28 September 2012

Fewer US TV Households Because of Fewer Used TV Sets

Nielsen recently announced that the universe of US TV households would be reduced for the 2012-2013 television season by 500,000. TV set penetration is now 96.7% of US households, down from 98.9% the prior year.

The company attributed the decline to 3 factors:

  1. Digital Transition: The summer of 2009 marked a significant milestone with a shift from analog to digital broadcasting. Following the transition, consumers were only able to view digital broadcasts via a set with a built-in digital tuner (i.e., a newer TV set) or an analog TV set connected to a digital-to-analog converter box, cable or satellite. TV penetration first dipped after this transition; the permanence of this trend was acknowledged in 2010 after the number of TV households did not rebound over time.
  2. Economics: As with previous periods of belt-tightening, the cost of owning a TV is a factor in this UE decline; TV penetration first saw sustained decreases in second quarter 2009. Lower-income, rural homes were particularly affected.
  3. Multiple Platforms: Nielsen data demonstrates that consumers are viewing more video content across all platforms—rather than replacing one medium with another. However, a small subset of younger, urban consumers are going without paid TV subscriptions. Long-term effects of this are unclear, as it’s undetermined if this is also an economic issue, with these individuals entering the TV marketplace once they have the means, or the beginning of a larger shift to viewing online and on mobile devices.

This is a TV set.
The first two factors also combine in another way. Many (probably most) of the TV sets in households prior to the digital transition were analog sets. Unless they are connected to a converter box (or cable or DBS receiver), they are no longer TV sets, because they can't be used to watch...TV. The cost of a usable television set has effectively gone up, since there are no cheap, old, working digital sets to be handed down to friends and family or found at the thrift store.
This is no longer a TV set.
While the penetration of TV sets will likely drift up over the next few years as digital sets trickle down, the matter of TV set penetration may no longer be significant. A person watching, say, ABC programming on a laptop or tablet is watching television for all practical purposes and Nielsen will inevitably address this reality in their universe estimates and ratings in the near future.

27 September 2012

OTT Growing or Not Growing?

A recent study by the NPD Group bore the headline that "nearly half of all paid VOD movie rental orders generated by cable companies". There's no great shock there, after all, cable VOD is widely available. What is surprising is that NPD found that cable movie rental VOD is taking share from Internet-delivered movie rental VOD. Cable movie rental VOD increased by 24% since last year while Internet-delivered movie rental VOD (e.g., iTunes, Amazon Instant, Vudu) increased by only 15% (measuring first half 2012 versus first half 2011, to be precise).
Far more intuivitively, a few days later the same group noted that TVs are becoming the primary screen for home viewing of online video. This would appear to be a strong sign for the growth of over-the-top video.

What could account for relative strength of cable movie rental VOD in the face of greater over-the-top presence on TV sets?

The first NPD study is movie rental only. It does not include movies watched as part of an SVOD service like Netflix or Amazon Prime. (It also does not include movies purchased, rather than rented, but cable operators rarely sell movies and iTunes et al do, so movie purchases can't be tipping the scale in cable's  favor). If the number of movies rented were going down, then Netflix streaming could have been a factor, but that was not the case -- both cable and Internet movie rental VOD showed double digit growth.

Interestingly, an earlier NPD study about VOD movie rental (the subject of my prior post here) found that pay-TV VOD declined by 12% from the prior year (August 2011 versus August 2010 to be precise) among users of Internet-delivered VOD.

While all of these studies are measured slightly different things, perhaps the pay-TV providers have improved their promotion of movie rental VOD or have improved the navigation of the choices or have streamlined the buying process. Whatever they have done, it seems to be working, and far more successfully than I would have imagined possible.

An addition: Perhaps cable has been a bigger beneficiary than Internet-delivery from the demise of bricks-and-mortar movie rental places.

