The Viewer is King

It’s official. Even though we have been hearing that vague “whenever, wherever” catch phrase repeated over and over for the past few years, there is now irrefutable evidence: people want movies and TV shows at the most convenient time and on the preferred device. And thanks to all these screens, a lot more content is being consumed than ever before. So much so that research companies have been tracking changing viewing habits on a regular basis. Why? Because these changes are turning existing media business models on their heads.

“Ultimately, customers are very comfortable with a much more fluid interaction with content and programming than we might think they are,” says James Murdoch, the chairman and chief executive for Europe and Asia at News Corporation. “They will watch television on a TV screen, and in a different situation, if the TV screen is not convenient, they’ll watch on their laptop, or they’ll take a clip from their iPhone app and watch that.… And they are reasonably comfortable switching back and forth, so it’s not a zero-sum game between screens.”

Murdoch’s reference to non-zero-sum games—in which a gain by one player does not necessarily correspond with a loss by another—fits perfectly with today’s viewing habits. The increase in viewing online or on mobile devices is not cannibalizing TV viewing. To the contrary, it just means that a lot more movies and programming are being watched.

To take a mundane example, think of commuters riding to work on trains. Nowadays you often see them watching a TV show on their laptop or iPhone. They are watching content in ways that were not possible when those devices weren’t available. This is not taking viewers away from television programming; it’s incremental viewing.

Even though people are watching more video online and on mobile, the good news is that the trusted old TV set is still the dominant screen. And the viewing experience at home keeps getting better, thanks to a greater number of channels, many of them in high definition, not to mention wide-screen HD TVs. “These factors have definitely had an impact on the overall amount of television being watched,” says Susan Whiting, the vice chair and executive VP of The Nielsen Company. “We see a similar phenomenon around the world: in the countries Nielsen tracks, TV viewing is either holding its own or increasing.”

THE THREE SCREENS

In response to broadcasters and advertisers who want to know where the viewers are going and what they are watching, Nielsen began measuring viewing across screens.

According to its Anywhere Anytime Media Measurement initiative or Three Screen Report for the second quarter of 2009, the average American every month watches approximately 141 hours and 3 minutes of TV at home. In addition, the 134 million Americans who watch video on the Internet watch on average about 3 hours and 11 minutes of video online each month at home or at work. The 15 million Americans who watch video on mobile phones watch on average about3 hours and 15 minutes of mobile video each month.

There is no doubt that viewers have taken control of what they watch, how they watch it and where. And new data from Veronis Suhler Stevenson (VSS) shows that consumers are spending more time with entertainment they pay for than with free advertiser-based media.

“One of the trends that we’ve seen is that consumers are spending more and more time with the form of media that they choose to spend their money on and maybe get exactly what they want,” says Jim Rutherfurd, the executive VP and managing director of VSS.

“In terms of the time with media spent, per person per year, basic cable television networks are increasing, while premium cable networks, such as HBO, are flattening out a little bit,” continues Rutherfurd. “Time spent with broadcast television and radio is decreasing, but time with video games is increasing quite a lot. Time spent with DVDs is decreasing significantly, but video on demand is increasing nicely, as are downloads of television shows and movies.”

TIME-SHIFTED ENJOYMENT

Of the many ways people are taking control of their viewing experience, the digital video recorder (DVR) is emerging as a favorite tool. It has freed viewers from the restrictions of having to watch shows at specific days and times as dictated by linear television and allowed them to record favorite programs and play them back when it’s more convenient.

In the U.S., TiVo first started putting DVRs on the market in the late ’90s and was followed by cable and satellite providers. The British pay-TV platform BSkyB followed suit and today, of its nearly 9.5 million subscribers, more than half have opted for the Sky+ DVR.

Much maligned by advertisers and broadcasters when it first came on the scene because it allows viewers to skip through commercials, the DVR is now showing networks a kinder, gentler face—it’s helping to boost viewership of popular series.

Thanks to time-shifting, viewers are able to watch more episodes of their favorite series. The average used to be two out of four per month; now, according to Nielsen, it’s more than three out of four.

While time-shifting provides immense freedom and control to the viewer, it does make it possible to zip right through the commercials.

