Business of TV, Cable Ratings, Tolling Internet Traffic

Business of TV, Cable Ratings, Tolling Internet Traffic

The Television Will Remain Dominant, Though "TV" is Showing Signs of Weakness Michael Greeson, Founding Partner, Research

Another day, another headline about TV remaining the "dominant viewing medium, as if anyone in their right mind would argue otherwise.

Those in the business of TV, of course, love to build up and destroy "death of TV" straw man arguments. Most recently, TVB - the TV-based market group for stations - argued that the impact of Internet video on traditional TV has been negligible, with Internet viewing representing only 1.5% of all TV viewing.

While one may argue that these numbers may underestimate the impact of online viewing, the general thesis is true. Consumers will tell you plain out that, when push comes to shove, they would rather watch video on their televisions as opposed to a pad, PC, or mobile phone.

As with most straw man arguments, the advocate distracts the listener from the real issues by building up a flawed but similar position that can be easily torched. In this case, the more complicated issue has little to do with whether TV viewing - live or recorded - has declined in general, and everything to do with how TV viewing habits have themselves changed with the introduction of new content sources In other words, viewing video on the TV will indeed remain dominant; the question is whether this conduit will be filled by broadcast and PayTV channels or by some other source, and how these habits vary by age.

To measure these shifts, TDG last year introduced its 'First Glance' metric, which measures the order in which broadband-enabled consumers turn to various TV sources, be it live TV, recorded TV, online TV sources, etc. In other words, when those with multiple TV content sources first sit down to watch TV, to which source do they turn first, second, third, etc.? This provides a much more insightful snapshot of TV viewing behavior and points to emerging trends long before companies like TVB or Nielsen will openly acknowledge them.

Generally, our latest 'First Glance' data suggests that live TV continues to dominate; it is the first choice of 66% of broadband-enabled consumers. However, when age is factored in, only half of 18-34s turn first to live TV broadcasts, compared with more than three-fourths of those 45 or older. When it comes to viewing of DVR-recorded TV broadcasts, they are the first choice for around 20% of 25-44s (what TDG calls "the DVR generations") but only 13% of 18-24s.

So how do net-to-TV sources like Netflix fit into this equation? Close to 20% of 18-34s first turn their TVs to such outlets, compared with 10% of 35-44s and only 3% of those 45 and older. Despite the fact they are still viewing television - and despite these incessant insider proclamations that "TV remains dominant" - this demonstrates a shift in behavior with which broadcasters are clearly concerned and insiders cannot spin to suit their own purposes.

Barclay Capital Analyst Says Cable Ratings Down Because of OTT. But for Some Nets It's Making Revenues Go Up

Bill Niemeyer, Senior Analyst

A very interesting bit of news surfaced this week, one that avoided most press attention but sure got mine. As reported by [
Take a look at its all-day schedule for this week. It is currently showing new episodes of two high profile original dramas (Mad Men and The Killing) and The Pitch, a highly regarded reality show about an ad agency. But the bulk of its schedule consists of past season episodes of AMC series like Breaking Bad, plus a lot of "older" movies and TV show reruns (at the moment it's three hours of CSI: Miami, Tuesday through Thursday afternoons). Over at Netflix, you can't get current AMC original programming. But you can get past season episodes of AMC series including Mad Men and The Killing, CBS's CSI: Miami, and a lot of old movies and TV reruns. NBCU's USA and Turner's TNT exhibit the same pattern. A few original series with the rest of the day devoted to past episodes of original series, old movies, and TV reruns. Again, on Netflix many of these original series' past episodes are also available (like USA's Burn Notice and TNT's The Closer). Though OTT may be the reason for these overall declines, it is helping some networks in other ways. For example, The CW, whose co-owner CBS's CEO Les Moonves said that a recent Netflix deal for past seasons of CW original programming made the network profitable

Of course, when cable network original programming is on Netflix, it is writing big checks for those shows. The question is to whom is that money going? Well, it depends. It is common now for TV networks to produce their own programming or to demand a share of a show's ownership so they can participate in potential backend revenue. Like everything else in show business, how much the network gets depends on the power/money algebra in place when the original deal to air the show was made.

