Netflix hits new high as subs soar in Q3

For the quarter ended 30 September 2017, Netflix’s global streaming revenue rose 33% year-on-year, driven by a 24% increase in average paid memberships and 7% growth in ASP. Operating income nearly doubled year-over-year to $209 million with a Q3 global operating margin of 7%.

Driving the spike in revenues was a Q3 record of 5.3 million additional global memberships, up 49% annually, a continued result, said the company, of strong appetite for its original series and films, as well as the general increased demand for online video and TV across the world. Year to date net adds of 15.5 million were up 29% versus the same period in 2016. Regionally the company reported 850,000 streaming additions in the US to total 52.77 million out of a global total of 109.25 million. Non-US subscriptions were up 4.45 million in the quarter.

Looking towards the fourth quarter, Netflix forecast global net adds of 6.30 million, 1.25 million in the US and 5.05 million internationally. Even though it acknowledged the recent price rises in key markets, Netflix was confident that the increased revenue over time would help it grow it content offering and continue its global operating margin growth.

Key to growth would be original titles, it said. Netflix noted that even though it had multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends were clear: its future largely lies in exclusive original content which it says “drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes”. The company’s investment in Netflix originals was over a quarter of its total P&L content budget in 2017 and was set continue to grow.

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What Millennials Value Most in Their Lives, Careers and Personal Tech

A simple choice between A and B can say a lot about a person—or, in the case of 9GAG’s just-released Millennial Black Paper, an entire generation. In April, the cross-platform entertainment network, which counts 150 million users around the globe, teamed up with research firm GfK to create a simple “would you rather” questionnaire meant to determine what millennials (defined as ages 18-34) value in their lives, careers, politics, technology and more.

Over the course of two weeks, the survey received 134,694 responses from people in 194 countries. So what did they find? “It’s not a myth that you have to engage with millennials to get their attention,” said 9GAG COO Lilian Leong. “[They’re] not slaves to the internet or social networks. They’re a lot smarter than they’re given credit for. And they value real friends more than their Instagram followers.”

OTT Platforms: If Cable Networks Can’t Beat Them, It’s Time To Join ‘Em

Last month, Nielsen painted a rather alarming picture for cable networks. – by Tyler Pietz

Despite an increase in the total number of TV homes (+1%), traditional cable subscriptions have continued to decline at an accelerated pace (-3.1%), Nielsen said [PDF]. Taken in totality, this suggests a widening gap of -3.9% in cable subscription growth as a proportion of total TV homes.

VMVPD subscriptions, such as Sling TV, Playstation Vue and DirecTV Now, often dubbed skinny bundles, have grown, but at slower rate than necessary to sufficiently make up for the declines in traditional cable subscriptions.

Skinny bundles are inherently less lucrative than traditional subscriptions for distributors and networks because the smaller number of channels erodes cable network penetration on a per-subscriber basis. And since the regional monopolies, equipment rental fees and contractual lock-ins historically enjoyed by cable operators are effectively eliminated, the bundles also put downward pressure on margins due to increased competition from other providers.

This underlines the precarious position of traditional cable bundles: In an effort to address weakening demand for a highly lucrative revenue stream – traditional cable subscriptions – distributors have introduced a less lucrative one that has so far failed to close the gap in subscribers, let alone revenue.

But while the shift toward OTT content delivery (which runs through operators’ pipes) and a lax regulatory environment (which opens the door to payments from platforms to prioritize their traffic) will help operators absorb losses, networks have little to take solace in.

Cable networks have historically operated as franchisors, focusing on creating, acquiring and programming content while relegating to their affiliates – cable operators – the messy business of bundling and selling access to their content in exchange for a per-subscriber fee. This worked when consumers had little choice in the matter, but cord-cutting and shaving has become an increasingly viable option as more direct-to-consumer offerings emerge and negate the hegemony once enjoyed by operators.

This leaves cable networks with a few choices, none of which are easy or particularly attractive compared to their legacy businesses.

Do Nothing (Base Case)

If recent trends hold, the average network will see a significant erosion of its traditional subscriber base year over year for the foreseeable future. Beyond the hit to affiliate revenue, which is now the primary revenue stream for most networks, this will also endanger ad revenues as TV ad rates are predicated on reach. Lower viewership density equals fewer eyeballs to monetize and threatens the utility that networks offer to advertisers as an easy button that taps into most, if not all, households.

