Last week, with Henry Blodget’s permission I ran one of his essays. I didn't agree with all of it, but I ran the piece because I knew it would be thought provoking and stir up some interesting conversation. While I agreed with Blodget’s underlying premise that existing television business models are under tremendous pressure, and that all of them could not be preserved, I didn’t agree with the comparison to the newspapers.
I also don’t view the Internet as currently or five years from now being a huge factor in what ails television.
The local affiliate broadcast model is busted, and probably not fixable, but not because of the Internet.
Monopolies or near monopolies of distribution are wonderful things to have. For years, the best way for the big broadcasters to get them were with the local affiliate broadcast model. But now, the broadcast model isn’t nearly as cost efficient as, say, having a 24 hour cable channel with wide distribution. I wouldn’t say that the local broadcast market hasn’t suffered at all as a result of the Internet, but it seems very likely that most of that suffering is for the local 5pm, 6pm, 10pm and 11pm news broadcasts. Once Upon A Time, it was the best way to get news, weather and sports and they could keep the masses dangling between commercial breaks with “find out who won…after this message.”
Those days are gone. And this is perhaps the only place where it's easy to compare television to the newspaper business. Except...
While I’m sure that like everything else, viewing of those news programs is down, and down a lot, especially for FOX and CW affiliates, we hear constantly that the 10pm news hour is still one of the most lucrative hours for the local affiliates. We often see people comment that FOX should expand and broadcast until 11pm, but that doesn’t seem likely. Also, while viewing of local news has declined, the last 20 years has seen the rise of 24 hour cable networks dedicated to news, weather and sports.
For the last twenty-five plus years, tomorrow and five years from now, cable is the biggest threat to broadcast nets
No matter how much it is said, it doesn’t seem to sink in with some folks, but the data is clear: the long term deterioration of broadcast network Nielsen ratings is overwhelmingly due to people watching cable programming instead. Remember, overall television viewing has continued to increase even though viewing of broadcast networks has declined and continues to decline.
DVR is a far bigger threat to both broadcast and cable business models than the Internet
Though the growth ramp of DVR usage has been slow, taking 10 years to reach 30% penetration, it’s not entirely surprising. It seems popular convention to assume that because DVRs are basically better versions of VCRs when it comes to recording television shows that growth would’ve been more rapid. The problem with that is that it neglects to take in to account that despite VCRs having the ability to record, that wasn’t the widest usage of them. The widest usage was playing back rented and purchased movies. DVRs didn’t replace VCRs. DVD players did.
But though the growth has been slow, it is growth and it is having more and more impact as more and more people skip ads. The overall numbers, even for primetime get masked quite a bit, because rebroadcasts (repeats) are hardly DVRd at all compared to the first time a show airs. With fewer than a third of homes having DVRs, even factoring in repeats, it represented a visible chunk of the 2008-2009 broadcast season. Overall, CBS had the most “live” viewing with just over 88% of viewing being live (the other 12% via DVR playback). The impact was more pronounced for FOX (almost 83% live viewing) and the CW (82% live viewing).
For shows like LOST, DVR impact is more than three times as great as Internet viewing:
The impact of DVR was far more noticeable for shows like LOST which ran almost no in-slot repeats, where even factoring in a repeat or two, only 70% of its viewing was live, with the other 30% viewing being via DVR. Lost is also was typically the most-watched show on the Internet, with new episodes generally generating about a million* viewers within a month of airing. But the DVR impact was greater, with over 3 million per episode watching on DVR and within a week of the show airing. And that's with DVRs being in less than 30% of the homes in the US!
*Yes, I know that this only counts sanctioned viewing via ABC.com, and doesn’t include torrent downloads. But in the USA, far more people watch online than download torrents. While global downloading is an issue to deal with, how many people are downloading torrents of Lost and watching it in London, Germany, Japan, Australia, etc, don’t have any impact on ABC’s ratings in the United States.
TV isn’t like newspapers, the content is far easier to control
The comparison to newspapers (or for that matter, the music recording industry, but that’s a story for another post) is flawed. Newspapers had a monopoly on local distribution that completely went away. While it does face similar issues to local news broadcasts, the newspaper models were rocked even harder than television's. There aren’t things like Craigslist and Ebay that essentially killed the goose laying the golden eggs for the newspaper business (classified ads).
