There is an awful lot to follow in the television industry, and we spend most of our time trying to figure out which shows will be renewed and which shows will be canceled. While I understand that those decisions are nearest and dearest to the fans, but realistically the way renew and cancel decisions are made probably hasn't changed much over the last 20 years.
We love TV, and numbers, so we love figuring that stuff out, and predicting, but as far as the business of television goes, there are more interesting things to think on. We obsess over the ratings for the simplest of reasons, really. Because we can! I mean, we get new data to consider EVERY day. So, like the weather, you can talk about it every day. It's easy and often entertaining.
The broader trends don't necessarily lend themselves to following on an everyday basis, and are more complex and perhaps less fun to think about. But there are things to watch for in the industry, and ultimately, how they shake out will be much more important to the industry than whether Chuck and Dollhouse get renewed.
Here are the four major trends I'm trying to follow.
Reallocation of existing revenue streams.
There are at least a couple of aspects to this bucket. One is that advertising rates between cable and broadcast should get on a trend where they get closer to each other. Right now broadcast still usually carries a significant premium (even for the same amount of eyeballs) to cable. Look for those gaps to narrow in the coming years.
Advertising supported cable networks also receive subscriber fees. The broadcast networks have begun negotiating for subscriber fees too, but especially as advertising rates between broadcast and cable begin to equalize, look for the broadcast networks to get a bigger slice of subscriber revenues.
Reallocating the subscriber dollars seems like something that has to happen, especially if the broadcast networks are the most watched networks on cable and satellite offerings. I suspect this will be a very painful process that will occur over quite a few years.
Along these lines I suspect the broadcast networks will attempt to abandon the local affiliate market, at least in markets that don't make any sense, and that appears to be most of them.
I think the biggest shifts ahead for the television business are around the reallocation of existing revenue streams and that this is a far bigger deal than the new and exciting technologies that empower viewers.
Increased DVR viewing and advertising strategies aiming to combat it
Though DVR viewing is already increasing, and we're pretty sure most DVR viewers don't watch most of the commercials most of the time, it's certainly not the case where nobody ever watches any commercials.
The news isn't totally bleak as far as DVR impact on advertising goes. For one, the adoption curve isn't steep. DVRs and DVD players became available at roughly the same time. DVD is near 100% penetration and DVRs aren't in 30% of the homes yet. Currently, even DVR owners seem to wind up watching much more live TV than they watch via DVR.
Better news still, people want to watch shows fairly closely to when they air. Recent data suggests that 20% of DVR viewing starts within FIVE MINUTES of when the shows air. Sure, people are just waiting 5 minutes so they can bypass some advertising, and that isn't great news, BUT, 20% can only wait five minutes or less. Even for a half hour show, you need to wait around 10 minutes to miss ALL the commercials and closer to 20 minutes for a one hour show. This behavior of people not wanting to wait is good news. Around 50% are watching shows on their DVRs the same night and 75% are watching within 24 hours.
The bad news is that people are bypassing commercials. The amount of DVR homes will increase, as will the amount of commercial skipping. This isn't happening as fast as many people seemed to think it would, but it is happening, and it will ultimately cause a lot of changes to the way television advertising works. Yes, we'll see more product placement, more overlays and more commercials that can be interpreted even if you're fast-forwarding by them. And we'll see things nobody has even thought of yet. Necessity is the mother of invention, and ultimately it will be a necessity. Fortunately for the television networks the necessity hasn't happened at the pace many thought it would.
Increased online viewing and more commercials online
Of course online viewing of television shows will continue to increase, but it started from nothing and even today is still a pittance when compared with television viewing. Online viewing is a convenient "on-demand" solution for episodes people missed for whatever reason, but online viewing will definitely not kill TV. People like watching TV on the TV. Families and friends gather around the TV in the living room, not around a 17", 24" monitors and laptops. People vastly prefer to watch TV on TV. This is largely a function of behavior and I don't think you can change that behavior with technology.
Still, this sort of viewing will grow, and in some ways it will grow just as much as a function of it being the only way to make any real money selling video advertising on the Internet because advertisers are much more comfortable running traditional 30 second spots on television shows than figuring out how the hell to advertise effectively on YouTube clips.
But for allof online viewing being additive viewing for the TV networks, and not a cannibalization of existing revenue streams, in order for it to make sense for anybody, including the networks and the studios that own the content, there will need to be more advertising. While not necessarily as much advertising as there is on television, much more than there is currently online. If there's 16 minutes of ads during a one hour show on television and only 2.5 minutes for the same program online, it's not rocket science to predict that will increase, and likely by 4X.
And likely very soon.
Many people argue for the Internet as transport mechanism for all video content, even to your television. Maybe someday, definitely not today or in the next five years, and I don't see a mainstream application for that.
Look for new and better offerings from your cable and satellite providers (watch out, Netflix!)
The main reason that I don't see Internet as a transport mechanism is that it's just not cost effective to do it. The cable companies already have very fat pipes to your house and more efficient ways to utilize the bandwidth they have than using the Internet. Yes, there are a lot of cool technologies, but five years ago I was already beaming content from my computer to my TV with a media extender (now I can fairly easily do this with the XBox and PS3). Are more people doing that today than 5 years ago? Sure. But, relatively speaking hardly anyone at all did it five years ago and hardly anyone at all does it today. There is a lot of empowering technology as far as watching video goes, but for most people it's too much work.
The cable and satellite operators can make a lot of it much easier. It will be harder, though not impossible for the satellite companies, but ultimately I do see them disadvantaged versus cable operators because the cable companies already have very fat pipes directly to homes.
People like me and Bill scratch our heads and think, "Why doesn't Comcast just offer the online streaming Netflix is offering right through the set top boxes? And why don't they offer MORE shows on demand?"
The primary reason I think it hasn't happened has been over the last 5 years, the Comcast and other cable operators didn't NEED to do it in order to grow. They had broadband, HDTV, and DVRs to sell (and they still do), were growing and could show good sequential growth. But this growth is slowing and they will need to expand offerings in order to grow.
There is another problem though, business models. From a technology perspective, the technology exists to provide the entire Netflix service (not the online streaming piece) in an on-demand format via your set-top box. The problem is, they can't really offer this at $9.99, $14,99 or $19.99 a month without being in a panic about their other revenue streams. But over time, these things usually get sorted out.
I would expect to see a Netflix style service (perhaps even Netflix itself) via set top boxes within the next five years. All of the issues with mailing disks will be gone. I think it will range in price based on what you already subscribe to. If you are already paying a lot for cable, it won't be an expensive add-on, but will be more expensive if you're not currently paying much. But the Netflix model can be recreated in its entirety, and more conveniently so than the model that involves mailing DVDs.
I may be optimistic in terms of my time frames, but the bottom line is that cable operators have very fat pipes to your house, look for them to begin utilizing them more, in some cases with offerings I havent even imagined. I expect we will begin hearing more about them very soon as the cable operators look for ways to grow.
Which of these trends is most important?
I can only answer based on my own thinking but it's definitely a question that will produce different responses depending on who is being asked.
My opinion is that despite all the hubbub over online video, over the next several years it is the least important thing to watch. Yes, it will grow. Yes, there will be more commercials, but there are bigger fish to fry. I think the three other trends, at least over the next five years, are more important to watch in terms of the business aspects, and particularly the reallocation of existing revenue streams.