The New Mainstream
Emerging video platforms are helping rather than hurting TV channels
by George Winslow -- Multichannel News, 12/30/2007 5:00:00 PM MT
Perhaps the most graphic illustration of how the changing use of video is already roiling the TV industry can be found outside the headquarters of major networks and studios in New York and Los Angeles where scores of striking writers are picketing. Despite months of posturing and negotiating, the heated battle over how to deal with digital rights has yet to be settled.
“The writers strike is emblematic of the uncertainty over changing consumer habits and the potential revenues of the newer digital distribution forms,” said Mike Vorhaus, a senior vice president and managing director at Frank N. Magid Associates. “If there was more certainty, both sides would be willing to make a deal.”
Much of this uncertainty can be traced to rapidly changing consumer tastes and the industry's inability to turn new distribution platforms into huge piles of cash.
In the last two years, for example, E! Entertainment and other Comcast networks have been engaged in an aggressive initiative to increase the content they have available for online, mobile, video on demand and other digital media. That has produced profitable mobile products and rapidly growing digital properties.
Yet, Ted Harbert, the president and CEO of Comcast Entertainment Group, admits that “the technological changes in our industry have far outstripped our ability to use that technology to create new revenue. When the networks are putting an episode of a new show online, they are not putting 10 minutes of advertising into it. They're maybe putting in one minute of ads.”
Still, Harbert and over 50 operators, programmers and analysts interviewed for Multichannel News's “ViewerWatch” were much more optimistic about the impact of digital media on their businesses than they were in 2006.
“Magid estimates that online video usage is up 67% this year, yet Nielsen [Media Research] has released figures that we've reached record levels of TV viewing of 8 hours and 14 minutes,” Sony Pictures Television executive vice president of planning and operations David Mumford said.
“Linear TV and digital are growing together,” added Mika Salmi, president of global digital media at MTV Networks, pointing to the fact that viewing levels have remained strong at their networks, while traffic on MTVN's 300 Web sites increased to 90 million in October of 2007, up from 68 million a year earlier.
Such optimism comes at a time when digital platforms are already hurting some traditional media.
David Tice, vice president of client services at Knowledge Networks/SRI, said the percentage of people 12 to 64 years old who used television each day remained constant between 2005 and 2007 at 80%, but the percentage of people using radio and newspapers each day declined during that period.
Meanwhile, the number of people accessing the Internet each day rose from 52% to 56% and video game console use jumped from 16% to 19% in the last year.
Rapid changes in the way viewers watch video has some executives concerned for the future of the TV industry. “2007 was the year when the majority of Americans began accessing online video,” said Vorhaus.
That reflects growing penetration of high-speed Internet connections and a dramatic increase in the amount of popular video available online.
As a result of NBC's decision to make its primetime schedule available online, the number of streams for full episodes hit 70.6 million in November of 2007, up from 7.6 million streams in October 2006, according to NBC Universal president of research Alan Wurtzel.
Over the last year, time-shifted viewing has also grown, though not at the same speed.
“If you ask me about the biggest changes in use of video, I see three trends and they are all the same — time shifting, time shifting, time shifting,” quipped Diana Kerekes, Comcast vice president of video services.
In early December, Comcast served up its 6 billionth VOD order since the service was launched less than four years ago, Kerekes said. “That's over 250 VOD orders a month, 100 every second.”
Other operators are seeing similar results. According to Rentrak data, which covers about 65% of the cable universe, total VOD orders increased 55.4% between the third quarter of 2006 and the third quarter of 2007. Free VOD usage grew even faster, 71%, said Cathy Hetzel, president of the advanced media and information division of Rentrak.
In the third quarter of 2007, there were 934,114,720 VOD orders in the 65% of the cable homes covered by Rentrak's data.
“Every category of VOD is growing,” she said.
Yet, overall TV viewing continues to rise. Denise Dahldorf, MTVN executive vice president of content distribution and marketing, noted that the ratings of their linear channels have remained strong in a period where usage of their on-demand products has seen dramatic growth. “It is making the overall pie bigger,” she said.
