Coming off a year that saw a sharp downturn in ad revenues fueled by the global economic crisis, multichannel providers are counting on long-discussed converged technologies to lay the basis for long-term growth.
“I think 2010 is going to be a pretty exciting year, in terms of product innovation and product improvement,” said Comcast senior vice president and general manager of video services Derek Harrar. He pointed to the December 2009 launch of Fancast Xfinity TV, the MSO's online video service, which provides over 14,000 hours of video content to Comcast subscribers as one example of its drive to provide “a crossplatform on-demand experience” to its subscribers.
FRIEND OR FOE?
Traditional TV players have long viewed moves to make more video available on-demand on a variety of devices and platforms as a potential threat to their business.
But as Comcast and other multichannel providers launch ambitious plans to allow their subscribers access to vast amounts of TV programming online as part of the “TV Everywhere” initiative, there's a growing sense that these convergent technologies — and the changing consumer use of video that is driving their development — might actually be good for the television industry.
“A lot of people think TV Everywhere provides a viable financial model for broadband and online distribution of content,” said Turner Broadcasting System chief research officer Jack Wakshlag. “It makes sense for the viewer because they get to watch their shows in more places and at more times than before. It makes sense for the cable operator because they make their subscribers happy by offering them content online they are already paying for.
“It makes sense for programmers like Turner because we get credit for the additional online viewing, and it is a win for advertisers because they can track their ad across multiple platforms.”
That doesn't mean most ad-dependent TV operations will be bringing out the Champagne anytime soon. While record numbers of consumers used the Internet and mobile devices to view video in 2009, converged media plays will remain a relatively small part of the business in 2010 and it will take years for them to develop into mature businesses. In the meantime, the economic climate remains tough.
Currently, Interpublic's Magna Global estimates that U.S. TV advertising will see a 5.6% uptick in 2010 — up from a 13.8% slump in 2009 — thanks to the 2010 Vancouver Winter Olympics in and midterm political spending. But the TV ad spend will increase by only 2.5% a year between 2010 and 2015, and the TV ad revenues won't return to 2007 levels until 2014.
“For a long time, traditional media guys will be producing the big-budget TV shows that everyone loves and advertisers will be buying ads,” said Mike Vorhaus, president of Magid Advsiors, the strategy and investment consulting practice of Frank N. Magid Associates. “But for a long time, profit margins will get a little tighter and the back end will get a little smaller. The Champagne is sparkling chardonnay now.”
Much of the sparkle will be found in efforts to capitalize on the growing demand for online, mobile and on-demand video. In the third quarter of 2009, people aged 2 and older spent seven hours and 12 minutes watching time-shifted TV on their digital video recorder or on video-on-demand, up 21.1% from a year ago. They also spent three hours and 24 minutes with online video, up 34.9% from a year earlier; and three hours and 15 minutes viewing video on a mobile phone, according to The Nielsen Co.'s recent Three Screen Report.
Yet this shift in consumption hasn't hurt traditional TV viewing. Measured by time spent watching video, virtually all video usage, about 99%, is still done on the TV, Nielsen reports, and a lot of it continues to be live.
“We just did an internal presentation called Video Everywhere and it is obvious that things are changing very rapidly,” said ESPN's senior vice president of research and analytics, Artie Bulgrin. “But if you don't put all of these changes in perspective, it can be very misleading. In September of 2009, 90% of all video was still done live on a television set [with DVRs and VOD accounting for most of the rest]. If you look back at all TV viewing, going back to 1995, you see that it has actually been growing.
“In 1995, the average person was spending three hours and 51 minutes with live TV each day, and in 2009, they were watching four hours and 23 minutes.”
At the same time, the large numbers of viewers who have embraced online video, DVRs and VOD still prefer live TV. A 2009 survey by Horowitz Associates found that 62% of those who watch broadband video and 63% of DVR subs agreed with the statement that “I still like just sitting down and relaxing in front of the TV without having to think about what to watch,” said the research firm's president, Howard Horowitz.
The availability of content on these other platforms also seems to strengthen overall TV viewing, making the new distribution channels more complementary than competitive, Horowitz and others noted.
“One of the big surprises has been how these new digital platforms have helped grow TV viewing,” said Nic Covey, director of crossplatform insight at The Nielsen Co.
“There is this growing sense that the consumer who is accessing video across platforms is now actually a better viewer, a more avid viewer, because they are further empowered to test, follow and evangelize programs,” said Covey. “Convergence has really made it easier for consumers to discover content and that is one reason why we continue to see home TV viewing increase.”
This was particularly evident this fall, when viewers were recording shows on DVRs in record numbers, according to Nielsen senior vice president of insights, analysis and policy Patricia McDonough.
“In the past, if you were a Desperate Housewives fan, you weren't going to give up your show to try something else,” she said. “But this year we saw a real surge in DVR usage. They were not only taping their favorite shows but also second alternatives or even third alternatives and catching up on all of them.”
VOD use also continues to grow, noted Comcast's Harrar. “At Comcast, we are currently seeing around 350 million views per month [of VOD content],” he said. “That translates into 140 views per second. We've had more than 13 billion views since we launched in 2003, which is about double the iTunes music downloads that have occurred in the same time frame. And ... they are a worldwide service.”
Meanwhile, there has been no leveling off in the growth of HD television, which many researchers believe has also contributed to increased TV viewing. In 2009, HD-set sales hit a record of 41 million in 2009, despite a dismal economy, DisplaySearch estimates and most researchers believe the number of U.S. homes with HDTVs could pass the half-way mark over the holidays or in early 2010. Forrester Research is predicting that HD sets will be in 67.8 homes by the end of 2010, about 57% of all homes.
While most researchers argue that DVRs, VOD platforms and high-definition TV have encouraged more TV viewing and produced increased satisfaction with their multichannel providers, that does not mean operators can ignore the increased interest in online and mobile video.
Currently, only a small number — about 7% of all people, according to Frank N. Magid Associates — say they are seriously thinking about cancelling their cable or satellite subscription, noted Vorhaus. Some of the newer initiatives to make more content available on demand an online, if properly done, could also strengthen existing cable operators.
“The cable TV business is in a very strong position, because it has several delivery mechanism for video into the home — the set-top box and high-speed Internet — that could be leveraged to promise consumers unfettered access [to video across multiple devices] and to help them intelligently find what they want to watch,” said Forrester Research's vice president and principal analyst, James McQuivey. “If they can do that, they win. Cable could own this space for years to come.”
BATTLE IS JOINED
But the battle to satisfy consumer demand for more video in more places is attracting a wide variety of competitors, and not just among traditional multichannel providers in the satellite and telco sector. “If they [traditional multichannel providers] don't find a way to serve consumers at a multiplatform level, Google can find a way in,” McQuivey said. “Microsoft is really looking at this. Apple could enter this space.”
Google, for example, is reportedly talking to programmers about making long-form content available on YouTube, which is the largest site for video.
“Consumer behavior has demonstrated in a resounding way that they are very interested in consumption of video across all these platforms,” said Terry Denson, vice president of content strategy and acquisition at Verizon Communications. “Everyone is trying to address that phenomenon and the whole competitive set has changed.”