Over-the-Air Broadcast TV Down to 9%, Maybe Cable Is Just That Good

One of the interesting facts from the recently released Nielsen media infographic (below) is that only 9% of US households rely solely on over-the-air television (i.e., do not have a cable, DBS or telco subscription). This figure is down from 16% in 2003.

On one level the decline in over-the-air household is counter-intuitive; the price of multichannel television has gone up much faster than inflation over the last decade. Higher prices usually lead to lower sales for the same product. I see the three factors -- two external to the multichannel value proposition and one internal -- that supported the decline in the use of over-the-air television.

First, the conversion of broadcast TV to digital made decades of analog-only TV sets obsolete for receiving TV stations (or required a digital converter box to make broadcast TV signals usable by these sets). In contrast, all of the top multichannel subscription services work just fine with an analog TV set (without even the need for a set-top box on many cable systems).

Second, the number of households with high speed Internet connections has dramatically expanded since 2003 and such households have a large amount of video content available to them both for free (e.g., YouTube, Hulu) and for pay (e.g., Netflix, iTunes). A light TV viewer might get all the video he or she needs from the Internet and not bother with an antenna and/or converter box.

Finally, a strong argument can be made that the content available via multichannel television has advanced faster than its price, rendering it a better value than it was earlier. In 2003, the top college bowl games were on broadcast television as were virtually all of the top dramas. By 2012, all of the top college bowl games were on ESPN networks (well, all but 3 of the top 36 bowl games, per this link), AMC's The Walking Dead was the top rated drama on television and cable networks like Food, E!, History and Showtime were attracting significantly more viewing and this was no accident as they are all spending significantly more on original programming. Not to mention that the multichannel subscription is much more likely to include VOD, HD and online streaming/TV Everywhere access to substantially more content than it did in 2003.

Click the graphic to see it in its full sized glory

There are a lot of fascinating data on the graphic. One of the not surprising, but striking points is that 56% of mobile phone subscribers now use smartphones, 44% use "feature" phones. That split was  18 smart to 82 feature in 2009.

Pandora is Not the Future of Television

Peter Stern, the Time Warner Cable Executive Vice President and Chief Strategy Officer, sent the cable media abuzz with his comments at a recent industry conference that television is going to evolve into a Pandora-like experience. With all due respect, by and large, that's not going to happen and it has happened already.

Pandora, for those unfamiliar with it, is an Internet-delivered service which is most easily thought of as a substitute for listening to the radio. On the radio, a series of songs are played. Songs are short-form programming -- usually 2 to 5 minutes in length with some exceptions. The listener expectation is that there will be variety, but within a limited area. No one expects to hear Mozart after Madonna on a commercial radio station, even if some people undoubtedly do listen to them back-to-back at home. That limited area in radio is called the station's format (e.g., Top 40, hip hop, rock); in Pandora the format is formed by algorithm from the user's initial choice and subsequent thumbs-up/thumbs-down feedback. It is the nature of a short-form medium that making a dozen or more programming choices per hour of listening would require some work on the part of the listener. Another quality of short-form programming is that a bad song (i.e., one that the listener does not like) lasts a relatively brief time. Also, radio is an audio-only medium. It is common that listeners use it while participating in other activities, like driving a car.

Television, in contrast, is a long-form medium. Programs are typically 30 or more minutes long. A viewer typically does not need to make more than one programming decision for an hour of entertainment. Second is that a poor programming choice (e.g., a bad show) lasts a lot longer than a bad song. Third is that television is used more frequently than radio as a primary activity. In fact, some television programs are pretty difficult to follow without paying attention.

As many have pointed out, YouTube Leanback has been doing the Pandora-for-video thing for years...without getting a whole lot of traction.

It's not usually too much work for the viewer to select the next television program.  Also, even more importantly, there is already a great passive system for watching television. It's called "not changing the channel". Cable channels are often formatted by genre, not unlike radio stations. All television channels - niche or general entertainment - pay attention to audience flow when setting up their schedules. "Channel up" and "channel down" are simple, if crude, controls for finding another program, and often pretty useful for channel lineups organized by genre (and they'd be much better if viewers could organize their lineups themselves, per an earlier post).

One area in which Peter Stern's observation about a Pandora-like future is spot on is in video-on-demand. The video-on-demand experience generally sucks at segues -- a DJ's term for the transition between two songs. A show ends and then the viewer is deposited back at a screen where the show was originally selected. Is the most likely thing that I want to do after watching a show is to watch it again? Music videos are a popular part of Time Warner Cable's Video on Demand offering. This is what the screen looks like when your choice has finished playing.

I just watched "We Found Love"; watching it again is not my only logical next choice.

Netflix is better. After watching Season 1, episode 4 of Mad Men, it will make it very easy to zip right into episode 5. It's my experience that Netflix's recommendation engine can be pretty good at turning up suggestions of things I might like, but I have rated about 100 movies to give it something with which to work to understand my tastes. (And that works well if only I rate the movies; it gets pretty wonky in a household with mulitple members with disparate tastes).

