Demanding Viewers

We live in a world of e-mails, instant messaging and RSS feeds. We expect information at our fingertips in a matter of seconds. We Google at work and at home. We demand that tools, devices and apps be user-friendly—all because in this fast-paced, multiplatform environment, more than anything else we must be in control.

So why on earth would we allow a network to dictate to us the day, time and place where we should enjoy TV programs or movies? Linear television? Really? That’s so yesterday—or is it?

For the time being, linear scheduled networks and a plethora of on-demand nonlinear services are coexisting. But as media companies try to keep up with our capricious need for finding content the moment we want it, wherever we are, they will make or break their fortunes based on whether they have the resources, creativity and willingness to navigate both linear and nonlinear media landscapes.

“Consumers are increasingly demanding random access to content—we all know that…and video on demand is a tremendous application,” says Michael Fries, the president and CEO of Liberty Global.

“Viewing will increase on de­mand,” says Bill Nelson, the chairman and CEO of Home Box Office (HBO). “More and more, as time goes on and as the younger generation has a larger share of the HBO subscriber base, they have been essentially trained, if you would, to go to impulse viewing. So over time, certainly the usage of HBO On Demand will continue to grow.”

HBO was one of the pioneers of on-demand and soon discovered it was a benefit to subscribers and a boon to business. “Subscribers of HBO On Demand watch more of our programming and therefore they are more satisfied with their subscription,” continues Nelson. “We know that on-demand increases viewership of our programming by an average of about 20 percent. And on certain shows, HBO viewership on demand can be as high as almost 40 percent of the total viewership of that show. That is a revealing number because it means convenience is extremely important to the consumer, and we know the increased viewing means increased overall satisfaction, which is what drives our subscribers and certainly our revenues.”

Comcast, the largest cable company in the U.S. with 25 million television subscribers in 39 of the 50 states, is a leader in on-demand offerings. It started its service in 2003 and today its on-demand numbers are staggering: 350 million views per month and 140 views per second as customers enjoy movies, full-length episodes of TV series and music videos.

Demanding viewers are all over the world. Across the pond, the BBC took the on-demand concept and tailored it to its market and its remit. It places much of its output of television and radio programming on a catch-up service online, where it is available for seven days after broadcast. BBC iPlayer launched in December 2007 and now averages more than 100 million requests per month in a country with a population of 60 million, of which only 65 percent have broadband connections.

In continental Europe, the RTL Group, the largest commercial broadcaster in Europe with stations in several countries—including Germany, the U.K., France, Spain and the Netherlands—has online catch-up TV platforms that registered more than 1 billion video streams in 2009. That was an increase of 49 percent compared to 2008.

And it’s certainly not only adults who are into the on-demand mode. One in eight requests on BBC iPlayer come through the PlayStation 3 or Nintendo Wii. When ITV, the leading commercial broadcaster in the U.K., launched its video player, it did so across numerous platforms, knowing that that was the smart way to pull in young viewers who are otherwise fleeing network TV.

Among the preschool services, Sprout in the U.S. has had 700 million orders since it launched in 2005. The PBS KIDS video player launched in December 2009 and has already had 173 million stream requests.

What is driving this migration from linear TV to nonlinear on-demand services, whether they are on the traditional TV set or on a laptop computer through a broadband connection or on a wireless mobile device? Convenience, choice and, here’s that word again, control. And broadcast and cable companies, producers, distributors and advertisers are adapting to this new reality.

It’s not just about offering choice and convenience, it’s about staking out a piece of the nonlinear world so that brands, whether they be TV channels or individual programs, do not get lost in the huge selection viewers have on demand.

ADDED BENEFITS
Broadcast and cable networks are finding success by offering their content on their websites. Hence the huge popularity of catch-up TV, whose premise is simple: if you miss the show when it is regularly scheduled, you have the chance to watch it at your convenience online.

“Broadcasters are changing the Internet,” says David Brennan, the research and strategy director at Thinkbox,the marketing body for commercial TV in the U.K. “They are making their libraries available not only on their proprietary windows but via third parties, and this is already yielding rewards. They are able to offer more content without diminishing their television audiences. Indeed, online content even shores up viewing and keeps people in the broadcast stream. When there is good creative content online, it actually adds to demand for television.”

“Far from displacing broadcast, on-demand viewing is likely to enhance broadcasters because it’s the means by which consumers access TV content,” says David Ellender, the CEO of FremantleMedia Enterprises (FME).

“Video on demand completely complements, supports and promotes linear channels,” agrees Bruce Boren, the VP of Televisa Networks, which has had VOD services in the U.S. for five years and recently rolled out VOD in Mexico.

In fact, when a broadcast or cable network streams shows on its website it can increase ratings for individual series, bring added revenue to the network and added license fees to distributors.

“We look at nonlinear as incremental revenue,” says Cathy Payne, the CEO of Endemol Worldwide Distribution. “To date, where we’re seeing the most revenue is from services that are an addition to a primary broadcaster, where they have the ability to push and pull their viewers.”

It is a highly engaged audience that is found online catching up on favorite TV shows. Those viewers are not just casually surfing through their electronic programming guide—they sought out that show because they want to watch it. This is allowing broadcasters to charge even higher advertising rates: there are fewer commercials online and viewers can’t zap through them.