And there are just too many places and way you can get general news, weather and sports. The only way to turn it around would be for everyone to collude in some way by either charging for the data or not making it generally available. That’s not going to happen. You will have any number of sites where you can get news, weather and sports no matter what happens.
If someone charges, and you don’t feel like paying, you can and will easily go somewhere else. You might pay for analysis, or the viewpoints of particular people if that Suits you, but as far as the information itself, it’s abundantly available, and no matter what happens, will be abundantly available. That genie is out of the bottle and never getting stuffed back in.
But if TNT (Time Warner) doesn’t want to make Saving Grace or The Closer available online, it’s very easy for them to just not make it available. Sure, if they take such a path, the number of people who download or stream it via alternate means will increase, but for now, for most people, that winds up being a barrier and it will be much longer than five years before the general population would “just steal it” if it were not freely available. This isn’t to say that it’s not a problem at all, it is, and one that is probably a bigger problem the younger the group you look at.
Expensive to produce content isn’t easy to commoditize
Scripted television shows are generally expensive to produce. Unlike the weather, and sports scores, it’s not commoditized. You can’t really compete effectively without spending money. While it’s possible that technology will significantly reduce production costs…someday. That day isn’t today or five or ten years from now.
If they can’t get paid, it won’t get made. A world where nobody wants to pay for content doesn’t result in a ton of free content. It results in the availability of less content. It could come to that, but I wouldn’t view that as a positive outcome.
TV is in for big changes, and the models are under huge pressure -- but for now, the Internet is among the least of its worries
I can think of several themes that are a bigger deal to the television industry than the Internet in the next 5-10 years:
- Carriage fees for broadcast networks on cable and satellite offerings. Despite decreases, the broadcast networks are the most-watched networks. Even on Comcast, Time Warner and DirecTV, broadcast networks are the most-watched networks. Perhaps the single biggest revenue growth opportunity for the broadcast networks is increased carriage fees from the cable and satellite companies that are more in sync with overall viewing. This will have repercussions as there will be some robbing Peter (lesser viewed cable networks) to pay Paul (broadcast networks). Peter’s gonna scream like a little kid who just dropped their ice cream cone on the street over that. You can count on some sort of temper tantrums as that starts to play out.
- The trend toward more unscripted programming seems likely to continue. The folks in the creative end of the business hate it, but unscripted has a couple of things going for it – it’s cheaper, and it is more DVR proof. Some in the media twist it around a little because a huge show like American Idol still winds up with a lot of DVR viewing (with most of it being same night time-shifting to avoid commercials!). But on a % basis over 94% of the viewing of American Idol happened the same night the show aired. Compare that to 84% for Lost, 82% for Heroes and 79% for Dollhouse. Sports programming, which are already a very important component, will grow in importance for this reason.
- SOME equilibrium between broadcast advertising rates and cable network advertising rates. There are some real and legitimate reasons that it costs more to advertise on a broadcast network on a cost per thousand viewers basis. That said, I expect the gaps to narrow. Some of that may come via increases to cable rates, and some via decreases to broadcast rates. I expect some temper tantrums will erupt over this as well.
- Figuring out how to monetize DVR and Video On Demand (VOD) viewing better. Will the Sarah character on Chuck be working in a Subway next season? I’d bet my iPhone on it (and I love my iPhone). That sort of product placement, as well as more general sponsorships are pretty DVR-proof. I’d look for more (and more) things like that to make up in advertising shortfalls caused by DVR viewers skipping or fast-forwarding through commercials. As for VOD, there is nothing but room for improvement, both in the offerings themselves and the advertising. Right now, most broadcast and shows from advertising supported cable networks available on demand have almost no commercials at all. Over time, I’d look for them to equalize with the amount of commercials you’d see if you were watching live.
Television does face some very serious challenges, and ultimately the Internet is a challenge. But it seems almost chronically overlooked that for now and the near future, the Internet is a vastly more expensive distribution platform than cable or broadcast, and the people who want to consume the content that way mostly don’t seem to want to pay or deal with a normal amount of advertising.