Similar points can be made about broadband video's growth. “Our data suggests that broadband video is not cannibalistic to linear video but rather an enhancement to the consumer's 'traditional' TV experience,” said Horowitz Associates president Howard Horowitz.
Joshua Sapan, president and CEO of Rainbow Media Holdings, pointed to AMC's decision to make episodes of its original series Mad Men available on VOD prior to its premiere as an illustration of how the new platforms can significantly boost public awareness and eventually ratings on linear TV.
“Instead of seeing online and VOD as an antagonist to the linear network, we've taken the view that they can have significant promotional value,” he said. “They can have an elevating affect on ratings if you manage them properly.”
Discovery Communications president of business development and digital media Bruce Campbell agrees. This year, for its venerable “Shark Week” stunt, Discovery set up a dedicated Web site with Shark Week programming that had 1.4 million unique visitors and 20 million page views, creating a buzz that produced the highest ever ratings on the channel the start of Shark Week.
Overall, Discovery has seen unique visitors grow by 90% and page views grow by 400% over the last year, thanks to a large degree to the greater amount of video they've put online, Campbell said.
“The existing business is not being challenged by digital platforms to the extent that everyone though it would,” added Coleman Breland, Turner Network Sales executive vice president of sales and marketing. “The amount of video that is available online has grown in an incredible manner but instead of hurting TV, it has turned out to be a fascinating complement.”
Some of the worries about viewers using digital video recorders to fast forward through ads also seem to be abating.
Jack Wakshlag, Turner Broadcasting System chief research officer, noted that DVRs are currently only in about 20% of all homes and that only 20% of the programming in those homes is time-shifted, which means only about 4% of all viewing is time shifted.
This relatively small impact is further reduced by the fact that only about 50% of all ads are skipped, resulting in a 2% reduction in the total number of ads viewed, he calculated.
That doesn't mean executives are entirely sanguine about the impact of the shift in viewing habits on the industry in 2008 and beyond.
One major issue remains: the revenue from traditional TV advertising versus the short-term cash that digital media is producing.
Compared to the $66 billion that PricewaterhouseCoopers estimates that broadcast and cable networks will earn in TV advertising in the U.S. in 2007, the take from digital delivery of video remains tiny.
According to AccuStream Research, ad revenue from streaming media is growing rapidly but will hit only $1.37 billion in 2007. Even with subscription online video included, total ad revenue for online video will hit only $2.6 billion in 2007, AccuStream estimated.
While rapid increases in the number of HDTV sets are opening up new opportunities for programmers to create high-definition channels, the demand for HD content has intensified the competition between cable and satellite.
Jessica Heacock Insalaco, senior vice president of marketing and chief marketing officer for Dish Network, said the satellite provider's over 75 HD channels and its DVR products are key competitive advantages over cable. “We offer a better value and more channels in the entry level packages than our competitors,” she said.
“The HD arms race has really escalated,” Fox Cable Networks executive vice president and general manager of affiliate sales and marketing Mike Hopkins said. That race will have a major influence on the types video products consumers will see in 2008, “As operators try to clear space for those HD channels, that is creating bandwidth constraints that really impacts the rest of the business.”
Those bandwidth pressures are being compounded by the growing consumer demand for faster high-speed Internet connections and the burgeoning use of online video and games.
According to a recent report by Nemertes Research, the global Internet access infrastructure will be unable to meet consumer and corporate demand for capacity within the next three to five years.
Nemertes estimated that operators might need to invest $42 billion to $55 billion above and beyond what they had already earmarked for infrastructure improvements.
Some operators are also worrying about the impact that broadband video and the so-called “over-the-top” video services could have on their business.
Small cable operator Sunflower Broadband has always been an innovator, pushing ahead of consumer demand by rolling out a high-speed Internet service in 1995 and becoming the first operator to launch a dynamic insertion VOD system in the U.S. in 2006.
But general manager Patrick Knorr worries that the young people they serve in the college town of Lawrence, Kan., might abandon pay TV service in the future.
“I think it is a huge threat,” he said. “Will customers who don't want to pay $50 or $60 for cable, get a bundle of [digital-subscriber-line service] and mobile from the phone company and decide that they can get along with online video, DVDs, and an over-the-air digital signal? That's the big question.”
