Inside Grown-ups' Heads
Adults that have long comprised the mass-market TV audience are increasingly difficult to characterize
by George Winslow -- Multichannel News, 12/30/2007 7:00:00 PM
For all the hype about younger demos, adults aged 35 years and older have long been the backbone of the consumer economy, thanks to their higher disposable income. By 2010, adults 35 and older will spend nearly $3.5 trillion a year, with the 45-plus set projected to spend over $2.6 trillion, according to data from the Bureau of Labor Statistics and the Wolf Resource Group.
While that will make this group an important demographic for years to come, the television networks targeting those adults are finding their media habits increasingly complex.
While younger demos are often called the Internet generation, people aged 25 to 54 actually spend the most time at work or at home on the Internet a week (7.3 hours). That's more than young adults aged 18 to 34 (5.1 hours) or teens 12 to 17 years old (3.4 hours.), according to Turner Broadcast System chief research officer, Jack Wakshlag, citing Nielsen Media Research data.
Wakshlag also points out that 42% of YouTube users are 35 to 54 years old, and that 19% are over 55. In contrast, users aged 12-17 make up only 20% of the Internet's most popular video site.
Tayna Giles, senior vice president of research and planning at the MTV Networks Entertainment Group, added that “they are bigger online shoppers than younger demos, and they are spending more and more time online.”
Those older demos are even embracing user generated content, though at much lower levels than younger demos. “Only 10% of the boomers are posting or creating user-generated content, but 30% are participating in some form of user-generated content,” Giles said.
These viewers are also avid users of news sites. CNN.com, for example, had some 30.2 million unique users in October of 2007 and 61.3 million video streams. The average age of its user is 41.
David Payne, senior vice president and general manager of CNN.com said that “the higher numbers reflect the fact that people are more comfortable using video online and the better integration of video into our site. Video is no longer an adjunct but a key feature, often the leading feature of a story.”
CNN made a notable shift last summer from a subscription-based model for much of its video to an ad-supported model, which has paid off in significant ad revenue.
“Video advertising is growing at a faster pace than display advertising and we can command higher premiums and CPMs [cost per thousands] for video ads,” he said.
The 35-plus set is also at the center of two of the biggest changes in the way consumers use video — on-demand viewing and high-definition TV — thanks to higher disposable income and the ability to afford expensive electronic gear.
A recent Horowitz Associates survey found that adults aged 35 to 49 had the highest digital video recorder usage, with 31.4% using the DVR at least once a week, more than the 26.1% level of the 18 to 34 set. About 28.7% of those aged 35 to 49 watched a free VOD program at least once a week, nearly as often as the 30.0% of those aged 18 to 34.
A May/June consumer survey by the Cable & Telecommunications Association for Marketing also found that adults aged 35 to 44 had the highest penetration rates of HDTV ownership, with a 33% penetration rate, followed by adults 18 to 34 (29%), adults 45 to 54 (18%) and adults 50 plus (16%).
Getting a good read on the rapidly growing HDTV penetration rates is difficult. The CTAM study found that about 23% of all homes had HDTVs, but Nielsen estimates that in November of 2007, there were about 15.5 million homes capable of watching HD programming, about 13.7% of all TV homes.
Only the Los Angeles market, with a 20.4% penetration rate of HD-capable homes, came close to the CTAM numbers.
But many researchers believe the Nielsen numbers are too low. In November, only a few weeks after Nielsen released its results, Frank N. Magid Associates released a study that found HD sets in about 20% of all homes, a 100% increase in the last year, and Leichtman Research issued a report noting that about one-quarter of all homes have HD sets.
Even higher penetration rates can be found in more technically advanced homes. An October 2007 survey by In-Stat found that two-fifths of all homes with a high-speed Internet connection had an HDTV set and that 7% have more than one.
Whatever the precise number, everyone agrees that penetration levels are growing rapidly and are likely to see a significant bounce during the 2007 holiday season. Forrester estimates that in 2010 a majority of U.S. homes will have HD sets and the number of sets will surpass 43 million by 2012.