Realistically, the only lever that networks can pull under this scenario is to demand an increase in the fee that cable operators pay per subscription. Operators have shown an increased aversion to abetting these increases, as these costs are passed directly to the consumer, creating a vicious cycle that makes bundle economics less tenable for current subscribers.

Develop Assets That Can Stand On Their Own

Most cable networks spread their content over several channels or properties, each of which commands its own subscriber fee. Demand for lesser properties will weaken significantly in a higher-choice environment, so networks need to focus on quality-over-quantity products that can command a loyal audience in an increasingly unbundled world, even if those audiences are smaller and more niche.

Beyond the world of linear content delivery, there is great demand at companies such as Netflix, Amazon and Hulu for high-quality, creator-driven video content, such as “Breaking Bad” and “Fargo.” Licensing these shows already brings in nontrivial revenue for networks such as AMC and FX, but windowing – where they are made available six or more months after the original air date, to avoid cannibalizing live TV audiences – limits this revenue stream.

And as TV ad revenues decline with audiences, networks with the luxury of owning the rights to such coveted content should get serious about day-and-date distribution on digital platforms to fully realize the value of their content.

Create A Discrete Direct-To-Consumer Bundle

Direct-to-consumer businesses, when executed correctly, confer extraordinary benefits on their owners, particularly in the form of user data that can be utilized for serving highly targeted ads and the ability to measure viewership data with precision and granularity.

But the lift is much heavier, and the stakes are higher. A move into direct-to-consumer necessitates a type of business acumen and degree of technical and product excellence that is currently lacking at most cable networks. It will involve creating business models that networks have never battle-tested at scale.

Disney, having recently announced plans to develop its own OTT subscription service, may serve as the ultimate bellwether in this case. But with service expected to launch no earlier than the second half of 2019, the hand-wringing decisions and harsh realities of such a strategy are already rearing their ugly heads. Namely, the success of the new venture will be predicated on Disney’s willingness to pivot from revenue streams that will be more profitable in the short term but recede in the long term.

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Can Broadcaster Alliances Overcome the Hurdles to Addressable TV Advertising?

The growing range of addressable TV products coming to market are opening up an array of new opportunities for media buyers. But the new landscape also poses challenges, as the various technologies, measurement options and regulations can make it a complex environment for buyers to navigate. Our panel at New Video Frontiers in London last week discussed how broadcasters are forming alliances to overcome these obstacles, allowing them to offer data-driven campaigns at scale with consistent measurements, currencies, and sales points. They also discussed the broader future of TV advertising, and the advance of the online tech giants into TV-like content.

Facebook acquires streaming rights to sports

Facebook isn’t ready to make a high-profile bid for major sports like basketball, football or soccer in established markets, but it’s eyeing up rights in emerging markets.

One interesting example is Facebook’s move trying to convince UEFA’s media bosses to let it live stream Champions League games in countries where they aren’t shown on TV. Both tournaments are not shown on TV in Africa or countries like India and Colombia. One big fly in the ointment: Facebook wants the rights for free under the idea that it would give the Champions League and Europa League tournaments tremendous reach outside of Europe. Needless to say, UEFA declined.

UEFA cannot be seen giving away rights for free when it has a premium product for which other broadcast partners pay substantial sums. UEFA now finds itself in the same precarious situation as publishers when it comes to assessing the platform dilemma of reach versus monetization.

“It is indeed good to be broadcast on Facebook in a market where the matches aren’t shown on TV,” said the source. “But on the other hand, it could damage negotiations in the future with other TV channels.”

The UEFA pitch is curious since Facebook was willing to pony up $600 million to bring the Indian Premier League cricket matches to the more than 1 billion people who live in India and its surrounding countries.

It is unlikely UEFA’s initial rejection will sap Facebook’s appetite for the rights. With over 650 million people following an account for a sports team, player or news outlet on Facebook and 200 million of these fans on Instagram, Facebook knows it has strong bargaining power now that it is a primary destination for sports. Misha Sher, vp of sport and entertainment at MediaCom, believes it’s only a matter of time before the biggest soccer games air live on Facebook. “Rights holders will need to consider the value that someone like Amazon or Facebook can bring to the table, and explore what types of models will work moving forward without undermining any existing broadcast agreements,” Sher said.