The scenario changes on online video services that are not connected to broadcasters, where viewership and engagement are harder to measure. “When it’s a stand-alone model, such as an Internet provider setting up their own , they’ve got to get a lot of people to watch to deliver scale,” adds Payne.

“Advertisers want to know how many people are seeing their ads on these different platforms,” says Brad Adgate, the senior VP and director of research at Horizon Media. “There are no real metrics just yet for mea­suring online broadband video ads and mobile TV. It seems like the research always lags behind everything else. Right now there have been efforts made by the research community, including Nielsen, to get there, but it’s not there yet.”

FOLLOW THE VIEWERS
Program providers are experimenting with a variety of business models in the nonlinear world. As challenging as this may be, they are finding various ways to connect with consumers and strengthen their brands.  

“We need our programming to move from linear to nonlinear as the viewers’ eyeballs move from linear to nonlinear, so that the advertising dollars will also stay with us,” says Kevin MacLellan, the president of Comcast International Media Group (CIMG) and Comcast Entertainment Productions (CEP). 

“We’ve taken a very friendly view towards making content available on demand,” continues MacLellan, who believes that CIMG’s content, which includes shows and clips from E! Entertainment Television and The Style Network, is particularly well suited to nonlinear viewing. “Part of the reason for that is the type of content we have, which is non-scripted, both short-form clips and long-form episodes. We can make it available online in multiple places because we own all the rights to it.”  

MacLellan is using both an advertiser-supported and a subscription approach when making CIMG content available online. “Most of our deals, whether with a mobile operator or a cable affiliate or a DTH affiliate, are based on streaming of content; we have a two-hour loop for mobile operators, which runs continuously for 24 hours—it’s like a preproduced mobile channel. But we also make certain content, mostly short-form, available for VOD.” 

Short-form content on the web is also providing the U.K.-based distributor Fireworks International with new distribution opportunities. “The business that has really taken off for us is digital productions, the made-for-the-web series,” says Greg Phillips, the company’s president. “These little dramas are gathering pace. One of the objectives is to start these series out on the web, see if we can get [awareness and viewership] and then develop them into full TV series. It’s an alternative to the traditional pilot and we actually have an asset we can monetize.” 

Sesame Workshop, the producer and distributor of the preschool classic Sesame Street, now in its 40th season, cultivates a wide range of partnerships. “We have our primary broadcast relationship with PBS, and Sprout, but we also provide content to sesamestreet.org, pbskids.org, sprout.com, YouTube, Hulu, Yahoo Kids, Amazon VOD and iTunes,” says Terry Fitzpatrick, the Workshop’s executive VP of content distribution. “Each of them supports and ex­tends the Sesame Street experience. We program across all of these devices not only to provide multiple exposures, but also to deepen the brand connection, which hopefully will increase both TV ratings and online views.” 

WHERE’S THE MONEY?
As for monetizing this content, Fitzpatrick sees opportunities “in two areas, primarily sponsorship and pay per download—the iTunes and Amazon model. Our podcast on iTunes has consistently been within the top two or three in the kids and family category, and when we launched it about two years ago, for eight days we were the number one podcast across all categories.” 

The iTunes model has also proven to be a very good one for A&E Television Networks (AETN), whose roster of channels includes History, Bio, A&E and Lifetime. “Our viewers are consuming content on a broad variety of devices and certainly on a time-shifted basis, and all of this activity reinforces our brands and drives more eyeballs to the TV screen,” says Steve Ronson, the executive VP of enterprises at AETN. “On a global basis we are developing ad-supported online and mobile businesses. And they are fueled by short-form content, by gaming and by social media,” explains Ronson. “Another big success is our robust download-to-own business. That appears on iTunes, Xbox 360, PlayStation and other platforms. In fact, in 2009, we continued our global expansion with iTunes and we’re live now in the U.S., Canada and Great Britain. We had in excess of 2.3 million downloads in 2009 throughout all the ESL download-to-own platforms worldwide.”

Ronson is also entering the micropayment business. “I think the transaction business is going to grow significantly,” he says. “We have started down that path with our dress-up virtual world on our Roiworld.com site, which is part of the Lifetime brand bouquet. That is kicking off and we have high hopes for incremental revenue as well as an increased brand halo effect. As media companies move forward they will continue to explore new models in integrated content, casual games and social media. That intersection is becoming increasingly interesting to media companies like ours.” 

“Freemium” is one of the new business models emerging from gaming and social-networking sites, and consumers, especially young ones, are embracing it. “On Facebook you can play for free but if you want to buy a virtual good, you have to spend some real money. That is sinking in to the minds of consumers, young consumers in particular, who have been the most resistant to paying for content,” says Emiliano Calemzuk, the president of Fox Television Studios.  

“There may be models online that will try to emulate that—where you can watch a show for free and after a few episodes you have to start paying, whether it’s a small nominal fee per episode or a monthly subscription,” continues Calemzuk.  