Tom Rogers, the CEO and president of TiVo, feels that advertisers are not doing enough to meet the challenge of time-shifting. “Against the backdrop of newspapers and magazines having their business models blown up, the music industry having had its business model blown up, you would think that the television industry, with 30 million DVRs out there and the preponderance of its users avoiding an awful lot of commercials, would be taking steps more urgently [to meet the challenge presented by people skipping through commercials].”

Confident that DVR penetration will continue to grow over the next few years, Rogers wonders what will happen when it hits 40 percent or 50 percent.

Nielsen, however, is seeing DVR penetration slowing down, and David Poltrack, the chief research officer at CBS Corporation and the president of CBS Vision, is offering the broadcast industry a somewhat controversial prediction. “I believe the DVR is a transitional technology,” he says. “Its penetration may hit 40 percent but it’s not going to go much beyond that because the DVR still requires you to tell it what you want to record, and there is a limited amount of hours of programming you can record. None of that is necessary now if you can have access to all these programs whenever you want them through the Internet.”

The DVR offers viewers time-shifting, the Internet offers—and here’s another nifty new term—“place shifting,” the ability to watch programming on your laptop wherever you want. The online world is also offering a plethora of choices: from video players on broadcast and cable network sites to Hulu to Crackle.com, Sony Pictures Television’s site that features classic series and movies as well as original content. Is there a particular show, past or present, you want to watch? Chances are very good it’s on the web, and if you can’t find it, your children, grandchildren, nieces or nephews certainly can.

“Generally the activity on the Internet is younger,” says Poltrack. “The example I’ll give you is How I Met Your Mother, a broad-based, very successful comedy that is popular among young viewers, which is part of our Monday night lineup, where it does very well. It is also one of the most streamed shows on the Internet. The median age of the audience for that show on the network is 46 years of age; the median age for the show on the Internet is in the twenties. So the Internet is adding to the reach of that program and expanding its audience to a younger demo group.”

Anne Sweeney, a co-chair of Disney Media Networks and the president of the Disney/ABC Television Group, is seeing the same trend at ABC. “The average age of the person watching our shows on abc.com was about 15 years younger than a person who would watch the shows on ABC in prime time,” she says. “The Hulu audience is more of a casual viewer, generally more male… and younger than the abc.com audience.”

Often, young viewers first find a show online and then watch it on TV when they can. “As we are seeing with The Office and with How I Met Your Mother, the younger people who start watching the show on the Internet, or become aware of the show on the Internet, will gradually migrate to television and start watching the show on TV as well,” says Poltrack.

The growing trend of watching video online is not limited to movies or television series. News organizations have greatly increased the reach of their TV product thanks to streaming video on their websites. This year, so far, CNN’s website is the number one news-video property, averaging more than 109 million streams per month.

Even children are watching video online. According to Nielsen, in May 2009, children aged 2 to 11 comprised nearly 16 million, or 9.5 percent, of the active online universe. Of that group, 5.1 million boys and 5.2 million girls viewed video online in May.

CATCHING UP

Watching shows online is not simply an American phenomenon. “Europe is still one or two years behind the U.S., because of structural developments,” ex­plains Gerhard Zeiler, the CEO of the RTL Group. “But the catch-up TV services have been a huge success. Here, programs that have already been broadcast on TV can be seen online, free of charge. Most media people are familiar with the success of the BBC’s iPlayer. But BBC’s iPlayer isn’t the only one of its kind: in France, M6 launched a similar service, M6 Replay, in March 2008, and our German profit center has a similar ser­vice in place called RTL Now.”

In total, this year the RTL Group’s online platforms across Europe registered more than 470 million video streams, which delivered professionally produced content to its viewers—a 97-percent increase compared with the first half of 2008.

Meanwhile, ProSieben, the market-leading station in Germany among 14- to 29-year-old viewers, is using new-media platforms to increase viewership to its programs. “We started [streaming] video on the Internet about 18 months ago and it was a huge success right from the beginning,” says Thilo Proff, the station’s managing director. “We started with Germany’s Next Topmodel and about 20 percent of the total views of the program are online video views, so this is quite a lot, about one-fifth.”

MADE FOR MULTIPLATFORM

Broadcasters and advertisers are not the only ones tracking how and where audiences are watching programs—so are producers, who obviously have a vested interest in catching viewers wherever they may be.