Facebook has made no secret of soccer’s importance to its aspirations as a broadcaster. It aired over 3,500 different live sports events in the first six months of the year alone. Despite the breadth of sports it shows, from American football to college lacrosse, Facebook insists it doesn’t want to replace traditional broadcasters such as Sky and BT Sport as the home of live games. Instead, the social network has cited its deal with Fox Sports to live stream Champions League matches in the U.S. as an example of its intentions over the coming months. If Facebook were to be the sole broadcaster of the Champions League in the U.S. now, it would likely struggle to recoup the $60 million Turner Sports paid to secure the broadcast rights for 2018-2021.

Monetizing video is still a problem for Facebook, as seen by the number of soccer clubs and advertisers rethinking Facebook Live’s value alongside the emergence of Facebook Watch. Monetizing video in emerging markets, however, could be easier; of Facebook’s 5 million advertisers, 70 percent are outside of the U.S. Among the fastest-growing countries are India, Thailand, Brazil, Mexico and Argentina, none of which are set to broadcast Champions League matches on TV between 2018 and 2021.

But this path isn’t without its problems, said Dror Ginzberg, the CEO of video creation platform Wochit. In many emerging markets, smartphone adoption is roughly 30 percent, according to Gsma, the trade body for the telecommunications industry. This is much lower than the global average of over 50 percent. In the short term, this may mean monetization could be slow to happen in these markets, especially as premium content such as the Champions League, regardless of location, is expensive, explained Ginzberg.

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Shift toward on-demand viewing accelerates

Ericsson Consumer Lab’s TV and Media Report for 2017 paints a grim picture for linear TV and its providers. The shift toward on-demand viewing is accelerating, it is much easier to find something to watch on-demand, and consumers much prefer their SVOD services to linear scheduled television.

Ericsson surveyed 20,000 people aged 16-69 in 13 countries including the US, Brazil, Germany, Russia, and Taiwan. All respondents had home broadband and watched TV at least once a week.

Shift toward on-demand viewing accelerates

The Ericsson data shows that the number of consumers that consider the internet a natural part of their TV habits has not changed at all over the last four years. It remains at 55%. The number that considers video access as a major reason for getting faster internet has increased, from 45% to 49%.

More dramatic is the shift toward on-demand viewing and away from linear. The average number of on-demand services used per household has increased from 1.6 in 2013 to 3.8 in 2017. Moreover, the data shows consumers are growing to love on-demand viewing.

In 2014, 48% of survey participants agreed with the statement “I prefer on-demand over scheduled viewing.” In 2017, 59% said this. What’s more the shift toward on-demand viewing seems to be accelerating. In the five years between 2010 and 2014, the number of people preferring on-demand increased 10%. In the four years between 2014 and 2017, the increase was 11%.

Conversely, in 2014, 35% of respondents agreed with the statement “My traditional TV service providers gives me all I need.” In 2017, 26% agreed with the statement.

One bright point for content providers both traditional and digital is the shift in attitudes to illegal content access. In 2010, 24% agreed with the statement “If I can’t legally find the content I need, it’s okay to pirate.” The number saying that same in 2017 has fallen to 20%.

Content discovery huge issue for TV, less so for on-demand

Ericsson shows a startling difference between scheduled linear TV and on-demand access. On average, 55% of viewers say they cannot find anything to watch once a week or more in their on-demand video services. 83% say the same for scheduled linear TV.

With all the attention pointed at search and discovery, we might expect consumers to be spending less time searching and more time viewing. That is certainly not the case according to Ericsson, at least for scheduled TV viewers. In 2016, the average minutes per day spent searching for content on scheduled linear TV was 21 minutes, and on-demand was 24 minutes. On average, then, consumers spend 45 minutes per day searching for content.

In 2017, the average overall time spent searching for content increased 6 minutes, to 51 minutes a day. However, on-demand search time remained the same, 24 minutes, while scheduled linear TV search time increased to 27 minutes. The increase in search time on pay TV is a very surprising result since pay TV operators have been working hard to deploy better search and recommendations. For example, according to TiVo, in the U.S. market, the number of consumers using text search increased 3.8% to 49.7% between 2016 and 2017. 17.9% of pay TV subscribers say they receive content recommendations from their operator.

