Oct 24, 2013

Once They've Seen Paris: A Revolutionary Proposal For The TV Industry

Once you’ve gotten used to watching television without advertising, it’s really hard to go back.

That’s something the industry hasn’t really come to terms with yet, the fact that they’ve been training a whole generation (and many of its elders) to studiously avoid the very thing they use to pay the bills. It’s like having a dull ache in your leg for years and then suddenly finding a pill that makes it go away. It wasn’t life-altering pain, but once it’s gone, you realize how much better you feel without it and there’s no way you’re ever going to put up with it again.

I was thinking about this while listening to the Netflix earnings call on Tuesday. For 8 dollars a month, they’re able to make hundreds of millions of dollars a year off subscriber fees alone. And no commercials. Ever.

But how many networks are there that we’d pay 8 dollars a month for? I suspect not that many. Maybe 5 or 10 at most. The rest we could live without: we mostly watch them because they’re free or we’re bored or because they have one particular show we like. The rest is just a flyover zone, the channels you pass through when clicking from NBC to Showtime.

So here’s a radical thought: what if we turned the whole paradigm around? What if we made ad supported TV the back-up option and subscription services the premier one?

Take the CBS series Under The Dome which premiered this summer on Monday nights, with multiple commercial breaks, on CBS and then resurfaced on Fridays on Amazon, commercial free.

What if the process was reversed and the Monday night broadcast was on a service called CBS Prime that you paid $8/month to subscribe to and where you got to watch Under The Dome and other CBS series ad-free?

Viewers who didn’t sign up for CBS Prime would get to watch the show five days later for free, only with the usual eight minutes worth of advertising thrown in.

This would create two strong reasons for fans to subscribe to CBS Prime (early access and no commercials) and would still allow the show to build audience with remaining viewers, some of whom might like the show enough to sign up for CBS Prime. It would also place pressure on the networks to improve the quality of their programming so that viewers would want to sign up for the prime versions.

There are potential downsides to this maneuver: affluent audiences might just default to the ad-free services and be lost to advertisers forever (though I’d argue that this is more or less happening already, thanks to streaming, VOD and DVR.)

The industry would also be forced to admit that an ad-supported model is an inferior model and risk losing ad revenue (though again, you can argue that this is already the case with apps and it’s not hurting mobile ad revenue. Plus TV advertising still has incredible reach and services like AdTonik that tie TV spots to mobile ads can help extend that reach, while also hitting affluent audiences.)

The biggest downside would be that the Prime system would only work for a dozen networks at most and that would create a more transparent two-tier system. On the other hand, if costs were low enough and a niche network had a small-but-extremely-loyal following, the Prime system could work for them as well.

How it would work is also open for discussion: the most logical move would be an HBO-style service with a preset linear schedule, though there’s also an argument to be made for a pure VOD service that had much of the network's library already on it (ad-free) and where each new episode would be available for download at noon Eastern time on Mondays. A Netflix-style system where all episodes were released at once is also possible, though spoilers might serve to disincentivize weekly viewers.)

Given the results of Piksel's recent Binge Viewing Survey, that showed many viewers are no longer watching their favorite shows live (and thus presumably watching them without commercials) a shift in emphasis to align TV with the rest of the entertainment industry, where the free/ad-supported model is not the premium model, could go a long way to keeping those viewers happy and keep them from leaving the pay TV ecosystem. It’s a major paradigm shift, but it’s one that could work to the advantage of all parties involved.

Viewers in particular.

Oct 16, 2013

Beyond The Bubble

This article first appeared in Visions, a newsletter put out by our partner Civolution

There’s an apocryphal story of how the late playwright Arthur Miller, upon hearing that Richard Nixon had won the 1972 election, expressed incredulity given that “no one I know voted for him.”

That attitude persists today inside the media and tech bubble where all too often we look at the behavior of our friends who also reside inside that bubble and decide that it’s reflective of the world at large. Unfortunately, that’s just not true and can lead to some very bad decisions. But put that behavior into the right context, and it can lead to some very prescient ones.

Inside the bubble, we take it for granted that no one actually watches linear (live) TV apart from the occasional sporting event. But the reality is that over 80% of the TV watched in the US is watched live. We don’t watch commercials, so we assume no one else does either. But TV ad revenue is actually up. It’s an article of faith that “kids” all watch TV on their iPads. But most kids, even in Europe and the US, don’t have iPads or tablets to begin with, let alone use them for watching television. Many of our friends seem to be abandoning pay TV and cutting the cord in favor of a combination of Netflix and other streaming services. But there’s scant statistical evidence that this is happening on any significant basis, and a recent Nielsen study showed that Netflix actually indexes considerably higher with high income families who maintain their top tier pay TV service.

