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 all The Talk of 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.
so these trends don’t involve whether Chuck and Dollhouse will be renewed… but what about Terminator?
Broadcast vs Cable rates also have to do with retention levels if I’m not mistaken. So since they’re higher on Broadcast… they deserve a premium. That just kind of makes sense.
I’m not sure NETFLIX is much of a competitor with cable or satellite. Yes, their streaming is cool. However the vast majority of their streaming is movies, and many of these movies aren’t even airing on the pay TV services. Yes, some of the TV shows are, but NETFLIX only appears to offer select Universal and CBS productions for streaming of new episodes.
Nick, I don’t think the Netflix online streaming is a competitor, but think the Netflix DVD service is (and it offers much, much more content than is currently available online).
Oooh, speaking of Netflix, I get next week’s episode of Party Down today.
You just had to mention Chuck and Dollhouse in the title,didn’t you?
I think you’re wrong! Nah-nah-nah-nah-NAH.
As an interested layman I agree with most of this but wonder: Hasn’t the imperative for basic cable to class up or improve programming for higher end advertisers existed for a while? Yet its a ” race to the bottom ” much like the nets with reality dreck and network-style sitcoms and cop shows. Second, I’ve seen some really good video streaming and some not so good. Certain consumers were buying flat screen TVs and miniature videocams fifteen years or more ago regardless of price. In my opinion those consumers are still around and MAY drive the demand for video streaming faster than many anticipate. Could be wrong …
Do you guys think its high time that the Nielsen ratings are tossed by the wayside? Sample sizes are hardly an accurate measure for something with so many variables such as television viewership. Ive never once met anyone who has even been approached to take part in the Nielsen ratings.
Are the days of something on FOX being considered a hit if it reaches 5 million viewers where as 12 years ago if something in primetime on FOX debuted with 5 million viewers it wouldn’t have had a chance to even air a second episode.
What amount of viewers to you think constitutes as a hit show for each network?
My guesses are as follows
NBC: 7 – 9 million
ABC: 8 – 10 million
CBS: 10 – 12 million
FOX: 6 -8 million
CW: 3 – 4 million
Also if you’d like what would you have expected those numbers to look like 15 years ago for corresponding networks?
As you pointed out…the landscape of television has changed, yet the method for evaluating its actual viewership when its all said and done has not. When is something gonna be done(and can it please be something that will make Marc Berman so confused that his head will spinoff when trying to list “WINNERS” or “LOSERS”.)
haha, Liz. About Dollhouse or Chuck?
My relative rankings were not directed at you.
Seriously though, please don’t equate my thinking that of all the things I’m following that online video is the least important in terms of being disruptive right now and in the near future means it’s NOT important. if it wasn’t important it wouldn’t be one of the trends I was following! I probably look at time horizons differently than you (and many other people, for that matter).
DVRs have been around a long time and I was interested in them very early and I thought they would be very disruptive (and that it would happen much faster than what has played out). I was certainly an early DVR cheerleader, but it’s only in the last couple of years that they’ve really been on the radar and the data seems to indicate they’re still not all that disruptive (though increasingly so).
And please don’t confuse my take on video distribution of television content online with all online video! That’s a whole new sector, and you guys cover it well, and I was not talking about the sector as a whole.
“Do you guys think its high time that the Nielsen ratings are tossed by the wayside? Sample sizes are hardly an accurate measure for something with so many variables such as television viewership.”
That all depends on the sample size and just because you have not meet anyone that was approached by Nielsen doesn’t mean that their numbers are inaccurate. Nothing about tv viewer ship makes the math particularly difficult if they have a large, well distributed sample to draw upon.
Brandon, until something better that can replace it exists, no, I don’t think it should be tossed. But I’m a pragmatist — I don’t think television is primarily a content industry, but primarily an advertising industry and the advertising is facilitated by the content.
Buying and selling of advertising is what makes the whole thing work, and that buying and selling is and will always be data driven. Right now the market has voted on the primary data source, and that’s Nielsen. Following things for the last 1.5 years here hasn’t led me to believe that’s likely to change anytime soon.
