More Content, Less Clarity

New CE Devices’ Impact on Multichannel TV Remains Widely Debated

By George Winslow -- Multichannel News, 1/2/2012 12:01:00 AM

As many TV executives prepare to head to the 2012 Consumer Electronics Show to see the latest CE gadgets, the impact of those devices on the TV industry continues to confound expectations.

Only a year ago, the growing popularity of smart phones, tablets and other connected devices seemed poised to roil the entire multichannel television industry, with online streaming-movie service Netflix touted as the next HBO. Some analysts argued that socalled over-the-top providers — offering video content directly to consumers over the Internet via streaming — would soon steal away a significant number of subscribers from cable, satellite and telco-TV firms.

For the most part, this never panned out. Netflix stumbled badly in 2011 and the tiny number of people who had cut the cord of their multichannel subscriptions in recent years didn’t grow into the beginnings of a mass movement. By the start of 2012, there were only 3 million over-the-top (OTT) video homes, according to MagnaGlobal — just 2.5% of all TV households.

“People wanted 2011 to be the year of the cordcutter, and that just isn’t happening,” Bruce Leichtman, president and principal analyst at the Leichtman Research Group, said.

The badly misunderstood impact of new consumer-electronics devices and OTT video on the multichannel business will, however, remain a crucial issue in 2012 and beyond.

DEVICES AT CRITICAL MASS

For starters, the number of consumer devices in the market that can easily be connected to the Internet to access online or mobile video has reached a critical mass. Between the third quarter of 2010 and 2011, the number of tablets in the U.S. skyrocketed by 488%, to 20 million; the number of over-the-top boxes such as Roku or Apple TV jumped 253%, to 6 million; video streaming-enabled game consoles increased by 34%, to 61.6 million; and smart phones spiked by 47%, to nearly 105.7 million in the U.S., according to Magna Global, with more on the way.

All of this has moved streaming video, or Internetprotocol video, out of the “new-media” or “early-adopter” category firmly into a mainstream, mass-market technology. More than half (54%) of all Americans 18 and older now watch TV programming at least once week on a computer or handheld device, according to Horowitz Associates.

Yet TV consumption remains stronger than ever, with the average U.S. viewer watching 34 hours a week, up from 32.1 hours in 2006, when the amount of available online video began to proliferate, according to Nielsen data compiled by Turner Brodacasting System.

In fact, the heaviest online video viewers also watch an above-average amount of TV, according to Turner chief research officer Jack Wakschlag.

Comparing Nielsen data from January of last year with June, Wakshlag found that the heaviest online viewers watched 74 minutes of online video and 294 minutes of TV per dat, much more than the 243 minutes of TV watched by the lightest online-video users, who watched Web content for just 2 minutes per day.

Several factors, including social media and the potential for viewing video on many different devices, seem to be encouraging increased consumption of TV programming.

A recent Cable & Telecommunications Association for Marketing study found that 37% of those aged 18-24 were looking up information on a show while watching TV; 32% were discussing the show online; and 25% were visiting the show’s network website. “It is an incredible tool for fostering engagement with programming,” CTAM CEO Char Beales said.

In addition to the importance of social media, Adam Stewart, industry director of media and entertainment at Google noted that mobile devices are an increasingly important tool for finding and accessing new programming. “Mobile [search] queries for returning broadcast shows in 2011 grew by 92% over the previous year, and returning cable shows saw a 105% increase in mobile queries,” he said.

Programmers also noted that the availability of content on multiple platforms helps build audiences, because viewers can watch or catch up on episodes they may have missed on linear TV. For example, about 50% of the viewing for Starz’s new original series occurs on demand, either on pay TV providers’ VOD platforms or online, Starz Entertainment president and chief operating officer Bill Myers said.

“It allows people to catch up with their viewing and discover new shows,” he said. To further expand VOD availability, Starz plans this year to launch an authenticated app that allows existing devices to access full episodes or movies.

Meanwhile, the HBO Go app, which offers around 1,400 titles, has already proved to be incredibly successful. Since its May launch, it’s been downloaded more than 5 million times and has generated 98 million content views, Shelley Brindle, HBO executive vice president of domestic network distribution and marketing, said. More than 90% of HBO Go users said the product has made the flagship HBO service more valuable, she added.

The close relationship between heavy TV viewing and the use of other consumer devices to watch video also tends to cast doubt on the persistent notion that younger, more affluent viewers have abandoned multichannel subscriptions for over-the-top delivery.

PROFILING CORD-CUTTERS

An analysis of those who dropped cable subscriptions between March of 2010 and March of 2011 by Turner found that cord-cutters were young, but they were neither affluent nor tech-savvy. As a group, they tended to live in rural areas, had low incomes, were less-educated and much less likely than the general public to own a computer or have an Internet connection.

“They aren’t the kind of people we imagine them to be,” Wakshlag said. He argued that high unemployment rates and problems in the housing markets have hurt growth in multichannel subscriptions.

That doesn’t mean multichannel providers can stop worrying about subscriber losses, though. Economic factors, coupled with ongoing changes in video consumption, could have an important impact on the multichannel business and emerging business models for multiplatform delivery, several analysts have argued.

Citing slugging housing starts, Ian Olgeirson, the lead multichannel analyst at SNL Kagan, is predicting that cable, satellite and telco video providers will see some absolute growth in subscriber numbers but that overall penetration rate of multichannel video services will slightly decline.

“We think that in a five-year time frame, about 10% of occupied households will rely on alternative online distribution as opposed to multichannel services,” he said.

A slightly smaller projection comes from Magna Global, which predicts that the number of OTT households will hit nearly 4 million in 2012 and grow to nearly 9 million in 2016.

But Olgeirson stresses that most consumers will use both multichannel TV and OTT video.

Operators have also been moving to blunt the impact of OTT delivery with their own multiplatform or TV Everywhere services. How a variety of economic and technical trends will effect the emerging business models for those efforts is the subject of the next story.