“With the fall in HD set prices, penetration has been rising faster than anyone expected,” said James McQuivey, vice president and principle analyst at Forrester. “Ever since DirecTV announced at last year's CES that it would have 100 [HD] channels by the end of 2007, everyone is responding. You have Verizon announcing that they will have 150 HD channels in 2008, with the goal of getting to 200, when there are not that many HD channels available today.”
EchoStar Communication's Dish Network, for example, has increased its offering to over 75 HD channels and has been marketing HD as a major competitive advantage against cable, according to Dish senior vice president of marketing and chief marketing officer Jessica Heacock Insalaco.
To further push the penetration of HD sets, Dish has also cut a deal with Sharp to give their customers a 20% discount on Sharp's HD sets.
Heacock Insalaco expects Dish to add more channels in 2008 but stresses quality over quantity. “There are some channels that no one wants to watch on standard definition and we don't think those channels are going to be any more valuable to our consumers in HD,” she said.
On the cable side, Charter has announced plans to double its HD channels from the low 20s to over 40 across its entire footprint in 2008, using switched digital to free up bandwidth.
Cox has also been expanding its HD lineup with linear and on-demand offerings, said Steve Necessary, vice president of video strategy and development at Cox Communications.
Cox executives have not announced specific target numbers for HD channels, but have said the MSO would have the capacity for 50 HD channels by the end of 2007 and at least twice that for 2008.
Among the telcos, Verizon Communications is planning to use the big pipes of its fiber-to-the-home FiOS TV offering to raise the bar even higher. “People are saying 2008 will be the year for HD and we have announced that we will have 150 by the end of 2008,” said Rachelle Zoffer, director of interactive TV for FiOS TV. “We already have 10,000 titles on VOD, and as part of our HD plans we will have least 10% of our on-demand titles in HD.”
The increasingly competitive landscape and consumer demand for new services are putting pressure on bandwidth, Cox's Necessary admits.
Still, he and other cable executives stress they have the ability to respond, using switched digital, better compression technologies and other solutions to free up bandwidth or make better use of the bandwidth they have.
“We actually saw this coming in early 2005 and have been preparing,” Necessary said. “There is no silver bullet, but we have a lot of ammunition in our clips.”
Cable executives also tout the competitive advantages of their on-demand platform. Comcast, for example, is trying to shift the criteria for success in the HD arms race from the number of linear channels to the range of choices offered on linear and on demand.
“Choices are important on standard-def or high-def and we have more HD choices than any other provider,” said Diana Kerekes, vice president of video services at Comcast. By the start of 2008, she expects them to be offering about 300 choices of HD content on both the linear and on demand, with some 75 movies available at any one time.
Smaller operators are also making serious investments to remain competitive. Patty McCaskill, senior vice president of programming at Suddenlink Communications notes that they been aggressively adding HD content and currently have 16 to 18 HD channels, a significant amount for an operators serving smaller markets, with plans to add more in 2008.
“Penetration of HDTV sets is growing as fast in smaller rural markets as it is in urban areas,” McCaskill said.
Those moves are part of a much larger strategy of expanding bandwidth so the operator can offer a highly competitive triple play offering, according to senior vice president and chief technical officer Terry Cordova. Suddenlink is now almost 100% digital and has boosted its Internet speeds to as high as 12 Megabytes.
In 2008, Cordova said, the operator will dramatically expand its video-on-demand footprint. In 2009 and 2010 it will start moving towards switched digital video and digital simulcast.
“We want to bring big city services to smaller markets,” Cordova said.
The growing demand for HD content by operators is also encouraging programmers to launch new HD services. Bill Myers, Starz Entertainment president and chief operating officer, said that the programmer launched three additional HD services for a total of five and have been boosting its on-demand HD offering.