I’d love to see a la carte offerings available, but personally, I’d rather see them with my cable company than online (but ideally I think I should be able to view online anything I’m paying for via my cable subscription). It will be a good long while before people will be “cutting the cord” on their cable and satellite offerings in droves, and if and when that happens, a la carte may come to pass – not as a method of encouraging subscriptions for content on the Internet, but as a method of keeping people on cable and satellite.
But if it comes to that, it’s the game of whack-a-mole. A la carte offerings will definitely make some people very happy, but ultimately, some of the content currently available relatively cheaply would become very expensive (because it can’t attract enough subscribers) or go away completely with a la carte pricing. It may ultimately happen, but there will be much kicking and screaming first.
A world of totally free content is fun to dream about, but...
As for making content freely available on the Internet, it’s a model that’s busted from the start, and I don’t see how it’s in the networks interest to make something more widely available via a mechanism that generates less advertising and subscriber revenue and costs them more to distribute. But for now, since the data is in and overwhelmingly people still prefer to watch TV via traditional methods – even the people who regular watch video online, not only isn’t it the highest priority for the TV world to deal with, for now, it shouldn’t be.
I think there are a lot of models that could work, but none of them involve getting ESPN, USA, TNT, TBS, MTV, AMC, etc., for free.
The “TV” business better wake up and realize that newspapers were only leading the path that the TV industry is headed down!
~Lanie~
There’s no way you read the whole article! But really, Lanie, what are the CraigsLists and Ebays that are going to ravage the television industry as they have ravaged newspapers? It’s not Hulu or ABC.com, unlike the newspapers that didn’t own Craigslist and Ebay, the tv nets do own those outlets — and can just shut them down. Piracy is always an issue, but it’s not nearly as big of a threat to TV as CL and Ebay were to newspapers.
I guess a better statement on my part would have been, TV is ignoring the threats of it’s existence in the same way newspapers did with the internet.
I agree that the internet as currently or five years from now, NOT being a huge factor in what ails television
I also readily agree that Cable TV has and will continue to be the biggest threat to Broadcast TV. This is true even in my homeland of The Philippines.
Cable TV is now more afforable and accesible than ever before and the viewership is exploding impacting the industry.
I see no current CL or Ebay model to Broadcast TV in the same manner that CL and Ebay crushed the Newspaper industry.
Excellent point! I yeild the debate to the Affirmative Chair!
~Lanie~
Robert,
I agree with some of your thoughts and some of Henry’s. I think one of the significant points going forward is that people want quality scripted programming. I believe that is where the biggest divide will be eventually between broadcast and cable channel providers. How will that programming be delivered and how will it get paid for. Being in the IT business I do see satellite and ISP providers having a leg up as eventually there will be even more programming and those systems are built to handle the widening load of programming on a more sweeping basis. TV’s will be connected to the internet more in the future.
I agree with your assessment of DVR versus DVD. I just got my first Dual DVR (Dish Network) and I have had Dish programming for eight years now. As more people get DVR’s that will be interesting to see the impact from those numbers. I actually may be watching more scripted programming now than before but watching less commercial ad time and my overall schedule is freed up. Interesting dilemma.
Great article! Lizard
I really appreciate the article, particularly the use of actual media use behaviors in terms of uses of time-shifting. The lack of downstream analysis haunts business journalism, and the lack of upstream analysis haunts audience oriented media studies. Well done.
Networks will continue to get out of being “free,” for cable providers until they’re all getting paid, and then they’ll slowly start demanding more money.
It’s just a matter of time. However that won’t stop the increase of DVR usage. REMOTE FREE TV was a darn good idea, and they should have kept it in place and tried some changes with the format. That was the future and FOX imho dropped the ball.
My crystal ball is not working today, kinda cloudy but for this change to happen requires a confluence of tech and content that hasn’t happened yet, its close and coming any day now. The Youtubes, torrents and various other fads are moving it forward but its hasn’t emerged into an accepted mechanism yet. Itunes is close but again the seemless integration hasn’t happened in the majority of homes yet, well atleast in the states. Quite simply I see one big DVR/VOD cloud of content, every show has a website, various brand networks and content creation houses grouping together, people will find it and word of mouth within social networking will play an integral role. The trick monetize that to the point that its better for creators to follow that model over tradition. Ultimately it will happen, cable and broadcasters are middlemen destined to be squeezed out unless they evolve, maybe not tomorrow but within 10 years I see significant change in the technology and adoption across a wide scale. I also see a debate raging under the surface towards copyright, fair use and DRM, the recent court ruling obscenity for the RIAA and several attempts in Canada of our ruling conservatives trying to change our laws to reflect similar US approaches. This will need to be addressed more thoughtfully and rationally if content producers want to continue to earn a living off their wares cause no one is going to be laughing if the recording industry starts getting 2Million from everyone who downloads an mp3.