Lord knows there are some elements of TV navigation that need work, I would humbly suggest Peter Stern sic Pandora on those first.

Over-the-Top Competition for Multichannel VOD

A new study by The NPD Group estimated that US Internet-delivered VOD (iVOD) $204 million last year, up  while paid movie rentals via pay-TV/multichannel VOD was $1.3 million. The big players in the Internet movie rental business are iTunes, Amazon, Vudu (Walmart) and Cinema Now (Best Buy), and there are many others. (Netflix and Blockbuster's streaming services are not considered part of this market; they are subscription video on demand services, rather than transactional/one-shot/pay-per-view).

The big news is that among the iVOD users, usage of pay-TV VOD declined 12% and the size of the pay-TV user base is declining.

Often lost in the discussion of cord-cutting and cord-shaving in the pay-TV market is that the different segments of the market have very different competitive dynamics.

• Until Aereo, broadcast signals were essentially not available via the Internet (although programs are via Hulu, CBS's tv.com and the network web sites). (Of course, in some ways broadcasters are the most promiscuous of all in terms of distribution, after all, they do broadcast their signals for free to all with an antenna.)
• Cable services are even less likely to be available. This makes perfect sense given that those channels rely on multichannel television for both distribution to reach viewers and license fees. Some of their programs are available via Hulu, Netflix, and their websites, but typically episodes that are not that recent and often not that many of them.
• Recent movie VOD is one where the Internet-delivered selection (the subject of NPD's study) is very competitive with the pay-TV offering, particularly in the easy of navigation of the available choices.
• In adult video, the Internet offering trounces pay-TV's (more selection, lower cost, more salacious content) and the revenues have followed, as I described in an earlier post.

The other segments of the pay-TV video offering are smaller and include foreign language services and out-of-market sports packages. It is hard to generalize about the Internet availability of the former. With respect to the latter, the MLB Extra Innings and NBA League Pass  are available on Roku, Apple TV and many other Internet platforms. NFL Sunday Ticket is available only on the Sony PlayStation 3 and DirecTV. NHL Center Ice is available only through pay-TV providers.

One thing that seems clear from the results to date is that, to the extent that the Internet-delivered services have similar access to content as the pay-TV providers, their offerings are pretty competitive and they have often been quite successful. It is doubtful that this message is being missed by any of the players in the content business. Still, there are pretty compelling reasons for certain content providers to tread carefully or slowly in this direction.

Canoe Shuts Down Interactive Advertising Business

Canoe Ventures, the cable operator consortium designed to solve the interactive advertising business across the industry, has thrown in the towel, at least on the interactive advertising part of it.

In the words of Deadline.com's Nikki Finke: Toldja!

The dirty little secret on the distributors' side of the business is that many operators do not insert on reasonably popular linear digital networks. Interactive advertising is harder to buy, harder for an advertiser to use and not ubiquitously available. That's not a good combination.

Canoe will continue to sell ads in video-on-demand. That business can use the same commercials that run on linear channels.

Steve McClellan in MediaDailyNews article with some nice details
Todd Spangler in Multichannel News "exclusive" article

In Praise of the DVR's Incredible User-Friendliness

Compared to many new technologies, it is astounding how user-friendly the generic, cable box DVR is.  Other TV or online technologies could learn from its lessons.

The DVR has one truly great user-friendly feature - the list of recorded shows.  The beauty of this feature is a direct result of the DVR's limitations.  There are a limited number of shows (because hard drive space is limited) and the shows are all relevant to the user (because he or she chose to record them).  This list is easy to navigate (because it is short) and highly personalized.

The list of recorded shows will be easy to navigate from any phone capable of playing video.  The phone's small screen is up to the task of navigating through this simple list.  This becomes a simple and valuable implementation of TV Everywhere once the DVR storage moves to "the cloud".

The contrast with cable VOD and the current, early TV Everywhere offerings could not be more striking.

VOD as a major advertising platform is "waiting to happen"

That's one of the "strategic implications and future directions" in the Advanced Advertising Media Project summary report on "Remaking Video-on-Demand to Deliver Media Value". It's almost hard to remember that VOD launched with great promise -- everyone wants the opportunity to watch things at their convenience. Then the business realities/choices/jockeying came out: Comcast took the position that it would not pay extra for programming for its VOD platform, the advertising had to be locked in at the time the program was delivered and Nielsen wasn't set up to measure the viewing. Given this combination the programmers treated it as a platform for marketing -- clips, a place for sampling of new shows and the like. What might have been a premium platform became a promotional one and a divided one since every distributor had a different strategy for VOD depending on their technology (DBS) or the economics of their footprint (CableOne) or their belief in charging extra for SVOD (Cablevision).  Also, nobody had a good way to navigate the choices (no iPod scroll wheel or recommendation engine innovation). The victors of VOD -- YouTube, Netflix and DVRs -- all had the benefit of not having a seat at the table.


Advanced Advertising Media Project (download page)