“We start thinking about the most effective brand extensions from the very earliest stage of development of any new show, certainly well before it has gone to air,” says Keith Hindle, the CEO for the Americas at Fremantle­Media Ent­erprises (FME).

Hindle and his colleagues have had numerous opportunities to observe how the audience interacts with content on many different platforms nowadays. “Merlin, the drama we sold to NBC, is one of the most watched shows online on Hulu; millions of unique visitors view specially produced American Idol content online; and a huge number of people engage with our shows through telephony—voting, video clips, promotional offers and games.”

Miles Beckett, a co-founder and the CEO of the social entertainment company EQAL, first took the online world by storm when he produced the made-for-web video series lonelygirl15 and KateModern.

More recently, Beckett teamed up with CBS and produced Harper’s Globe, an online companion series to the horror/mystery show Harper’s Island, which aired on the network during the spring.

“Harper’s Globe was getting huge amounts of traffic: hundreds of thousands of monthly unique visitors, millions of monthly page views, and people were spending more than 10 minutes on the site,” says Beckett. “It was truly astounding. It was a highly engaged, big community of people, by Internet standards, all dedicated to this show.”

Beckett feels it is critical to get shows, whether produced for the web or for TV, exposure on social-networking sites, because so many young people are watching content on the web. “We definitely feel that you need your show to be on Facebook, and Twitter and YouTube and on a variety of social sites, but at the same time, you need your own website, where you can control your own content and you can monetize your audience.”

FME’s Hindle recognizes the potential of social-networking sites, but is more cautious. “It is something we are experimenting with and analyzing closely,” he says. “We believe the portals can be effective tools for content distribution, but their ad-sales capabilities have a long way to go. But as we have direct relationships with many of our advertisers, we are able to leverage our portal relationships to guarantee a certain level of impressions to those advertisers.”

WHERE’S THE MONEY?

The challenge lies is creating a business model on the web that will provide broadcasters and cable networks with much-needed advertising revenue, while not turning away the young viewers who turn more often to their laptops for programming than to their TV sets.

“Online advertising is more about conversation than it is about broadcast, and this presents some challenges to advertisers,” says EQAL’s Beckett. “Number one, they have to become comfortable with that. Number two, they have to know how to do it appropriately, in the right locations online and with the right ad units. All the packages we are selling to advertisers involve some form of product placement, along with interactivity—maybe it’s a contest or a game. It’s about taking the brand, getting people to talk about it, making it part of their community, having the audience interact with that brand and make it their own.”

FOR THE FANS

ESPN has long been connecting with sports fans in ways that are extremely satisfying to the viewers and lucrative for the company.

“We engage tens of millions of fans every month through the best collection of sports sites anywhere,” says George Bodenheimer, co-chairman of Disney Media Networks and the president of ESPN and ABC Sports. “Fans don’t just visit us, they visit, they engage and they return. Because of that, advertisers around the world recognize that we are uniquely positioned to connect their products and messages with sports fans. But we have always believed that premium content plays a role also, and our premium content ser­vice ESPN Insider is among the most successful on the web. It continues to see growth and we are reinvesting resources to ensure that the next dozen years are as successful as the last.”

Knowing that viewers watch sports on multiple screens, ESPN has successfully attracted advertisers.

“Roughly 70 percent of deals over $2 million involve more than one platform,” Bodenheimer says. “That multimedia approach gives us access to budgets before other companies. So media buyers are looking into their digital budgets and moving their money with us before they normally would.”

ESPN has been among the first media companies to adjust its business models in response to changing viewing habits. From the data available about future media consumption trends, a lot more adjusting is going to be necessary.

“If you look at the entertainment business (basically the Hollywood business) over the next five years, by our forecast, what we call traditional out of the home spending [mainly DVDs] is going to decrease by $4 billion,” says VSS’s Rutherfurd. “But that will be made up for when you take into account VOD, which is going to increase by about $2 billion, and online and mobile downloads of entertainment, which are also going to increase by about $2 billion.”

As Dawn Airey, the chair and chief executive of Five in the U.K., notes, “At the end of the day, all these devices ultimately require long-form content. That’s the business of television producers, broadcasters and distributors. What it is all about now is how you get your content out to as many people as possible, because eyeballs equal money. If you’ve got the eyeballs it’s not beyond the abil­ity of broadcasters to figure out how to monetize them.”