A recent study of TV viewing in broadband homes from Multichannel News sister company In-Stat confirms that fear. It found up to 30% would consider dropping their multichannel TV service three years from now if they could get quality video on their TV over a broadband connection for about $50.
“It is a surprisingly high percentage,” said In-Stat analyst Gerry Kaufhold.
While larger operators dismiss the potential threat from over-the-top video, they are clearly putting more emphasis on improving their video offering, a notable shift from recent years where they were focusing on their high-speed data and phone products.
Steve Necessary, vice president of video development and support at Cox, said his company is expanding its HDTV offering, rolling out new interactive services and continuing to boost its VOD offering. This fall it announced trials with ABC and NBC that made more hit broadcast TV shows available on demand in its Orange County system.
Results from the trials are only preliminary, but Necessary said nine of the top 10 shows in VOD come from the MyPrimetime category on Cox's on-demand offering that includes the network shows. “It shows that people really want to watch those shows on demand,” he said.
As competition heats up between cable, satellite and the telcos, cable operators also face potential threats from converged media.
“The data clearly shows that consumers want to seamlessly move content from one device to another,” Horowitz said.
That is very difficult in today's multichannel environment but Verizon Communications and AT&T hope to change that.
“We have an all-digital platform so all of our advanced services go to our entire footprint, while cable has a lot of legacy issues and satellite doesn't have a two-way platform,” said FiOS TV director of interactive TV Rachelle Zoffer.
While Verizon has already rolled out interactive-TV products and about 10,000 titles of VOD, Zoffer expects the launch of advanced services to quicken in 2008.
Over the next year, Verizon plans to boost its HD channel count to 250, as well as roll out video games on set-top boxes. It is also hoping to develop some converged services that will bring Internet content to the TV and allow consumers to program their DVR from a PC or mobile phone.
Both services are already available on AT&T's U-verse platform and the AT&T Homezone product.
Thomas Frank, CEO of Akimbo Systems, said his company's on-demand service allows AT&T customers to access a huge library of content delivered via the Internet to the TV using a Web-based browser.
AT&T is also in the process of deploying interactive TV services for news, weather and other information in a number of markets.
Dan York, AT&T executive vice president of programming, declined to discuss AT&T's specific plans for the rollout of newer services, citing competitive issues, but stressed that converged services are a key differentiating point for their Internet Protocol-TV service. “It is built for a future that will make it possible to seamlessly move content from TV, Web and mobile,” he said. “We are looking to break down a lot of walls on what kind of content can be accessed on specific platforms.”
Microsoft executives also see converged services as a key competitive advantage for telcos.
Citing a large survey of consumer attitudes towards multichannel TV, Paula Reinman, director of outbound marketing for Microsoft TV, said the survey found a large demand for converged and on-demand services. About 55% of U.S. homes would like to have additional interactive features that gave them more control over their TV viewing, she said.
Moreover, the survey indicated the advantages of such services were more important than price. Nearly two-fifths (37%) of U.S. homes would pay a premium for services that improved their viewing experience.
Overall, the survey identified about 40 million U.S. customers that might be willing to switch providers to a “more connected, higher value TV product,” that would make it easier for consumers to access content on a variety of platforms, added Christine Heckart, general manager for marketing at Microsoft TV, which has been helping AT&T and a number of other telcos around the world launch IPTV services.
“At CES and through the rest of 2008, you are going to see some announcements that begin to tap into the true potential of their platform and begin to offer things on TV with Microsoft Mediaroom that can't be done on traditional platform,” she said.