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Are Home Service Ads the death of home-based businesses on Google?

Google is expanding their Home Service Ads across more and more cities in the US, and some home-based business owners are worried. Columnist Joy Hawkins explains how this move impacts these businesses and what they can do to combat a loss of local search visibility.

If you are a local business that provides home services in the United States, you should be bracing yourself for what will happen when Home Service Ads roll out in your industry and market. The changes are vast and make a huge difference in who ranks in the local results on Google. When they first started expanding them last year in San Diego, it wiped out 89 percent of the listings in the local results.

There is no warning
Unlike other features, Google isn’t preannouncing where they plan on rolling these out. Currently, there isn’t even an updated help article. Google’s signup page is also inaccurate, as it only lists cities in California, even though they rolled out to Philadelphia, Atlanta, Phoenix and Seattle weeks ago.

Google has been extremely quiet about the entire thing, and although there has been no announcement, we’re also seeing the ads in Chicago and Jersey City.

Home-based businesses are removed from the local results

This update has a massive impact on home-based businesses, since it completely removes them from the local results — because they typically don’t have a publicly available storefront address. They have the option of paying to be included in the AdWords Home Service Ad pack, but if they don’t, they get shoved down in this list below all the paid ads (so basically invisible). As Mike Blumenthal puts it, this is where home-based businesses go to die.

I am also starting to see Google do this in markets where there are no Home Service Ads. Suddenly, all the listings with hidden addresses just with no explanation, according to posts on a discussion board where local SEOs gather.

There is a way out

If you’re a home-based business and are losing sleep wondering when this will roll out to your industry and city, it’s time to start planning ahead. One solution that these service-area businesses have been using to survive this is to turn their home into a storefront.

If you’re reading that and think it sounds like nonsense — so did I, at first. After all, how on earth is a home a storefront? When I think of a storefront, I think of a Best Buy or a Walmart.

According to Google’s guidelines, here is what you would need to do to be eligible to show your address (aka be a “storefront”) on your Google My Business listing:

– The location must be staffed (your staff, not someone else’s) during office hours.
– The location must have permanent, onsite signage that is viewable from the street.

According to one of the locksmiths on this thread in the Google My Business advertiser community:

“When I contacted Google and explained my situation, they told me it was fine to display my address as long as there was signage outside which there now is, I also am now fully equipped to cut keys out of my location and uploaded pictures of my workshop and signage. Between my son or wife or myself there is always someone here. I don’t see how any guidelines are being broken as I serve people out both my location and their location. Just yesterday I cut mailbox keys for a client that stopped by here along with a few other random customers who have stopped by here in recent days to get safety deposit boxes opened and miscellaneous projects. I am here, I am real and staffed.”
Another locksmith addressed the issue of staffing at a home location by clarifying:

“I also explained [to Google] that I do need to leave the location for emergency calls. In those cases I have two way outdoor cameras so I can still greet clients while on the road and let them know how long their wait will be in those rare cases. For the most part, my wife is at home all the time to greet customers in house and tend to basic locksmithing needs. The GMB rep said this was fine and that these arrangements do comply with their terms.”
I double-checked with Google myself, and they confirmed both those cases are fine.

As a joke, some of us thought it would be funny to ask Google if the business below qualifies as a storefront after they taped their business card to their door.

Google said it would not since the sign is not permanent and isn’t visible from Street View. Similarly, a listing in an apartment building would probably get removed since it would be almost impossible for them to have an external sign.

It seems Google’s end goal here isn’t to screw over home-based businesses but to get a better handle on all the spam that exists in these industries. By forcing businesses to be public about where they are located, it makes it much harder for lead generation companies to create listings for “businesses” that don’t actually exist.

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Digital Catching Up to Cable in Ad Sales

Almost half of the growth in local video ad spending during the next five years will go to digital platforms, including local mobile video, local online video and out-of-home video, according to a new study on advanced television advertising published last week by BIA/Kelsey industry analysts.