11 September 2012

What Have We Learned About Over-the-Top Video and What We Can Expect To See

The fragmentation of over-the-top devices is a tremendous pain for programmers. Not only do Roku, Samsung Blu-ray players, Sony TVs, XBoxes and iPhones require separately produced apps, they often require separately encoded video. The implication is that only the most ubiquitous programmers (e.g., Netflix) will find it worthwhile to be on every platform and that the smaller programmers will go to the most open ("small" here, means, in part "can't afford the risk of having my app be rejected") and popular platform, which is probably very good news for Roku. This area of the business is bound for a shakeout.

Over-the-top programming is already very competitive with cable offerings in a few small areas of the business: new hit movies (can be rented from iTunes as easily as cable VOD), out-of-market sports packages other than the DirecTV-exclusive NFL Sunday Ticket (e.g., MLB Extra Innings) and adult video (see prior post on this topic). Over-the-top is least competitive with cable in offering basic and premium cable networks. Aereo, if it survives the legal challenges it faces, represents a portion of the package, for those who can not or do not want to use their own antenna to pick up free broadcast television.

It is difficult to imagine that over-the-top video will have the same access to "cable" content in the future than it had in the past. Cable programmers make too much money selling their services to multichannel distributors (and the advertising on such services to major national advertisers). Starz walking away from renewing a deal Netflix is the best example of this. As noted in a New York Times article about the 2012 DirecTV-Viacom deal "free access to people who don’t subscribe to DirecTV or another similar distributor is likely to become more restrictive, thereby fortifying the existing model of TV distribution." Someday over-the-top providers might be able to provide some programmers with enough money to make it worth their while to jeopardize their relationships with traditional multichannel distributors, but that day does not appear to be in the next year or two. Nothing -- short of new governmental regulation, that is -- can force a critical mass of cable programmers to sell to the potential disruptors of the multichannel ecosystem.

Over-the-top programming often requires juggling multiple devices and subscriptions. The most satisfying way to "replace" a multichannel subscription probably involves a combination of Netflix, Hulu Plus, iTunes rentals, Aereo, Roku services, over-the-air broadcast signals, etc. and none of them are available on any one device. (Although apps like Fanhattan could help consumer's manage the juggling).

Over-the-top content providers can and will develop their own original content, but it is unclear if this content will be a suitable replacement for a multichannel subscription. Netflix with its original content initiative and YouTube with its investment in original channels are pouring resources into original programming. If there is a return on this investment and it continues, it will make over-the-top more attractive. On some level it does not matter if the new content is a good substitute for what comes with a multichannel subscription, programming is rarely a zero-sum game. The growth of VHS rental didn't hamper the growth of cable subscriptions, but it did destroy the repertory movie house. One notes that the last attempt to enter the multichannel business head-on with original content was Cablevision's Voom and that didn't work out very well.

The rising price of a multichannel video subscription is the one given. With more distributor competition (hello, Google Fiber), the programmers are in a strong position to raise prices. Even Viacom (which "lost" the PR battle in its standoff with DirecTV), still managed to get a 20% price increase -- not bad for a losing effort, if not the 30% they had sought initially.

The distributors, resigned to paying more for content, are seeing what they CAN get at the negotiating table. Two things come to mind: greater TV Everywhere rights (an interesting #1 on this list) and greater restrictions on the amount and quality of content that cable programmers can put online for free or sell to over-the-top providers. Given the small incremental cost of the former and the relatively small revenue contribution over-the-top sources are providing today, these tradeoffs are not that difficult for cable programmers to accept.
The metaphorical "pricing umbrella"

As multichannel prices rise, to the extent that TV Everywhere is very valuable to the consumer, he or she will be content. To the extent that it isn't that valuable, he or she is a loser. However, the consumer facing a higher multichannel bill now has more incentive (and more money) to consider alternatives. In other words, the higher multichannel bill creates a pricing umbrella for over-the-top video.
This is NOT what I mean by over-the-top video