| What They're Watching | |
|---|---|
| Ad-supported cable networks are drawing more viewers than all other TV outlets. | |
| People 2+ | |
| Average Audience (Thousands) | |
| Ad-Supported Cable | 26,760 |
| Premium Pay | 2,310 |
| All Other Cable | 2,604 |
| English-Language Broadcast Networks | 16,836 |
| Independent Broadcasters | 833 |
| PBS | 948 |
| Spanish-Language Broadcast Networks | 2,068 |
| Source: Nielsen Media Research compiled by the Cable Advertising Bureau. Covers Jan. 1, 2007, to Nov. 11, 2007, period for a full day. | |
| Men 2+ | |
| Average Audience (Thousands) | |
| Ad-Supported Cable | 12,911 |
| Premium Pay | 1,290 |
| All Other Cable | 1,025 |
| English-Language Broadcast Networks | 6,893 |
| Independent Broadcasters | 354 |
| PBS | 438 |
| Spanish-Language Broadcast Networks | 881 |
| Source: Nielsen Media Research compiled by the Cable Advertising Bureau. Covers Jan. 1, 2007, to Nov. 11, 2007, for the full day. | |
| Woman 2+ | |
| Average Audience (Thousands) | |
| Ad-Supported Cable | 13,848 |
| Premium Pay | 1,020 |
| All Other Cable | 1,580 |
| English-Language Broadcast Networks | 9,941 |
| Independent Broadcasters | 479 |
| PBS | 510 |
| Spanish-Language Broadcast Networks | 1,185 |
| Source: Nielsen Media Research compiled by the Cable Advertising Bureau. Covers Jan. 1, 2007, to Nov.11, 2007, for full day. | |
| Adoption of Electronic Devices | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions of homes with each device | ||||||||||||
| 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |
| Source: Forrester Research |
||||||||||||
| Total U.S. Households | 106.7 | 108.0 | 109.2 | 110.5 | 111.8 | 113.1 | 114.4 | 115.7 | 117.3 | 118.4 | 119.4 | 121.2 |
| Mobile Phone | 56.7 | 62.8 | 67.2 | 78.7 | 84.5 | 89.7 | 94.5 | 98.4 | 101.1 | 103.0 | 104.6 | 105.9 |
| PCs | 69.0 | 71.0 | 72.8 | 77.7 | 85.6 | 86.9 | 91.1 | 94.7 | 97.5 | 99.6 | 101.3 | 102.7 |
| Camera Phone | N/A | N/A | 2.8 | 14.2 | 28.1 | 41.6 | 67.4 | 83.3 | 90.5 | 93.7 | 95.5 | 96.9 |
| Internet | 64.9 | 68.8 | 69.7 | 74.4 | 79.7 | 81.3 | 85.1 | 88.4 | 91.2 | 93.3 | 95.0 | 96.5 |
| Digital Still Camera | 17.2 | 22.3 | 28.3 | 44.4 | 57.0 | 66.3 | 74.8 | 81.5 | 86.5 | 90.2 | 93.0 | 95.2 |
| Broadband Connection | 10.7 | 15.7 | 20.2 | 33.6 | 44.9 | 51.0 | 60.0 | 67.8 | 73.4 | 77.5 | 80.6 | 82.6 |
| Multi-PC Household | 23.7 | 25.8 | 27.5 | 35.3 | 40.4 | 42.4 | 47.9 | 53.9 | 59.7 | 65.0 | 69.5 | 73.0 |
| DVR | 0.9 | 1.9 | 3.6 | 6.4 | 17.5 | 21.2 | 30.1 | 41.7 | 52.1 | 60.2 | 65.7 | 69.3 |
| HDTV | N/A | N/A | N/A | 15.0 | 18.9 | 26.3 | 36.3 | 46.3 | 54.9 | 61.4 | 66.1 | 69.3 |
| Laptop/Notebook | 14.3 | 16.5 | 17.9 | 25.8 | 32.6 | 36.4 | 43.4 | 50.2 | 55.8 | 60.0 | 62.9 | 65.0 |
| Home Network | N/A | N/A | N/A | 9.7 | 17.7 | 20.9 | 27.6 | 34.7 | 41.8 | 48.3 | 53.7 | 58.1 |
| Video game consoles | 34.2 | 35.8 | 37.8 | 41.1 | 41.3 | 41.3 | 43.3 | 44.2 | 45.4 | 46.7 | 48.1 | 49.4 |