The growth in digital platform advertising approximately matches the expected growth in local cable TV advertising during the period, the report, “Advanced TV: Industry Views on Progress & New Directions,” concluded.

BIA/Kelsey’s local ad forecast, compiled during July research, envisions $7.1 billion growth in local cable ad spending next year compared with $5 billion for local online, mobile and out-of-home video spending. In 2021, local cable ad growth will amount to $6.9 billion, while the combined local digital platforms will tally $6.7 billion.

The report — the fifth in the company’s series analyzing local digital video advertising platforms — predicts that by 2021, local digital “ad activation” will represent 43.6% of local ad spending versus 56.4% for “traditional” video media. That’s a significant jump from today’s 33.2%/66.8% split.

In dollar terms, the study predicts that all local linear TV and digital video combined platforms will grow from $31.9 billion in 2017 to $37.3 billion by 2021. The broadcast TV segment will grow $2.7 billion and the cable/MVPD segment will grow by $200 million (see chart).

“We are seeing very interesting innovation in cross-platform solutions, audience targeting, local data management platforms and a drive toward more accountability in media campaigns,” according to the BIA/K analysis. “These innovations may bend current trend lines in the media mix if linear video can become competitive.”

BIA/K’s report focuses on the increased use of data-enhanced audience targeting via addressable, contextual audience networks, over-the-top, connected TV and programmatic TV platforms, all of which the company said “continue to innovate, and bring change in the national and local TV markets through technology, data, and new forms of automation and efficiency.”

The report includes extended interviews with six media and technology executives, including Steve Silvestri, vice president of advanced advertising at Discovery Communications; he oversees the 18-month-old Discovery Engage platform that leverages custom and syndicated data segments for the company’s networks.

“The [Engage] platform has consistently showcased its ability to mine high value programs across the Discovery portfolio that may have been previously unconsidered, but now afforded through selling title optimization,” Silvestri explained. “Most of our advertisers are purchasing audiences deeper across our portfolio and expanding their network consideration set.”

He said that while a “traditional buy” might include four to six networks, an “Engage buy can run to eight or nine networks.”

“Through test and control anonymized ad exposure analysis, Engage has proven out lift metrics using transactional data, foot traffic rates and brand surveys,” Silvestri added.

The other organizations cited in the BIA/K report are AudienceXpress, Discovery, FreeWheel, Sinclair Broadcast Group, TiVo and Tremor Video.

“As marketers and agencies want more cross-platform campaign planning, activation and evaluation, these tech stacks and business processes must work better together,” said Rick Ducey, managing director, BIA/Kelsey and a principal author of the report. “Capital investment, innovation and change is coming to the local TV marketplace,” he added citing the perceived values of data-driven audience targeting and advanced TV solutions.

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Despite hiccups, live streaming is moving to the next level

The critics were out in force for Amazon’s inaugural live football stream last week. However, growing interest in live streaming online and a renewed focus from video platform providers on scalability should deliver TV quality and TV scale in the not distant future.

Amazon, Yahoo deliver mostly satisfying experiences

Amazon’s first Thursday night football live stream did not go off without a hitch. Some struggled to join the Chicago versus Green Bay stream at the beginning of the game. Others had their viewing interrupted by buffering issues. Some viewers of the NFL game between Jacksonville and Baltimore streamed live by Yahoo on the previous Sunday reported similar problems.

However, the truth is that in both cases most people that watched the games online enjoyed them as the NFL intended. I watched both and completely forgot how the games were coming to me. So much so that I grew bored with the Jacksonville game and gasped at the foul on Davante Adams in the Green Bay game.

Not just sports driving live viewing

It is not just sports that are driving the growth of live streaming online. According to Freewheel, ad views during live streamed news grew 150% between Q2 2016 and Q2 2017. Ad completion rates were also unusually high, 96%, indicating that viewers are very engaged in the content they are viewing. Again, this is another strong indication that the quality and overall experience of watching live online news is meeting the expectations of viewers.

More live streaming providers coming

Expect the number of live streaming services to continue to increase. A 2016 survey of online video service providers and those planning to launch service within the next year found 44% said their service provided live events. 30% said they provided a mix of live and linear. Live was by far the largest class of video content provided, beating out on-demand content providers handily.