Also Robert don’t be so sure on Sarah it could easily be Chucks new cover job a manager at a Subway with Morgan as his ass man, he is out work now and with the economy as it is Gov’t has to cut back… just sayin, you can send me your iphone next march, heh
The good news is, the networks recognize a need for a new business model, and are actively experimenting. This is a far cry from the record industry, which spent a decade fighting to preserve an outdated system.
In April, Lost had 1.7 million unique viewers at ABC.com episode player, not 1.0 million.
But a lot of those will overlap with the Nielsen ratings, so scratch that.
Yes, but on average each episode was only watched ~1M times from what I’m told.
Unique viewers is not a valid comparison and is a fairly useless (except for press releases) for comparative purposes unless we started reporting total unique viewers for individual episodes of Lost (which would be measurably higher both for DVR viewers and Live viewers than what we report), and even then Nielsen makes you watch at least six minuted to count you.
When there’s 3.4 million DVR viewers for Lost, you know that it represents 204 million minutes of viewing. When you see 1.7 million unique viewers (and those are monthly numbers, not weekly) sadly it tells you nothing although again, it does sound great in the press releases.
Hopefully one day Nielsen Video Census will report engagement metrics on a per episode basis so they can be compared apples to apples.
Hulu and ABC would make a lot more money on their internet webcasts if they would embed the commercials into the content, like they do on TV. I would sit through 6 minutes of commercials on ABC.com if it meant not having to resize the screen after every commercial and “click to continue.” It’s irritating.
Interesting article and some really thoughtful comments on here.
It’s funny. Sometimes I feel like I’m the only one who still prefers to watch TV via traditional methods. Then I see that numbers across the board for website viewing are generally unimpressive, and I’m glad I’m not alone.
Oddly enough, a part of me feels like the TV business model is broken because most people simply don’t want to watch the crap that’s on –> *staring right at you, NBC* I mean, let’s face it, we all have a few hundred channels — if not more — to pick from, and if you’re like me, the chances of finding something that will not only hold your interest but bring you back week-to-week are becoming pretty slim.
Yes, I’d still like to think that these days, we’re suddenly getting used to watching sophisticated shows with intricate story lines and three-dimensional characters, and that the TV business model isn’t broken because there’s too much to choose from, but that the offering of what’s there is sending folks to other ways and means of entertainment.
On point,I had a reader drop me an email this week and suggest he’d rather off himself than be subject to any more reality programs, cooking shows and dancing competitions. “If you can stomach one, you might as well watch them all,” he’d written. “And if the argument that they’re cheaper to produce has any validity, it also means the networks suits don’t give a damn about their viewers in the first place. They offer cheap, mindless drivel because its easier on their wallets, not because they think people want to see it. So wouldn’t putting quality programming on the air actually increase their ratings, thereby putting more money back in their pockets? I’m so confused.”
He’s not the only one, but this coming from a girl whose blog traffic has soared thanks to the likes of Jon & Kate Plus 8. So I’m done being stumped. I’m just going to go crawl under the couch and see if I can find the remote so I don’t have to get up to change the channel.
“Remember, overall television viewing has continued to increase even though viewing of broadcast networks has declined and continues to decline.”
Do you have one post that shows this point with data (a la your DVR misinformation post, which is most excellent)? I got into an argument about this very point the other day and I couldn’t find anything here quickly enough. Because while *I* know this to be true, the general assumption people have is that overall TV viewing is on the decline, when that’s just not the case. I think people take the broadcast networks and extrapolate from there, forgetting that the cable business is its own thing. I’d love to have a post I could point people to.