| MP3 Player | 3.2 | 4.4 | 5.1 | 11.1 | 21.8 | 33.5 | 40.1 | 43.9 | 45.8 | 47.0 | 47.8 | 48.4 |
| Satellite Radio | N/A | 2.1 | 4.2 | 7.2 | 10.2 | 12.7 | 17.2 | 21.8 | 25.5 | 28.1 | 29.8 | 31.0 |
| PDA | 6.9 | 9.1 | 12.5 | 15.9 | 16.3 | 15.1 | 16.0 | 15.8 | 15.5 | 15.0 | 14.4 | 13.8 |
| Broadcast and Cable Audiences | ||||||
|---|---|---|---|---|---|---|
| Ratings for households, full day | ||||||
| Year | Network Affiliates | Independent Stations | PBS | Premium Pay | Ad-Supp. Cable | All Other Cable |
| * Ratings are for live plus seven days for the 2006-2007 and 2005-2006 television years but for only live viewing in prior years. The 2006-2007 television year runs from 9/18/06 to 9/23/07. ** Data contained in these averages are a combination of pre-TSV data and live plus seven data. *** Until 1999 ad supported and other cable categories were put together in a grouping called basic cable. ****Effective 1991, Fox became a network affiliate and TBS was added to basic cable. Source: Nielsen Media Research. Network Affiliates consists of ABC, CBS, NBC affiliates from 1984 to 1990; Fox affiliates were added in 1991; WB, UPN, and Pax in 1999; Univision in December 26, 2005; Telemundo on January 30 2006; TeleFutura on February 27, 2006; Azteca America on August 28, 2006; and My Network TV on September 4, 2006 to present. Independent stations for 1984 to 1990 refers to commercial independent stations and includes Fox affiliates and TBS; between 1991 to 1999 includes WB, UPN affiliates and all superstations except for TBS. Public refers to PBS affiliates. Ad Supported Cable from 1984 to 1991 refers to basic cable networks and pay-per-view but not superstations; from the 1991 to 1999 it included TBS and pay-per-view; 1999 to present includes TBS and WGN. All Other Cable from 1999 to present refers to cable networks that are neither ad-supported nor premium pay such as Disney Channel and includes pay-per-view, interactive channels, home shopping channels, and audio only feeds. |
||||||
| 2006-07* | 13.6 | 0.6 | 0.7 | 1.7 | 19.7 | 1.9 |
| 2005-06** | 14.0 | 1.0 | 0.8 | 1.8 | 19.7 | 2.1 |
| 2004-05 | 13.7 | 1.8 | 0.8 | 1.9 | 19.1 | 2.0 |
| 2003-04 | 14.2 | 1.4 | 0.8 | 2.1 | 17.7 | 1.8 |
| 2002-03 | 14.5 | 1.3 | 0.9 | 2.1 | 16.9 | 1.5 |
| 2001-02 | 14.6 | 1.2 | 0.9 | 2.0 | 15.8 | 1.2 |
| 2000-01 | 15.7 | 1.2 | 1.0 | 1.9 | 14.6 | 1.2 |
| 1999-00 | 16.5 | 1.1 | 1.0 | 1.9 | 13.3 | 1.0 |
| Year | Network Affiliates | Independent Stations | PBS | Premium Pay | Basic Cable | |
| 1998-99*** | 14.5 | 3.8 | 1.0 | 2.3 | 12.9 | |
| 1997-98 | 14.6 | 3.5 | 1.0 | 2.2 | 11.8 | |
| 1996-97 | 15.3 | 3.5 | 1.0 | 2.1 | 10.9 | |
| 1995-96 | 16.4 | 3.6 | 1.0 | 1.9 | 10.1 | |
| 1994-95 | 17.2 | 3.6 | 1.0 | 1.8 | 9.1 | |
| 1993-94 | 18.5 | 3.4 | 1.1 | 1.7 | 7.9 | |
| 1992-93 | 18.6 | 3.2 | 1.0 | 1.6 | 7.7 | |
