Video-on-demand services will draw $5 billion per year in advertising sales by 2007, within a market environment in which nearly half of all television households will connect to on-demand services, personal video recorders, or both.
How much of Forrester Research's latest media forecast will be realized five years from now rests largely in the cable industry's hands, officers of the Boston area-based technology-analysis organization told attendees at its first-ever Television Summit here last week, titled "Television's On-Demand Transformation."
"What cable does will determine the future more than anything or anyone else," said Forrester principal media analyst Josh Bernoff. "Why? They have to. They have to prove their investment in new services can pay off."
Driven to the hilt by competition from DBS, Forrester projects that 24 million cable homes will have access to VOD services during 2004, up from around 8 million as of year-end.
The research company predicted that in 2007, cable's VOD universe will approach 40 million homes — and at that time, 19 million cable homes will wield PVR capabilities through their digital set-top boxes or box add-ons.
Cable's PVR embrace will begin in earnest during 2004, when the price of digital set-top converters with such capabilities hits the $300 per-sub point, said Bernoff. Three years later, cable will have 19 million PVR set-tops in action, compared with 8 million in the DBS household universe and 12 million homes that use stand-alone PVR equipment entries.
Sie sees SVOD surge
Subscription VOD could drive penetration even further along by 2007, Starz Encore CEO John Sie told summit attendees. More than half of all TV homes will have VOD at their disposal by then, Sie anticipated, with cable's share breaking 40 million homes.
Both Bernoff and Sie expect on-demand to move forward in three directions: transactional offerings, in which viewers have all sorts of programming to select; SVOD, which offers major movies and original fare from premium and basic networks in a given month for one fee, as well as through original niche ventures such as Rainbow Media Corp.'s Mag Rack; and basic services, in which on-demand material comes with advertising or other revenue generators and is offered free of charge.
The spread of basic VOD triggers Forrester's thoughts of a multibillion-dollar ad binge. As clients see the household base grow and a diverse selection of material become available, they'll shift dollars from other media — to the tune of $7 billion a year in 2007, according to research director Charlene Li.
About $5 billion will be spent on basic VOD ads, with the balance allocated against interactive TV services, she predicted.
Client survey says
Once the PVR universe reaches 30 million homes — and those households possess the ability to skip ads while watching broadcast or cable channels — traditional TV spending will decrease dramatically, Li predicted.
Nearly two-thirds of the 57 national advertisers who responded to a survey conducted last month with the Association of National Advertisers said they would cut TV spending up to half, and 26 percent of the group would reduce their budgets in the 26 percent to 50 percent range.
Nineteen percent of the group said they would cut spending by more than 50 percent, while 30 percent of respondents said they would buy VOD programming or service ads as compensation for lost viewing time in PVR homes.
Forty percent said they'd take space on a PVR service or a main menu, while 35 percent would shift to ITV services. Another 63 percent would consider full-program sponsorships.