Last April, Netflix did a rumored $75-$100 million deal with Mad Men production company Lionsgate for non-exclusive online rights to that programming. AMC likely got a slice of that money, as well. What are cable networks to do? For one, relying on ad revenue from reruns of movies and TV shows will see steadily diminishing returns as this programming appears on OTT services. On-demand is the natural home for library content like past TV shows and movies where users can discover and watch on their own schedule. Video-on-demand (VOD) is a way for cable nets to better monetize past programming themselves, but as I noted in TDG's report Making Ad-Supported VOD Work
this requires MVPDs to speed current deployments of VOD ad support technologies. As well, launching more original programming is a way for cable networks to support ratings while creating an OTT revenue stream. However, for every hit like Mad Men, there are many TV dramas and comedies that never return their original investment. Some mention live sports, but that depends on which sports a network can afford. Deals for popular sports packages can be very expensive, and the rest may have rather limited appeal (arena lacrosse anyone?). And what then is the lesson for OTT itself? Faced with increasing costs for buying past season TV programming, OTT services too are turning to original programming. Netflix's deal for new episodes of the series Arrested Development is but one example. Overall, these impacts are one more indication of the growing power of OTT; a power that is now having a tangible impact on some key TV networks, both negative in terms of ratings but positive in terms of cash flow (again, if but for some).

VideoNuze-TDG Report Podcast

Consumer Video and 'Tolling' Internet Traffic Laura Allen Philips, Research Services Manager Among the most valuable dividends of industry conferences are the post-event discussions. And last week's TIA 2012, hosted in Dallas, is no exception. In discussing takeaways from the event sessions he attended, TDG founding partner, Andy Tarczon, brought up an issue that has of late become the subject of much larger industry conversations: who ultimately is paying for the "free" video consumers view online? Better yet, who should be paying for it? According to Cisco's Visual Networking Index , video accounted for 51% of all consumer Internet traffic in 2011. This is anticipated to rise to 54% in 2016. To put this into perspective, by the end of 2016 some 1.2 million minutes worth of video content will flow through provider networks every second.

Not to illuminate the obvious, but video traffic is not quite the same as traditional data traffic. In particular, how it is paid for is a notable disparity. Traditionally, we pay an Internet Service Provider (ISP) to carry our data around the Internet, passing it to and from other ISPs as necessary. The ISPs, in turn, have peering agreements that are usually zero-sum arrangements, meaning one's data can pass over another's network without charge, and vice versa. This of course assumes an equally advantageous sharing agreement - you carry mine, I will carry yours. Commercial video, however, travels over Carrier Delivery Networks or CDNs - with transport costs paid by the content provider - after which CDNs pass the data off to ISPs who (consistent with the terms of their transit agreements) may pass it off to other ISPs and eventually to consumers, who pay for some portion of it. This type of commercial video, of course, holds much higher value than generic "data" traffic. For some, that is. Unfortunately, the second, third, even fourth ISP in the transport chain sees little value, leading many in the IP video delivery chain to speculate about how best to adapt - to find a way to spread the wealth, or at least the costs, more equitably.

Fundamentally we are talking about transportation, so perhaps there exists an insight or analogue in the models used by freight transport systems. For example, our freight transport infrastructure today has toll roads or tollways - roads that require a fee or toll to travel. Both cars and large trucks use these tollways, with multi-axle truck-trailers usually paying more to do so and rates being exchanged among tollway operators; unless, of course, the second (or third) toll operator does not designate higher rates for larger vehicles. At this point, all bets are off. Note that this model has nothing to do with the value of the goods being transported. Toll-road owners cannot charge more for the transport of gold bullion than they do for cantaloupes. That said, early railroad operators employed value-based pricing, with raw materials and other low-value materials transported at lower rates than higher-value finished goods. Let's be honest: they knew that finished goods manufacturers could afford to pay more per load than bulk freight shippers and can be charged accordingly. On a pound-for-pound basis, passengers were charged higher rates than either freight category, a practice that ironically remains in place, in particular when it comes to broadband use.

On a dollar per byte basis, the consumer is still the highest ratepayer. Data caps and tiered data plans are only going to raise the fare for subscribers, which may not prove to be a winning strategy should competing Internet providers opt not to pass the costs on to the end user.

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