“Even though the total number of networks with an HD on-demand offering has doubled in the last year, we still account for 20% to 25% of all the HD on-demand orders,” he said, making their services particularly valuable to operators seeking to boost the quality of their HD offerings.
Overall, Starz! expects 190 million standard- and high-definition VOD orders by the end of the year.
Besides its Vongo Internet download service that is sold directly to consumers, Starz! has also launched a Starz broadband service that the pay TV programmer is selling directly to operators who could add it to their broadband offerings. “It is a significant project for us,” Myers said.
Showtime is also putting more emphasis on HD and using on-demand and high-speed Internet platforms to deliver and promote its content, said Tom Christie, executive vice president of affiliate sales at Showtime Networks.
Showtime currently has three linear HD networks and 20 hours of HD on demand, with plans to add more linear networks and on-demand content by the end of the second quarter of 2008.
Showtime, which increased its total subscribers by 1 million over the last year to 15 million, has also been using free VOD and the Internet to promote news shows. It made the entire first season of Dexter available online and on free VOD, prior to the launch of the second season. “These platforms are becoming an important way to market and promote our shows,” Christie said.
Rentrak data also highlights growing usage of HD content on demand. High-definition VOD orders increased 730% between June of 2006 and June of 2007, when there were 895,000, notes Cathy Hetzel, president of the advanced media and information division of Rentrak.
Even so, the HD services need to be better marketed. Bruce Leichtman, president and principle analyst at the Leichtman Research Group, said that while there are 30 million homes in the U.S. with at least one HDTV, “just over half of them are watching HD programming. About 20% think they are watching HD programming but aren't.”
One problem is the lack of accurate information. “Just 41% of those who have an HDTV were told by retailers what they needed to do to receive programming,” Leichtman said. “Obviously operators can't rely on retailers to sell their HD services. They have to find way to do a better job of doing it themselves.”
Another area of confusion is the FCC-mandated cutoff of analog broadcast signals in February of 2009.
In October 2007, an In-Stat survey found that 39.2% of all broadband and TV homes — a relatively tech-savvy group — admitted that the survey question was the first time they'd heard about the issue. Another 28.5% said they needed to learn more. Only one in 10 (11.4%) said they were very aware and making plans to deal with the issue.
Citing equally alarming statistics from separate surveys, Howard Horowitz, president of Horowitz Associates quipped that “consumers aren't confused about the digital transition. They know almost nothing about how it will affect them.”
And that is a significant problems. “About 56% of the sets [in our surveys] are not connected to a box and will lose their signals unless they do something about this,” he said.
Much confusion also exists on how adults are using on-demand platforms and the impact of this viewing on the effectiveness of TV advertising.
While most researchers note that the DVR has had a relatively limited impact on overall ratings, some believe it will grow significantly as DVR penetration grows and consumers become more dependent on the technology.
“In the first six months after getting a DVR, most of the viewing is live,” said Alan Wurtzel, president of research at NBC Universal. “But some time 18 to 24 months after getting the DVR, there is a reverse where a huge amount of viewing time is spent in the time-shifted mode.”
Even though DVR penetration is only about 22%, Wurtzel said “35% to 40% of the viewing of some programs is already done in a time-shifted mode [and] when you get into some local areas like New York City, as much as one half of the viewing is time shifted.”
Overtime, John Landgraf, the general manager of FX Networks worries that this could have a dramatic impact on the financial models that have long supported the production of expensive hit programming.
“In the last two years there has been a very substantial increase in the amount of time-shifted viewing,” he said. “In the C3 ratings [that track the viewing of ads within three days after the live debut], you see a loss of as much as one third in the primary run. That is a tectonic shift in consumption.”
The solution, he believes, lies in better measurement that would produce highly targeted ads that would command significantly higher CPMs. But ad models that would better target ads to the buying habits of viewers of linear or on-demand content remain in their infancy.
“We are right in the middle of the suspension bridge,” he said. “We've been on stable bedrock for decades with spot advertising and we can see the bedrock on the other side. But right now it is uncertain how we are going to get there.”
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