So then here’s the catch: none of these things are true today. But they will be. Maybe not in 2013 or 2014 and maybe not all of them. But that train’s already left the station, and the trends that are happening inside the bubble now, have a very good chance of happening outside of it quite soon.

Our challenge, as an industry, is to figure out how to harness those trends and make them work to our advantage. Television is as mass a medium as it gets. While smartphones and computers can feign at attracting the young and tech-savvy, we’ve got to appeal to everyone, to grandma and grandpa, to people who don’t know an OS from an OTT. And we’ve got to do that without alienating the people on the cutting edge.

The best tool at our disposal for accomplishing this task is listening. Listening doesn’t have to mean extensive research and long costly studies. It can be as basic as taking people outside the bubble into account, thinking about what they’d want to see, whether their living rooms also contain multiple iPads, let alone multiple TVs. It’s easy to assume we know what the consumer wants because we are consumers too and why wouldn’t everyone want the same things we do? That’s fatal though and it’s a problem that’s plagued the tech industry from day one, along with its cousin, “we should build it because we can.”

Television is changing, and like most changes, it will happen slowly and then all at once. Success involves staying ahead of the change, but not too far ahead that you’re waiting for everyone else to catch up. Listen to your friends and co-workers, but listen to the people outside the bubble as well. They’re the ones who are going to make or break you. Not us.

Oct 11, 2013

Calling Twitter's Bluff

As a run-up to their IPO, Twitter has been making a lot of noise about how they are the new virtual water cooler for television shows. And to prove that point, they’ve engaged Nielsen to come up with ratings that show how much Twitter-powered “engagement” TV shows get.

Now measuring sentiment has always been a tricky business, but this set of ratings seems particularly specious. To begin with, Nielsen doesn’t track what’s being said, just that someone is saying it. Which on it’s own is enough to raise an eyebrow, but they then compound that by pretending that every tweet is read by everyone who is following the tweeter. Which we all know is patently false: most tweets go by unseen, especially if you’re following more than a handful of people. [UPDATE, OCTOBER 30, 2013:  Steve Hasker from Nielsen explained to me that Twitter has a way to tell if a user has looked at a tweet - that Twitter can tell if a user has the mobile or web app open and if they've scrolled down and seen the tweet. He also said that an independent auditor was going to test that to see if it was accurate. But that is how Twitter judges the reach of each tweet.)
Twitter is not Facebook - there are no algorithms to put your friends tweets up front and the speed at which tweets go by all but ensures that most will go unread. While claiming all those eyeballs may make networks, advertisers and potential investors feel better, the stats seem pretty far removed from reality.

There’s also the whole demographics thing: Twitter is not what you’d call an ideal focus group. It skews younger and hits a range of random demographics, but seems to miss the mainstream. Only around 25% of Americans have Twitter accounts. And if I’m being extremely generous, that means maybe 20% are regular users. So a full 80% of the audience never sees a single tweet. Twitter’s not adding a thousand new users a day, either. The numbers are pretty stable. Which means that 80% figure is pretty stable too.

As this article from The Wall Street Journal points out, that means that what’s popular on Twitter is pretty much only reflective of what’s popular with Twitter users: The Big Bang Theory, one of the top ten rated shows with the general populace, does not even crack the top 10 of Nielsen’s Twitter ratings.

Now what’s interesting is that Comcast just announced a plan to allow people to tune their TVs directly from Twitter. Which will do something Nielsen has not yet been able to do: provide an accurate read on the number of people who are actually tuning in to TV shows because of Twitter. No more guesswork: this is as close to click-through as you’re going to get with TV.

My assumption is that the results will be exactly what you’d expect them to be: live events and teen girl oriented shows like Pretty Little Liars will get decent sized boosts from Twitter. Well done History Channel documentaries on the life of Konrad Adenauer won’t. Shows like Psych (USA Network) and Game of Thrones (HBO) that engage in well-planned, well-funded “get out the tweet” campaigns will see some gains as well. But that’s about it.

