Why hasn’t the Internet eaten TV’s $150 billion per year lunch in advertising?
TV still has enormous reach — delivering audience scale that online media can’t replicate, according to a new report from Needham & Co. analyst Laura Martin.
“TV is different from other media because the fragmentation of audiences that is inevitable in the Internet age makes the enormous reach of TV more valuable,” she writes. “Audiences of <100,000 become commodities. Audiences of >10 million each week become harder to procure and therefore more valuable to advertisers when they must introduce a new product to consumers.”
Citing Nielsen figures, Martin points out that Americans watch 44 billion hours per month of live TV — dwarfing all time spent on the Internet, which clocks in at 10 billion aggregate hours. DVR viewing adds another 3 billion hours per month.
And where are over-the-top alternatives? Netflix’s total was just 68 million hours per month in January 2011 (but it’s grown very quickly: see Netflix Now 33% Of Peak Downstream Internet Traffic In U.S.: Study).
Martin, in her report “TV Advertising: What Next?”, goes on to posit that that adding services to the bundle (i.e., TV Everywhere) “drives higher economics” for everyone in the ecosystem (see my cover story on this topic, How Critical Is TV Everywhere?).
“Much of the value destroyed in both the music and newspaper industries was the result of unbundling,” Martin writes.
But both Netflix and Hulu Plus represent “bundled” content, as subscription services. And in Netflix’s case, it’s clearly taking the TV catch-up route, stocking the streaming service with past seasons (check out its recent renewal with Disney/ABC, under which Netflix doesn’t get current-season material until 30 days after the finales air).
So Netflix may siphon off time spent watching live TV to some extent but won’t replace it. As Martin notes, “So far, TV ecosystem participants have been disciplined about protecting the value of the bundle.”
Apart from Hulu — which is owned by three of the four big broadcast networks — the biggest initiative to try to “monetize” online video comes from Google’s YouTube. Over the next year, YouTube expects to launch some 96 channels with professionally produced content (see YouTube Preps 96 Channels With Original Content).
Google will try to sell aggregated audiences to advertisers. But I doubt it will punch much of a dent in that $150 billion. We’ll see if the YouTube “cable lineup” can generate anything close to the ad revenue of even the smallest cable networks.
Programming Note! Don’t miss the Multichannel News breakfast panel discussion at SCTE Cable-Tec Expo 2011 in Atlanta, Video’s Next Act: Setting the Multiscreen Stage, on Tuesday, Nov. 15, prior to the opening general session. Click here for more info: www.multichannel.com/SCTE2011.