March 24, 2015

Sony’s Vue DOA?

Sony’s new OTT service, PlayStation Vue, launched last week in three cities (New York, Chicago, and Philadelphia) to plenty of media attention but only to a single platform (Sony’s PS3 and PS4). Vue provides a variety of broadcast and cable channels in three different tiers at prices ranging from $49.99 to $69.99 per month. Interestingly, Vue does not currently include any Disney-owned channels such as ABC and ESPN, nor PBS or Univision.

By all reports, the service has a very slick UI and includes a 28-day cloud DVR feature (which is sorely lacking in the DISH’s Sling TV service). There is no doubt the folks at Sony who worked on this project displayed incredible chutzpah, and for that they deserve credit.

Chutzpah and pretty graphics, however, do not by themselves make a successful pay-TV service. Unfortunately, I think PlayStation Vue is dead on arrival for two reasons.

1. Know Thy Customer
Sony has been in the videogame console business for 20 years, so it’s fairly safe to assume that, by this point in time, the company has (or should have) a keen understanding of its customer.

In TDG’s 2014 report, The In Home Video and PC Ecosystem, we noted that 53% of US broadband households used a game console. Among younger adult broadband users diffusion was especially strong, 74% among 18-24s and 68% among 25-34s. More relevant for Sony, collectively PS3s or PS4s were used by 54% of 18-24s and 56% of 25-34s.

It is equally well known that Millennial console use skews heavily male. Data from Flurry indicates that –- despite growth in female casual and mobile game playing –- young males still constitute two-third of players for all the core console genres (e.g., sports, racing, first-person shooters, action RPG). If there was any doubt about the fact console use skews strongly male, simply look at the game titles that fared best in 2013, which obviously target the young male demographic.

    1. Grand Theft Auto V
    2. Call of Duty: Ghosts
  1. Madden NFL 25
  2. Battlefield 4
  3. Assassin’s Creed IV: Black Flag
  4. NBA 2K 14
  5. Call of Duty: Black Ops II

If you were asked to create a new pay-TV service that best appealed to this specific audience —- which is precisely the target of Vue —- what components would you consider absolutely critical to success? I can think of three: strong value (lots of content and features for a great price); personalized screens (young male gamers view a lot of video on PCs, tablets, and smartphones), and live sports (a must-have for young adult males).

As to the importance of value, TDG’s research has consistently shown that saving money/cost of service is the most significant factor driving pay-TV cancellations. At year-end 2014, two-thirds of Cord Cutters said that the ‘need to reduce expenses’ was extremely important in their decision to cancel traditional pay-TV service (ranking it ‘7’ on a 7-point scale). This makes perfect sense given that, in 2013, the median income of 25-34s was approximately $31K, roughly the same level it was in 1995. Younger Millennials, of course, earn even less.

In this context, Vue’s $50-$70/month price point, which is actually more expensive than many entry-level packages from legacy pay-TV providers, is simply inexplicable. As I have pointed out previously, Sling TV’s $20 price point seems revolutionary by comparison.

Second, TV viewing is no longer restricted to the living room television and has expanded to include a number of personal screens. As discussed in TV Gets Personal: Trends in Mobile Video Viewing, 2015-2025, smartphones and tablets have become important video-viewing platforms in their own right.

Although the television remains dominant in the living room, tablets and smartphones are increasingly used as secondary in-home displays, particularly in the bedroom (which has become the preferred room in the house for tablet viewing). Again, age plays a factor in this trend, with 25-34s indexing higher than other age groups for smartphone video viewing.

So how does Vue stack up on this front? Poorly. Although there was a half-conceived reference to a future iPad app, the launch announcement included no discussion of smartphones and ignored Android completely. Even the PC was nowhere to be found. Again, I can only describe such thinking as inexplicable. A service focused solely on a single living room device (be it a traditional STB or a game console) is totally out of step with today’s quantum consumer.

Finally, regarding sports, TDG’s primary research is equally clear. As outlined in Game On! The Future of Sports Video Viewing, 2015-2025, 25-34s are more dedicated sports fans than any other age segment, out-indexing all other groups for every single sport, from the NFL to college sports, soccer, and golf. To be fair, Vue does include broadcast sports from CBS, NBC, and Fox, as well as some regional sports networks in higher-tier offerings. But where is ESPN, or any of the ESPN family of networks? Informatively absent. Given that ESPN is the #1 cable channel in the country (across all genres) and far-and-away the dominant national sports network, Sony’s decision to launch this service without ESPN is, you guessed it, inexplicable.

2. “Listen to the Mountain”
A few years back I had the pleasure of spending time with Ed Viesturs, perhaps the greatest living American mountain climber. Viesturs is the only American to have climbed all fourteen of the world’s 8,000-meter peaks, and the fifth person to do so without using supplemental oxygen. He was on Mount Everest on May 10, 1996, the day of the climbing disaster documented in Jon Krakauer’s best-selling book, Into Thin Air.

Perhaps the most amazing thing about Ed Viesturs is not what he has done, but that he is still alive to tell the tale. When asked how he survived all of his adventures, he responds simply: “I listen to the mountain.” In other words, key to a climber’s survival is the capacity to understand when not to climb. This takes a lot of guts, especially when people (including paying clients) have trained for months, spent thousands of dollars, and flown half way around the world for the sole purpose of attempting an ascent.

New business ventures are not so different. As money, time, and management credibility get invested in a project, the pressure to proceed in the face of overwhelmingly negative odds is weighty. The existing of a macho technology business culture that says “Real men ship product” is hardly encouraging. Who wants to be the first to say that the emperor has no clothes? To be the one that, despite all of the hard work and resources invested, says to the team that a project simply won’t fly, that it shouldn’t go forward?

I believe Vue has just committed precisely this mistake. Sony has been working on a TV service for a long time, and we can assume that the folks involved did their best. Nevertheless, someone needed to look at the fit (or lack thereof) between the PlayStation Vue service and the PlayStation user and have the guts to say, “No, this does not make sense.” That, my friends, is true managerial courage, something that Sony was sorely lacking in this case.

Failure is a given in the technology world. Sometimes an innovation isn’t sufficiently mature, or consumers simply aren’t ready to embrace it. This kind of failure is the necessary (even noble) byproduct of genuine innovation. The original Apple Newton tablet is a classic example, brought to market far too early (1993) and quickly shelved, only to be reincarnated 17 years later as the iPad, which arrived when the market was ready and proceeded to fly off the shelves.

Sony’s PlayStation Vue is not that kind of noble failure, but instead a strange case of interesting technology and well-intending project managers being crippled by the company’s abject failure to recognize who their customer is and what they might want from a TV service. Future OTT service launches can and must avoid such mistakes.

Stick with TDG and stay ahead of the curve.

Joel is a Senior Advisor for TDG and serves as an advisor and Board Member to the video ecosystem and technology companies. He lives near Seattle, WA.

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