In that same vein, up top you guys should have a linked section to those business-wide, notable posts that take on a broader issue than ratings for any given day, week, network. (Dunno what you’d call it…Analysis, Hot Topics, Myth vs. Reality, Not to Let Truth Get in the Way of a Good Story or Anything… whatever). In there you could have everything from the post on how overall TV viewing in increasing to the post about DVRs being a bigger threat than the Internet to your analyses/refutations of commonly held assumptions about TV.
But enough with the digression. Fascinating post! As I often hear, someone will crack the next generation business model for TV, but until that day comes we’re left watching the ‘nets try to shore up the one they’ve had for 60 years. It isn’t clear to me who will bear the risk once the current system breaks down. Scripted programming costs a lot, upfront, with no guarantee of any sort of recoupment of costs (and for accounting purposes, no show ever recoups its costs). And yet people want to watch high-quality scripted programming. So there is a customer for the product, it’s just a matter of figuring out how to make it work when you can’t force people to sit through your commercials any longer.
It’d be nice if it turned into a creator-based subscription system. I.e. people who like Joss Whedon shows could subscribe to the Joss Whedon ‘channel’ (I use that term loosely, in the absence of anything better), pay a dollar a month that’d be used to fund the show, then be the only one who could see it when it was done. Almost like how there used to be patronage of artists, only on a dispersed, broad scale. There are obvious problems (the willingness of people to pay that dollar during the development process, the required knowledge about creators people like, the audience couldn’t grow [mitigate this with a long-term subscription once the show is out and more people want to see it, i.e. you can subscribe to the JW channel if you agree to # months minimum], only works with the highest level of creators, what about unknown talent [might reboot the artist apprenticeship, too], and oh yeah, it’d put networks out of business), but it’s an interesting thought.
And off on another tangent I go, thus I’m stopping. But thanks for the thought-provoking post!
DVRs are not a big threat to the TV business for the fairly simple evolutionary reason that DVRs rely upon the TV business to begin with, coupled with the fact they’re obvious to the networks and the networks therefore can look into ways to make them work for them. I’m not saying they will not reduce income, they will, it’s just they can be planned for.
The TV industry seems to spend proportionately much, much, more than it did 20-30 years ago, which is not surprising given the crossover between the movie industry and the TV industry that didn’t exist back then. I would be enormously surprised if there isn’t a huge amount of room for cutting costs without sacrificing much in the way of quality, the issue is going to be picking showrunners who know how to work on a budget. I suspect that’s also a major factor behind the Dollhouse pick-up, if Whedon can make it work, then that gives Fox an opportunity to go to everyone from Abrams to Shore and ask “Why the hell does your show cost so much to make when Whedon can do it for a tenth of the cost?”
I don’t see the networks moving over to reality shows more than they have done incidentally. TV, in the end, has to be watchable, and a saturation of reality shows isn’t going to do anything but drive away viewers. It’s not as if this fear hasn’t been expressed before, it’s just 20-30 years ago the fear I heard all the time was TV would become a 100% game show broadcasting medium.
Kim, I’m not sure if we have average hours/viewing/day/week/month charted by year anywhere, and there’s probably something more recent, but here’s something from February where Nielsen says TV viewing is at an all time high
We do have a chart of prime-time viewing composition (broadcast, basic cable, premium cable, etc) from 1984-2007 that shows cable’s increases and broadcast’s decreases over 20+ years.
As far as news goes both tv and newspapers are down by a stunning amount. 10 years ago over 30 million Americans watched the evening news. Now it’s less than 23 million. As we all know just about every major newspaper is in bankruptsy. The reason? Liberal bias, not just bias but naked cheerleading for any democrat politician. What we have now is a state run media much like Pravda in Russia in the 1980′s. We no longer have a “free press” in this country, it’s just the media wing of the democrat party. You can’t alienate 50% of your audience and expect to grow.
Robert, the problem with your analysis – or at least the way you write it – is that you mix statements that talk about now and five years from now with statements like: “A world where nobody wants to pay for content doesn’t result in a ton of free content. It results in the availability of less content.”
Which is wrong – or at best, an unknown. In fact, a recent study indicated that because of file sharing, there is now MORE music around and more easily AVAILABLE music than before. In other words, free content has done NOTHING to reduce the amount of PRODUCTION of content by artists. It’s the exact opposite of conventional wisdom and it’s precisely what all of us anti-intellectual property advocates expected.