| 1991-92 | 18.4 | 3.2 | 1.0 | 1.7 | 7.3 | |
| 1990-91**** | 17.1 | 4.4 | 0.9 | 1.8 | 6.6 | |
| 1989-90 | 16.0 | 6.7 | 1.0 | 2.0 | 5.0 | |
| 1988-89 | 17.1 | 6.8 | 1.0 | 2.0 | 4.2 | |
| 1987-88 | 17.7 | 6.8 | 1.0 | 2.0 | 3.4 | |
| 1986-87 | 18.8 | 6.5 | 1.1 | 1.7 | 3.0 | |
| 1985-86 | 19.7 | 6.5 | 1.0 | 1.6 | 2.4 | |
| 1984-85 | 19.6 | 6.5 | 1.0 | 1.8 | 2.3 | |
| Video-On-Demand Orders | |||
|---|---|---|---|
| VOD orders have doubled over the last two years | |||
| Quarter Ending | Free VOD | Subscription VOD | Total VOD Orders |
| Source: Rentrak. The Rentrak data covers cable operators that serve about 65% of all cable homes. Totals include some categories not listed here. |
|||
| 10/1/2005 | 293,814,714 | 149,173,865 | 460,349,874 |
| 1/1/2006 | 304,295,715 | 156,763,348 | 483,075,089 |
| 4/1/2006 | 318,594,164 | 184,507,116 | 526,737,713 |
| 7/1/2006 | 378,305,563 | 198,280,336 | 601,083,456 |
| 10/1/2006 | 405,007,052 | 195,586,537 | 626,274,398 |
| 1/1/2007 | 442,874,037 | 185,033,608 | 659,425,202 |
| 4/1/2007 | 540,820,121 | 222,854,121 | 797,107,494 |
| 7/1/2007 | 647,679,721 | 250,230,784 | 934,114,720 |
| Top Video Sites | |||
|---|---|---|---|
| Ranked by thousands of unique visitors in September 2007 | |||
| Total | % Male | % Female | |
| Source: Turner Research from Nielsen/NetRatings, September 2007 |
|||
| YouTube | 54,501 | 52% | 48% |
| MySpace Video | 16,601 | 54% | 47% |
| AOL Video | 13,961 | 49% | 51% |
| Google Video | 13,449 | 57% | 43% |
| Yahoo! Video | 12,238 | 57% | 43% |
| MSN Video | 11,393 | 54% | 46% |
| Metacafe | 4,725 | 70% | 30% |
| Break.com | 3,450 | 69% | 31% |
| Dailymotion | 3,428 | 66% | 35% |
| Veoh | 3,135 | 64% | 36% |
| High-Definition TV Households | |||||
|---|---|---|---|---|---|
| As of November 2007 | |||||
| DMA | TV Households | HD-Capable | Percent | Receiving HD | Percent |
| Source: Nielsen Media Research. |
|||||
| Total U.S. | 112,800,000 | 15,500,000 | 13.7 | 12,730,000 | 11.3 |
| New York | 7,391,940 | 1,334,840 | 18.1 | 1,293,790 | 17.5 |
| Philadelphia | 2,939,950 | 457,900 | 15.6 | 438,110 | 14.9 |
| Detroit | 1,925,460 | 238,830 | 12.4 | 212,370 | 11.0 |
| Boston (Manchester) | 2,393,960 | 399,440 | 16.7 | 388,350 | 16.2 |
| Washington, DC (Hagerstown) | 2,308,290 | 447,160 | 19.4 | 387,680 | 16.8 |
| Atlanta | 2,310,490 | 345,680 | 15.0 | 287,710 | 12.5 |
| Tampa-St. Pete (Sarasota) | 1,783,910 | 296,300 | 16.6 | 277,970 | 15.6 |
| Chicago | 3,469,110 | 585,960 | 16.9 | 485,580 | 14.0 |
| Houston | 2,050,550 | 344,260 | 16.8 | 270,820 | 13.2 |
| Dallas-Ft. Worth | 2,435,600 | 425,420 | 17.5 | 364,850 | 15.0 |
| Los Angeles | 5,647,440 | 1,152,380 | 20.4 | 965,200 | 17.1 |
| San Francisco-Oakland-San Jose | 2,419,440 | 397,860 | 16.4 | 320,740 | 13.3 |
| Seattle-Tacoma | 1,782,040 | 255,960 | 14.4 | 216,530 | 12.2 |
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