As time shifting continues to grow as a consumer behavior (particularly, as our recent study indicated, around shows people really want to watch) the value of platforms like Twitter that rely on live tune-in will diminish. Which is not the disaster for advertisers and TV networks it sounds like: we’re in a holding period right now, waiting for things like contextual, dynamic ad insertion to stop being unicorns and start being real. We’re close and when that happens, when ads are inserted because the systems knows the viewer is watching on an iPad at 10PM the week before Halloween and inserts an ad for Reese’s Pieces, then the system becomes whole again and Twitter becomes just one more vehicle for driving certain audience segments to watch shows they might not otherwise been aware of.

Which is a lot different than a virtual water cooler.

Oct 6, 2013

The Value Of Ownership

I find it incredibly useful (not to mention fascinating) to step back every so often and ask “how did we get here?” How did we wind up with the particular business model and set of beliefs that currently dominate the industry. And to fully understand the media industry in 2013, it’s necessary to look back to the year 2007.

In 2007, the music industry was still reeling. The conventional wisdom of the day said that two things killed the music business. The first was piracy, in the form of Napster, Limelight and other services that people used to download entire libraries of music that they could play on their computers and MP3 players. The second was the death of the album, which allegedly came at the hands of Apple. The belief was that because iTunes let listeners cherry pick the songs they wanted to buy, they stopped buying albums, and because iTunes had a virtual lock on online music, Apple ignored the music industry’s pleas to raise prices on downloads, which would have allowed them to recoup some portion of their shrinking profits.

Many people believed that it wasn’t a matter of if these twin viruses would infect other industries, but rather, when.

The conventional wisdom of the day also held that people wanted to own media. Owning movies was a habit the DVR helped start back in the 1970s and people had been buying music for even longer. There was no reason to think that they would not continue to do so. Rental options existed, but their business models were based on the notion of limited supply which served to encourage sales rather than cannibalize them.

It was precisely because of this belief that the notion of the digital locker took off. The idea was that the digital locker would prevent piracy, as people would not have physical access to all those digital files they owned, and that it would prevent any one company (i.e. Apple) from owning the digital marketplace and fixing prices. (It was widely held that consumers stuck with iPods because their considerable iTunes libraries did not work on other players. A digital locker with files that worked on any device, current or future, would ensure that did not happen again.)

It was a great idea in 2008, only then consumers did what they oft times do: they changed their behavior in a way that no one had predicted.

Sometime in the period between 2008 and 2012, consumers, or at least a significant number of them, decided that they didn't really need to own music or movies: they were happy to rent them in exchange for unlimited access to a close-to-unlimited library. Hence the success of Netflix and Spotify.

Part of that decision had to do with the superior user experience of the subscription services. Unencumbered by fears of piracy and the need to keep track of individual libraries, they could keep their interfaces free from multiple log-ins and other protect-the-content features that digital lockers and similar services, were forced to add.

But mostly it seemed to be a part of a gradual awakening by consumers to the fact that there was no longer a reason to own any sort of media. Storing everything in the cloud eliminated the notion of scarcity. It meant that everything would now be available to everyone. And you could watch or listen to it immediately for one low monthly fee.

We’d never had that before. Media was always scarce. Libraries only had so many copies of a given book. Owning media was the only way to ensure consistent access. But now there was a better way. One that gave you access to the entire spectrum.

The value of ownership is fading on a macro level, particularly among the younger generation. Which is perhaps not surprising when you look at our recent history. For years, people owned very few things. Even rich people: the gilded-age mansions of Newport are not known for their lavish walk-in closets. And then, very quickly, the postwar consumer revolution of cheaply made goods turned ownership from novel to commonplace and suddenly we owned more things than we could keep track of. At which point ownership began to lose its value.

We can see that same change in the automobile industry: young people, who grew up in an era where owning two cars was fairly common, are buying fewer cars. And even the ones who own cars report that it’s less of a big deal than it was a generation ago. Not all of them. Not most of them. But enough of them that automakers are noticing the shift.

That’s how we got here. To a world where consumers prefer the ease of use of an OTT (broadband-based) TV signal that sometimes buffers but is available whenever they want it. Where they’d rather pay Netflix $9/month to be able to watch any show they want rather than pay the studio $15 for the right to own a particular movie in perpetuity.

The future of media is in that change, in the triumph of convenience over quality, in the idea that there will always be a way to access any type of content at any time on any device. Those are the principles our future systems-- and future business models-- need to be based on. Consumers may not be aware that they’ve made this decision for us, but they have, and trying to buck that decision makes as much sense as trying to turn back time.