Granted, music production is quite a bit easier than producing a TV show or a movie. But the principles remain the same.
Intellectual property and the monopolization of content production and distribution BY DEFINITION reduce the amount of available content and easy access to content. It has NEVER been established that the existence of IP laws and content monopoly does anything to increase the production of inventions for the benefit of society, despite that being the alleged reasons for IP, but the reverse HAS been established in specific industries and is easily generalizable.
Even if it is NEVER possible to produce a TV show or movie as cheaply as producing music, it simply cannot be established that if content distribution business models change that there will be less content. It simply doesn’t follow by any logical chain. It’s purely an assumption. And that’s even leaving technology out of it – which one can’t.
You can say technology won’t matter for now, or five years from now, or ten years from now – but in fact it WILL matter over than time period and beyond. The effects simply will be less noticeable initially and become more noticeable as time goes on. That’s not the same as saying it doesn’t matter. The fact that you have to post this article shows it DOES matter.
It’s easy to say the Internet will have little impact on broadcast television for now and five years from now. But that’s what I call a “duh!” pronouncement. It’s both obvious and uninteresting.
The same applies to the observation that newspapers are worse off than television. Again, “duh!” Newspapers were just easier for the reasons you cite – reasons whose underlying technologies still demonstrate an impact greater than expected by the affected industry.
If you want to have the nerve to state that the Internet will NEVER exceed broadcast TV as the main delivery mechanism of video content, have at it. You’ll be wrong, but it’s safe to say since we all have to wait for you to be proven wrong.
The same applies to any statement that video and film production won’t EVER be made cheap by technology. That’s almost a guaranteed wrong statement, even based solely on what has happened there in the last ten years.
But what you’re really trying to argue here is that content PRODUCTION AND DISTRIBUTION BUSINESS MODELS will always be the same – and that’s not an argument you can establish with the evidence you’ve cited.
I might also add that I consider cable delivery to be “Internet” anyway since it’s based on networking technology, whereas broadcast is not networking. The difference between cable TV and cable Internet delivery of video content will go away a lot faster than broadcast TV. I don’t see a big deal of difference in delivering video by cable than delivering video by Internet over cable. Data is data, whether it’s video or Web sites.
In some sense, the cable delivery model IS the Internet delivery model. The only difference is in where you get your Internet connection – via DSL or cable or satellite – or (one of these days) wireless. One could imagine the cable operators becoming ISPs and allowing you to subscribe to “Internet video” the same way you subscribe to cable video. Then you’d have to say that “the Internet” is the biggest threat to broadcast, not cable, because cable would BE “the Internet”.
But what you’re really arguing for is that content production is expensive and therefore will never be delivered for “free” (meaning over the Internet, because you think it’s impossible to generate revenue from “free”.) Actually I don’t know anybody who argues that it will ever be “free” in every sense -particularly the sense the either content producers or delivers can’t make money somehow. (Humans are pretty inventive at making money, no matter what the circumstances.) What we DO argue is that it won’t necessarily be produced or delivered by either broadcast networks or film studios and theaters like the current incumbents. (Actually we don’t even say the current incumbents won’t remain – just that their business models will have to change if they want to remain.) And the fact that Hulu and the like haven’t figured out how to finance content production or delivery means absolutely nothing at this early point in the evolution of the confluence between technology and business.
So your entire argument, while technically correct in the here and now vis-a-vis DVR and cable and newspapers, pronounces too much about the future and relies on an understanding of the concept of intellectual property which is simply wrong.
The Big 4 need to put up safeguards against the internet and to embrace cable not shun it. Each individual affilate needs to stream their channel live on their website. This will be completely ad supported and DVR Proof. Every Commercial break on Hulu needs up to 4 ads. ABC and NBC with their plethora of Cable networks need to give the 10 o clock hour to their cable networks. With 5 cheaper made scripted shows from ABC Family and USA. These shows will get the benefit of being double promoted on a cable network and a broadcast network. Then the broadcast networks should outsource their programing to their cable counterparts. Having Wedensday ABC on Thursday ABC Family. They also need to include those ratings when considering renewal. With the introduction of the new iphone software that can download TV Shows you can about guarentee downloads will go up.
I can also see with the economy the broadcast ratings go up as people see cable as a luxery