Video Consumption’s Next Wave

Video Consumption’s Next Wave
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When more than 150,000 attendees gather for this week’s 2013 International CES in Las Vegas, much of the discussion will again surround smartphones, tablets, smart TVs, game consoles and other Internet- connected devices delivering record amounts of video content to consumers.

For the moment, the proliferation of new screens for watching TV hasn’t hurt the traditional television industry — and may even be helping it. The year 2012 brought record-breaking multichannel-TV subscriber counts and ad revenues, as well as improved ratings.

But behind the these rosy top-line trends, there are a number of developments that promise to signifi cantly alter the way programs are funded, promoted, distributed and viewed in this coming year and beyond.

The impact of over-the-top video — delivered directly to viewers via the public Internet — is one of the most discussed questions in recent years. As OTT players such as Netflix grow in size and financial clout, they are making their mark as buyers of TV and theatrical film content. Last month, Netflix acquired exclusive pay TV window rights to The Walt Disney Co.’s theatrical films starting in 2016.

With Netflix now streaming more than 1 billion hours of content each month, “you would think that this [massive usage] would be eroding linear television viewing like crazy,” chief content officer Ted Sarandos said at December’s UBS Global Media and Communications Conference.

As Sarandos and others have noted, however, traditional TV viewing continues to grow. Despite the rising popularity of online and mobile video, live TV viewing declined by only five minutes per day from the second quarter of 2008 through Q2 of 2012. Overall TV viewing hit a record of four hours, 40 minutes in the second quarter of 2012.

This dynamic of rising OTT video consumption, coupled with record levels of TV viewing, has translated into a generally healthy landscape for both OTT players and the multichannel industry. Pointing to SNL Kagan data showing that the number of multichannel subscribers rose by 400,000 in the third quarter of 2012 from a year earlier, Turner Broadcasting System chief research officer Jack Wakshlag said, “I’m still waiting for evidence of cord-cutting.”

Consumers who drop their pay TV service continue to do so for economic, not technical reasons, Wakshlag said. In one Turner study, which covers cord-cutters between February of 2011 and February of 2012, the data showed that the average cord cutter is much less likely to have a high-school diploma and own a computer than the general population. This group also is significantly more likely to have dial- up Internet access and household income of less than $20,000 — and to not own a computer.

An earlier study, from March 2010 through 2011, concluded that cord-cutters did not conform to the popular stereotype of affl uent, professional and tech-savvy urban viewers who were embracing overthe- top video at cable’s expense.

Others note that the numbers remain small. “We see just a few hundred thousand people leaving the pay TV universe each year,” Vincent Letang, executive vice president and director of global forecasting at Magna Global, said. Magna estimated that the number of cord cutters was only 918,000 and the number of “cord shavers,” or those who cut back on pay TV service, was 3.1 million in 2012.

Over time, according to SNL Kagan senior analyst Ian Olgeirson, the increasing number of people who get their TV programming over the Internet will lead to a decline in pay TV penetration rates. But the number of overall multichannel subscribers will continue to rise, according to Olgierson and other analysts.

Meanwhile, the overall cable programming market also remains strong. While broadcast- network ratings have declined this fall, cable channels have increased audience share from 67% in third-quarter 2008 to 70% in Q3 2012, according to Wakshlag. Cable’s share of advertising has grown to 42% to 33% over that span, he said.

Magna Global is also predicting national cable ad revenue will grow by 5.3% in 2012 before slowing to a 4.6% gain in 2013. That’s better than the drop predicted for the broadcasters, Letang noted.

Still, the new video landscape raises a number of major issues for programmers and operators.

One is audience measurement. Nielsen currently can’t provide combined TV, internet and mobile ratings and such data “will be a minimum of two years away,” Pivotal Research Group senior analyst Brian Wieser noted.

That’s not a huge problem right now. “[There’s not] anywhere near as much change in video consumption as many observers would have others believe,” Wieser said. Mobile viewing, for example, accounted for about 1% of the time spent viewing video in the second quarter of 2012, compared to 82% for live TV viewing and 7% for time-shifted TV.

But the potential mobile audience is large, making better measurement a key issue for 2013 and beyond. The number of Americans using the Web via mobile increased by 82% from July 2011 to July 2012, to 95.1 million, while the number of people using mobile apps was up 85%, to 101.8 million, according to the most recent Nielsen data.

The rapidly expanding amount of available on-demand content also raises some major issues for programmers.

Networks have long relied on their hits and their scheduling to promote and launch new shows, Fox Networks president of distribution Mike Hopkins said, but the availability of more on-demand content is causing that model to change.

“We want to make sure we are not just a collection of shows and thumbnails that people can access on some new user interface that disconnects the network brand from the TV show,” he said. “Otherwise, we think you end up with a really tough model.”

In recent years, Amazon, Hulu, Google’s YouTube, Sony, Netflix and others have also ramped up their investments in original online programming as more ad dollars have migrated online, said Roku CEO and founder Anthony Wood. Wood’s firm has worked with a number of programmers and operators, such as Dish Network and HBO, to make their content available on the Roku box.

Over time, online originals “will evolve to the point where it competes directly with cable in terms of quality,” he argues, creating an opening for strong online brands that could compete directly with programmers and operators. “If TV incumbents wait until that happens they are in trouble,” he said.

That dynamic makes TV Everywhere eff orts to make more content available on more devices increasingly important. SNL Kagan’s Olgeirson noted that the overall “scorecard for TV everywhere has so far is mixed,” but that the overall impact has been positive because “the operators have largely been able to prevent” a signifi cant number of people giving up their multichannel subscriptions for OTT services.

How operators are working to strengthen those efforts is the subject of the next story, “TV Everywhere’s Unfinished Business.”

For the complete Viewer Watch 2013 report, please click here.

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