This sharp focus on live streaming by video providers speaks loudly to the state of live streaming technology. They are confident enough in the ability of the Internet to deliver that they are willing to bet their business on it.

Video platforms take on the problems of scale, quality

That said, there are still challenges in delivering live streaming video online. One major video platform provider freely admitted to me at IBC in September that the Internet cannot sustain Super Bowl-sized audiences today. Other live streaming issues need solutions as well. For example:

The action in live streams typically lags far behind the actual event (latency)
Two people watching the same live event online typically see the action occurring out-of-sync with each other
Video start-up time is frequently far longer than changing the channel on broadcast television.
In each case, however, I saw companies at IBC offering solutions to each of these problems. In other words, the Internet is doing what it has always done: as problems arise companies find solutions. I, for one, do not doubt that the Internet will deliver Super Bowl-sized audiences when the viewers demand it.

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Young viewers continue to shift online

Viewers watched on average for 3 hours and 48 minutes per day per person in the first half of 2017 in the top 5 countries in Europe (France, Germany, UK, Spain and Italy), with TV unquestionably remaining the preferred screen, states the mid-year review from Eurodata TV Worldwide and TAPE Consultancy. However, the trend to more internet viewing is sustained.

“In the major European countries, watching television programmes on internet is becoming general practice, and it can represent a substantial additional audience for certain content, such as targeted fictional content or youth entertainment,” noted Frédéric Vaulpré, Vice-President of Eurodata TV Worldwide. “Sport has also confirmed its appeal by continuing to perform extremely well. As king of live TV, it also attracts its own audience of catch-uppers whenever there is a significant time difference,” he added.

Fiction and Entertainment

Certain programme genres seem to be watched increasingly in delinearised fashion and via internet. “Demain nous appartient” (Tomorrow belongs to us) shown this summer on TF1 attracted an additional 36 per cent of viewers thanks to time-shifted, catch-up and online viewing. The same was true for the Dutch series “Goede tijden, slechte tijden” (good things, bad things); episodes broadcast between January and August 2017 on RTL4 increased by almost 20 per cent the number of viewers watching via TV broadcasts.

Computers are No. 2 and young people are using their smartphones

Computers are the leading screens just after televisions. In France, they represent 52 per cent of online programming TV consumption. However, smartphones are one step ahead of computers for youth-oriented channels (such as W9 in France), and tablets rank first for children’s channels (Gulli in France).

Tablet in the morning, smartphone in the evening

Which device is being watched and when? In France, tablets have become No.1 for watching TV online between 6am and 7am. In the evening mobile telephone use increases.

4-screen television audience measurement is expanding and has recently been introduced in four countries (France, the Netherlands, Sweden and Denmark). These pioneers are due to be joined in 2018 by some 15 other countries, such as Japan, Norway, the US, UK, Germany, Singapore, the Czech Republic, Italy and Malaysia.

Innovative strategies for traditional channels and new players

In an environment where new usages are becoming increasingly significant, broadcasters of TV content on the web, and pure players in particular, are becoming serious competitors for the pay-TV channels. Some pure players now offer packages of channels in their SVoD offering. For example, in the UK, Austria and Germany, this is true of players such as Amazon Prime Instant Video (already present in the US), and also PlayStation Vue in the United States, who are riding high on their successful reputations to attract online viewers. At the same time, traditional content broadcasters such as HBO or Canal+ are refining their business models and are offering increasingly competitive deals for their online packages. These allow viewers to combine their choice of online content and create their own TV line up at a lower cost.

In addition to these new business models, channels have developed innovative digital strategies to highlight their programmes. They can break with the traditional broadcasting timeline, for example by debuting the programme season with an online or SVoD broadcast. They have also launched ‘pop-up’ channels whose lifespan depends on the events to which they are dedicated. There are also some new story-telling formats, such as NBC Left Field, the US platform of short documentaries relayed on Facebook, Instagram and YouTube which is bringing video journalism into the digital strategy of traditional broadcasters.

The latest programme trends: nostalgia, awaking to today’s world and escapism

With nearly 6,000 new recurring programmes launched since the beginning of the year, of which 52 per cent were original creations, the television industry and OTT platforms have increasingly demonstrated how dynamic they are.

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