segment of price-sensitive late adopters and subsidise box distribution. But, with retail planned through high street stores alone, it has little pricing power of its own and is aiming at a low-spending segment. It is, therefore, highly unlikely YouView will ever recoup its backers’ investment.
  • Given this, there does seem to have been curiously optimistic capital budgeting analysis.  As ever, outlay minus income equals: are there better uses of everyone’s time and money?
  • One report in 2008 suggested the BBC Trust estimated a cost of £115 million over four years to run YouView, which might be much higher now.  Assuming we consider break-even will require revenue that is largely met by a la carte content, the precise math would require knowing the as yet unreleased pricing.
  • Recall that iTunes is not profitable in itself – it helps pay Apple’s operational costs so it can sell high-margin devices. YouView, however, is not making money on boxes but subsidizing them.

7. Failure To Reject Confirmation Bias

  • Managers are naturally worried for their jobs and reputations – as such, they are prone to confirmation bias. However, outside directors representing shareholders are failing in their duties if they fail to counterbalance this tendency.
  • Of course, broadcasters, broadband operators and technology providers each have different perceptions and ways to calculate return on investment.  Some might say: “Now that we are here, why not proceed?”  Sure, but how and why did we get to this point? Lord Sugar came on board to kill or cure. Instead, is he going to simply confuse Mrs Smith by “taking on Freeview”? Why spend £115 million to compete against yourself? Or, are they now doing it so they can convince someone another company to buy and give YouView a good home?
  • The question they need to answer may not be: “How best to plan for marketing YouView for the all-important Q4 2012?” but rather: “If this is not a viable business, is it already worth more in liquidation than as a going concern?”
  • And the follow-on question: “Who else could make better use of the technology assets and IP of its current TV backers?”

Nayeem Syed is a digital media legal consultant who has worked for Google, Warner Music, Warner Bros Pictures, Hutchison, Accenture and others.

13 Responses to “YouView is finally on sale: 7 reasons why it may fail”

  1. David Eddington

    No one seems to have mentioned the fact that a large number of homes cannot receive a reliable 3.0Mb/s broadband service at peak times and and will not for some time to come by which time this will be obsolete.

  2. Paul Tyrrell

    I was about to buy a Humax T2 before the Youview version of their PVR came out. Now I’m seriously considering the latter. Why? Because it seems to have the same basic functionality with the added attraction of a seamless EPG for catch-up programming, for only an extra £30 or so. I understand the YouView DTR-T1000 will not allow you to record catch-up shows for permanent playback (which is a shame, but understandable, given the licensing agreements they must have had to reach). Even so, this looks like an attractive package to me. Am I missing something here? Why would I get a T2 instead of a DTR-T1000 now?

    • That was exactly my sentiment until I bought the piece of junk.
      The Freeview component of the T1000 is dreadful.
      None of the Humax functions are present.
      You can’t search Freeview content (my 8 year old humax 9200T has more features & better interface)
      The channel list can’t be edited, or even favorited.
      There is no provision for external content, either usb or networked. Plus no ability to backup recordings or watch on other devices (dlna access via phone tablet other smart tv etc – that the T2 can do)
      I’ve been unable to even give this unit away after they’ve seen it in use. Folks won’t have it as catchup doesn’t have subtitles.
      My advise don’t buy this crap, certainly not until they are forced to reinstate the missing features.

  3. Mark Green

    Lots of complicated sentences disguise factual inaccuracies. A mass-market proposition for the 95% of home without ‘smart’ tv (and 40% of those who do but haven’t actually connected them!) seems to have plenty of potential !

  4. EU Brainwashing

    I know a man who had a young colt with such a good bloodline he knew it was going to win, and win and then some more. But to make money he had to hold it back a little in its early races else the betting odds would go so low he knew he could never make a killing at its first really big event.

    YouTube is a winner but it is being presented with its legs tied together and blindfolded. If it was released at maxim potential it would corner the market, kill the opposition and then be referred to the monopolies commission. That is not good business.

    YouTube is in for the long run and in a decade, I prophesies, it will dominate the market. As regards a revenue stream; It will prospective also be the portal for every interaction with government and access the inevitable ‘cashless society’ management system too. The raw ‘internet’ is currently too clunky and too diverse/open to be suitable to host such a system successfully.

    • ananymas

      I think the lack of 3rd party development options is the big weakness here. Looking purely at PVRs, the best have generally been the ones that have a developer community to fix problems the manufacturers take months or years to resolve, as well as adding new features, and in some cases extra applications that aid the use experience (I’m thinking Top field and Humax boxes mainly here)

      For me , ass consumer, I’d like to see a central point of access for the streams from content providers opened up under the YouView banner making YouView a cloud platform available from varied hardware. License fees from both hardware vendors and commission on sales from the likes of Film4 instant and Netflix who would likely take the hit to be included on the search facility in such a broad platform would help cover costs and benefit the consumer.

      Also, where’s the linked up stream of the scores and stats overlays on sports, so the raw pictures live on broadcast, and the overlay lives on the internet (e.g. HTML5 overlay) , so we don’t end up with oversized graphics in the middle of a widescreen TV AND give the user options to call up different stats or hide them instead of having broadcast ones cover up the action?
      And that sort of dynamic HTML5 overlay would work so well for many other programme types too, as well as adverts – how’s that for ‘engagement’.


  5. Julian Ehrhardt

    Typical British negativity. What a sad tone for an article for a project which represents a completely unique initiative. Despite the delays we should be proud of the initiative and that our progressive marketplace has allowed it.

    No TV market in the world has been able to form the kind of consortium that sits behind YouView, from the TV channels through to the network infrastructure and broadband companies.

    Can you imagine the US TV channels collaborating to deliver a platform like this? Absolutely not and as such you have a highly fragmented mess of a market.

    YouView is designed for the masses, from six year olds to 90 year olds, for our mothers who just about know how to email. It is not meant for the highly technically engaged Google TV or Apple TV geeks, or even necessarily for cable/satellite subscribers. This is how terrestrial TV will be consumed by regular people in the UK in years to come.

    So lets give it some time before we shoot the initiative out the sky. For the record, the first iteration of Google TV was an utter car crash from start to finish from the content rights through to the user experience. YouView is a damn site better.

    The off the shelf price point is not cheap. However, that will come down and I am sure you’ll see deals from the broadband operators like TalkTalk’s ‘free box’ drive big uptake.

    Hands up that I am not impartial and we have been working on the YouView project for one of the partners. Proud that we have been involved and proud that the UK market has even allowed something like this to happen.

    Julian Ehrhardt

      • Julian Ehrhardt

        Hi Martin. Please do. Would be very interested to read or to see if any market globally has come close to this kind of alliance. There should be a focus on the achievement in bringing this together as much as the project, despite its failings.

        I also think we all need to remind ourselves that most of the country don’t live in our ‘tech world’, tweet, have ever heard of Google TV, Netflix, Android. It is about time products were developed and designed for them as a base level, such as YouView.