Internet Video

More Content, Less Clarity

1/02/2012 12:01 AM Eastern

As many TV executives prepare to head to
the 2012 Consumer Electronics Show to see the latest CE
gadgets, the impact of those devices on the TV industry
continues to confound expectations.

Only a year ago, the growing popularity of smart
phones, tablets and other connected devices seemed
poised to roil the entire multichannel television industry,
with online streaming-movie service Netflix touted
as the next HBO. Some analysts argued that socalled
over-the-top providers — offering video
content directly to consumers over the Internet
via streaming — would soon steal away a significant
number of subscribers from cable, satellite
and telco-TV firms.

For the most part, this never panned out. Netflix stumbled badly in 2011 and the tiny number
of people who had cut the cord of their multichannel
subscriptions in recent years didn’t grow into
the beginnings of a mass movement. By the start
of 2012, there were only 3 million over-the-top
(OTT) video homes, according to MagnaGlobal
— just 2.5% of all TV households.

“People wanted 2011 to be the year of the cordcutter,
and that just isn’t happening,” Bruce
Leichtman, president and principal analyst at
the Leichtman Research Group, said.

The badly misunderstood impact of new
consumer-electronics devices and OTT video on
the multichannel business will, however, remain a crucial
issue in 2012 and beyond.

DEVICES AT CRITICAL MASS

For starters, the number of consumer devices in the market
that can easily be connected to the Internet to access
online or mobile video has reached a critical mass. Between
the third quarter of 2010 and 2011, the number of
tablets in the U.S. skyrocketed by 488%, to 20 million; the
number of over-the-top boxes such as Roku or Apple TV
jumped 253%, to 6 million; video streaming-enabled game
consoles increased by 34%, to 61.6 million; and smart
phones spiked by 47%, to nearly 105.7 million in the U.S.,
according to Magna Global, with more on the way.

All of this has moved streaming video, or Internetprotocol
video, out of the “new-media” or “early-adopter”
category firmly into a mainstream, mass-market technology.
More than half (54%) of all Americans 18 and older now
watch TV programming at least once week on a computer
or handheld device, according to Horowitz Associates.

Yet TV consumption remains stronger than ever, with
the average U.S. viewer watching 34 hours a week, up from
32.1 hours in 2006, when the amount of available online
video began to proliferate, according to Nielsen data compiled
by Turner Brodacasting System.

In fact, the heaviest online video viewers also watch an
above-average amount of TV, according to Turner chief research
officer Jack Wakschlag.

Comparing Nielsen data from January of last year with
June, Wakshlag found that the heaviest online viewers
watched 74 minutes of online video and 294 minutes of TV
per dat, much more than the 243 minutes of TV watched
by the lightest online-video users, who watched Web content
for just 2 minutes per day.

Several factors, including social media and the potential
for viewing video on many different devices, seem to be
encouraging increased consumption of TV programming.

A recent Cable & Telecommunications Association for
Marketing study found that 37% of those aged 18-24 were
looking up information on a show while watching TV; 32%
were discussing the show online; and 25% were visiting
the show’s network website. “It is an incredible tool for fostering
engagement with programming,” CTAM CEO Char
Beales said.

In addition to the importance of social media, Adam
Stewart, industry director of media and entertainment at
Google noted that mobile devices are an increasingly important
tool for finding and accessing new programming.
“Mobile [search] queries for returning broadcast shows in
2011 grew by 92% over the previous year, and returning cable
shows saw a 105% increase in mobile queries,” he said.

Programmers also noted that the availability of content
on multiple platforms helps build audiences, because
viewers can watch or catch up on episodes they may have
missed on linear TV. For example, about 50% of the viewing
for Starz’s new original series occurs on demand, either on
pay TV providers’ VOD platforms or online, Starz Entertainment
president and chief operating officer Bill Myers said.

“It allows people to catch up with their viewing and discover
new shows,” he said. To further expand VOD availability,
Starz plans this year to launch an authenticated app that allows
existing devices to access full episodes or movies.

Meanwhile, the HBO Go app, which offers around 1,400 titles,
has already proved to be incredibly successful. Since its
May launch, it’s been downloaded more than 5 million times
and has generated 98 million content views, Shelley Brindle,
HBO executive vice president of domestic network distribution
and marketing, said. More than 90% of HBO Go users
said the product has made the flagship HBO service more
valuable, she added.

The close relationship between heavy TV viewing
and the use of other consumer devices to
watch video also tends to cast doubt on the persistent
notion that younger, more affluent viewers
have abandoned multichannel subscriptions
for over-the-top delivery.

PROFILING CORD-CUTTERS

An analysis of those who dropped cable subscriptions
between March of 2010 and March of 2011
by Turner found that cord-cutters were young,
but they were neither affluent nor tech-savvy. As
a group, they tended to live in rural areas, had low
incomes, were less-educated and much less likely
than the general public to own a computer or have
an Internet connection.

“They aren’t the kind of people we imagine
them to be,” Wakshlag said. He argued that
high unemployment rates and problems in the
housing markets have hurt growth in multichannel
subscriptions.

That doesn’t mean multichannel providers can stop
worrying about subscriber losses, though. Economic factors,
coupled with ongoing changes in video consumption,
could have an important impact on the multichannel
business and emerging business models for multiplatform
delivery, several analysts have argued.

Citing slugging housing starts, Ian Olgeirson, the lead
multichannel analyst at SNL Kagan, is predicting that cable,
satellite and telco video providers will see some absolute
growth in subscriber numbers but that overall penetration
rate of multichannel video services will slightly decline.

“We think that in a five-year time frame, about 10% of occupied
households will rely on alternative online distribution
as opposed to multichannel services,” he said.

A slightly smaller projection comes from Magna Global,
which predicts that the number of OTT households will hit
nearly 4 million in 2012 and grow to nearly 9 million in 2016.

But Olgeirson stresses that most consumers will use
both multichannel TV and OTT video.

Operators have also been moving to blunt the impact of
OTT delivery with their own multiplatform or TV Everywhere
services. How a variety of economic and technical
trends will effect the emerging business models for those
efforts is the subject of the next story.

To read the full Viewer Watch 2012 report, please click here. ViewerWatch_Final
September