“The most important part of this exercise is trying to figure out what amount people are comfortable paying,” he adds. “Is it 50 cents or 99 cents or $1.99? People have been getting content for free, but everybody is starting to realize that for the right price they’d be happy to pay for the convenience.” 

LONG LIVE LINEAR
Does all this on-demand activity, on TV and online, signal the death of linear channels? Many in the TV industry would answer using the famous quote from Mark Twain, “The reports of my death are greatly exaggerated.”  

“My view is that [linear and nonlinear have] been complementary so far,” says Erik Huggers, the director of future media and technology at the BBC. “We see that when prime-time viewing tapers off in the linear world, it keeps going another hour in the on-demand world.” 

All channels are not created equal,” says Liberty Global’s Fries. “Certain channels are more important to consumers than other channels. I see sports and live news always surviving in a linear world. People will want real-time access to sports and news. But I think it also raises a slightly different question, and it’s one that we have to really get right, and the question is, when you’re in your living room, how hard do you want to work to gain access to the content that is important to you? The answer is going to vary by consumer and by generation and by demographic group. It’s going to take time for folks to embrace and get comfortable with digital technology. Most consumers are not as far along as we think they are. I do believe there is great appeal to random access, no question, but I do think it’s going to take some time for folks to be weaned off the convenience and the simplicity of traditional linear programming, especially linear channels that deliver the good stuff.” 

BARKING FOR VIEWERS
“There will still be networks,” agrees CIMG’s MacLellan. “They will just be in a form that we are currently not using. Do I think anyone is going to pick from individual programs and set a playlist for their entire week? No, I don’t. But do I think that a network in the future may be a barker channel that lets people know what is available for them to watch on demand? Yes, I do.” 

MacLellan also believes that news, sports and live events like the Oscars and the accompanying red-carpet specials, such as the ones that E! produces, are programs that people don’t want to miss. “So there are certain genres within that barker channel that are going to always be live. And I think you may see a move to more live programming as a means of battling the online viewing phenomenon.” 

FME’s Ellender agrees that live sporting events, big news and current-affairs events, as well as entertainment shows like Idols and The X Factor, will be key genres on linear networks. He adds, “It’s not feasible to make these shows available in the on-demand world, because of the huge audiences that are being generated. Here in the U.K. the finale of The X Factor was seen by about 19.1 million people—that’s 62 percent of the viewing audience. There isn’t a bandwidth on another medium able to get that much viewership. It would bring the system crashing down. So I think technology has got some way to go before you could even contemplate putting some of these big shows, even if it were feasible to cover the cost, and that model would look very different.” 

And in a world so concentrated on finding new business models aimed at protecting the content that fuels the nonlinear world, Calemzuk of Fox TV Studios offers an appropriate reminder. “Let’s not forget that today linear channels are the ones that finance the production of programming. There are always different sources of financing available, such as brand integration. But today the vast majority of financing comes from linear channels. So not just from a viewer perspective but from an economic perspective we need to find a way in which linear channels continue to exist and thrive financially.” 

THE VIRTUAL WATERCOOLER
One area of the nonlinear world that is really helping linear channels is social-networking sites. “As much as we deplore and combat piracy on the Internet, the fan activity online around our programs has really worked well,” says FME’s Ellender.

“Social-networking sites have really been fantastic promotional vehicles for our shows,” he continues. “Susan Boyle in Britain’s Got Talent didn’t become a phenomenon just on YouTube, she really became a phenomenon through a combination of YouTube, My­Space, Twitter and Facebook. The Susan Boyle clip, which interestingly was started by a fan uploading the clip on YouTube, took the program and the format worldwide instantly. It wasn’t us that did it; this was a fan that did it.”

Social networks have also allowed FME “to dialogue with that fan base in a way that we weren’t able to before,” continues Ellender. “And that gives us the ability to cross-promote our shows. We’ve done this recently around a dating show in the U.K. on ITV1 called Take Me Out and also with The X Factor last year, which is also for ITV. These efforts have helped reach excellent numbers for the show in our demographic targets. The audience can watch the show but then immerse themselves in it online and with their friends. So we’ve seen a great opportunity to widen the experience beyond just the television broadcast.” 

Discovery Communications is also mining significant promotional opportunities in social-networking sites. “We are a nonfiction company and we have a ton of great characters that are real and have loyal fan bases: we have Jamie and Adam from MythBusters reaching out on Twitter talking about what they are doing, we have the captains on Deadliest Catch, and Kate Gosselin from Jon & Kate Plus 8,” says Discovery’s president and CEO, David Zaslav. 

“We have found that social media has been of great help to us,” he continues. “We [have] our personalities engage with their fans.… We took a couple of clips of River Monsters from Animal Planet and put them on YouTube and they became viral. People started passing them around, and when we launched River Monsters, it was the most successful show in the history of Animal Planet with no marketing. “

The key words here are “with no marketing”—meaning no extra money was spent to promote a show because the online chatter and word of mouth is becoming more powerful than any on-air promotional campaign.

That in itself is monumental—a huge illustration of the power of the nonlinear world. The smart media companies will harness that power and marry it to compelling content. In the end the desire for control will win out: consumers will retain control of their entertainment experiences, and networks and producers will maintain control of their programming.