At this point hit shows are shows that have a 4.0 rating or better in the 18-49 demographic, with shows that have over 5.0 ratings being the mega hits. I don’t focus on the overall numbers in general, but would agree that anything over 3 million is a hit for the CW!
Robert: “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.”
All wrong. Not necessarily in terms of time frame, but wrong in general. Online viewing and downloading will merge with the TV set. There are plenty of ways to do that, and those ways will get easier and cheaper. Even though the computer does the work, people will watch the results on a TV. So, yes, people will watch a TV – but they’ll get the video from either online streaming or a download, probably the former.
And yes, about the only thing that DOES change human behavior is new technology – that or being threatened with death.
Brandon, I would argue that “hit” is possibly the most dangerously subjective word commonly thrown around in tv forums. Everyone seems to have an idea or impression in their mind of what that word means, yet virtually nobody agrees in any one circumstance, much less across the board.
And for good reason!
A hit can be anything anybody wants! Really!
You cannot look up “hit show” in the dictionary and find something there that says “a show must have 4 million viewers and 2 million aged 18-49 to constitute a hit show” or “a hit show must be in the top 10% of its network’s programming” or “a hit show must have significant societal impact”. Nielsen doesn’t have any guidelines either. Each and every person out there makes their own definition of what a hit show is. You just have to say what you consider a hit BEFORE you throw that word around. Otherwise, be prepared to get jumped on by EVERYONE… and again, for good reason. Marc Berman doesn’t specify what he considers a “hit”, “winner”, “loser”, or my personal favorite, the highly subjective “disappointing”. And neither do many of the commentators on his website. Not only do they never state their parameters of what a “hit” show is, but they also seem to contradict themselves whenever they do venture to say what one of their many mysteriously changing criteria are.
I have realized the best way to deal with it is simply come to this site
RSH, it is you who is wrong. You might be right in 10, 25 or 50 years, but you’re definitely absolutely wrong today. My guess is you will still be wrong in five years, and I’m not looking out much further.
Technology certainly changes behavior, but it hasn’t yet made much of a dent in overall TV watching behavior. No matter how much it has changed your personal behavior (or, for that matter, mine). For now, even with all the new technology, the data, and from a variety of sources shows pretty compellingly that people still prefer — and vastly so — to watch television on a TV.
[edit] and I’d add, there is no data to suggest people hooking up their TVs to the Internet and watching television content on their TVs but with the Internet as the source will be a big deal in the next five years. Will more people do it than today? Sure. Will as many people be doing it in five years as have DVRs today? No way.
I find it fairly interesting how ahead of the US the UK is on a lot of these issues although I suppose the massive differences in both population and size play a large role in that as does the fact we have the BBC.
In terms of on demand services and online viewing the UK appears to be years ahead of the US although I only have a very basic grasp of the US on demand systems so I might be slightly off on that. Online viewing isn’t an entirely fair comparison though given that its the BBC who have made the big push into online viewing and they don’t have to worry about making it profitable.
so what’s the point?? chuck has been cancelled??
Robert, all discussion about the timeframe for internet sourced video appearing on television screens aside, the day that technology becomes simple and cheap enough to reach a saturation point is the day ad supported broadcast television dies. 50 years? I don’t think it will be anything like 50 years. I’m thinking more like ten. But whenever it is, the networks better have already made the transition to a new business model before it happens, because by then it will be too late to start doing so.
As for DVR saturation compared DVD, you are talking apples and roast beef sandwiches, Robert. They debuted at the same time, but they were not remotely the same thing, nor did the DVR’s price point drop at anything close to the speed of that for the DVD player.
DVR’s were more complicated, more expensive, and they initially required a subscription to a secondary service that you also had to pay for. Whereas, a DVD player you just bought, plugged in, and used it over and over and over for no extra charge. And with no extra complications. Also, DVD players were basically the next generation of the VCR, a device that had already reached market saturation and that people understood. But there was nothing like a DVR prior to its introduction, so you were starting from scratch with the consumer, which DVD’s definitely were not doing.
People had never had a DVR before, and so therefore had no concept of what they were missing. The taping function of a VCR was nothing like the taping function of a DVR. People primarily used their VCR’s for movie watching, so it was easy to understand what a DVD player was all about. But most people couldn’t program a VCR, so the idea of a machine that JUST recorded television was something that people could not grasp why they needed.
Basically, the DVD player gave you the best and easiest to understand part of the VCR with more features and better picture and sound, while the DVR was giving people the least used part of the VCR, and the one people found to be most difficult to operate.
Apples to roast beef, Robert.
Today, DVR’s are very different in both awareness and execution. The boxes are different, easier to use, and much more efficient. That is one reason why you have seen such a huge step up in market share the past two years. The biggest difference, however, is that now you get them directly from your cable or sat provider, and that is MUCH simpler and cheaper than dealing with the old TIVO service. Time Warner will give you as many as you need, charging you an extra five bucks over the cost of a regular box.
Wait until DVR’s are the standard entry equipment for all cable and sat services and the fees drop down to equal that of the regular box, then you will see a massive adoption of the DVR. But based on just the growth of the last two years, you may see that saturation happen even without that.
Anyway you slice it, the DVR reaching total market saturation will destory ad supported television. You keep holding up these studies showing people’s behavior NOW, as if that means anything for the future. All those studies tell you is what people HAVE done, Robert, not what they WILL do.
The longer people live with DVR’s, the more they will use them, and the more they will use them to skip commericials. And in any case, even right NOW only 20% of DVR viewing starts within five minutes, pery our own study. How is 20% a big number to hang anybody’s hat on? That means 80% of the people with DVR’s are already waiting long enough to skip commericals, and that is just now, when DVR’s only have a 30% market share. The 30% will just keep rising, and the 20% will just keep falling. And it will happen faster and faster each year, as it has the past two years.
Anyway, Robert, the DVR is not the DVD, and it never was, and there is really no comparison between the two despite them both starting off with the letters DV.
I know you don’t want to see broadcast television downsized. I don’t either. But unless these nets get off their collective asses and figure out how to make money in this new age (as opposed to doing meaningless studies that proclaim the death of single cam comedies), that is just what will happen.
You cannot hold back the ocean with a spork.
Robert, we need you to get a new chuck screencap!
I realize this would take alot of the appeal out of dvr but couldnt broadcasters make it so you cant skip the commercials? if the DVR companies got allitle on the side to allow for that, then everyone except the consumer is happy.
but the $$$$$ flow free!
Thoughts?
Short of removing the ability to fast forward I’m not sure how you’d be able to stop DVR users skipping through the ads, the technology isn’t sophisticated enough to be able to tell the difference between the show and the commercials so I don’t think that’s a workable solution. Nor do I think its ever likely to be a workable solution.
What advertisers and networks are going to have to do is find new ways to incorporate advertising. Product placement is the obvious answer because to skip that you have to skip through the show, sponsorship deals are also going to become increasingly important. The idea of strap advertising during the show will likely be played around with as well.
Schmoker, I was not suggesting the DVD is the DVR and I agree with your comparisons absolutely. The DVD does one thing very well — you pop in a DVD and it works. Everyone understands the concept and the value proposition and coupled with years of being much cheaper than DVRs, the pace of adoption is no surprise. My point is that the adoption curves and value propositions of technology that is more complex takes much longer to adopt. I think we will hit 50% DVR in short order, I am honestly not sure the adoption curve for the rest will be rapid.
I do see broadcast television as downsized. In fact, I see broadcast networks going away almost completely and becoming the biggest advertising and subscriber supported cable networks. It’s already true in terms of actual viewing, but the economics currently aren’t completely aligned with that, which is the primary reason that I think revenue reallocation has to happen. For me for years, ABC and CBS were just another thing I can get via cable, like ESPN and Comedy Central. But I watch ABC and CBS more than Comedy Central, and so do most people who watch those networks via cable or satellite. The fact that ABC and CBS had broadcast towers has been meaningless to me for years. From the point of view of the local affiliate model and OTA broadcasts, I think broadcast television as we know it is already dead, it’s just a question of what kind of funeral it will have. But although the business models must change, TV as a medium ain’t dying any time soon, it’s the people who think it is who are holding the sporks.