Tuesday, April 16, 2013

The Coming TV Revolution: Can Over-the-Air Free Broadcasting survive?

A number of trends are coming to a head - and may quickly and radically transform the TV (and other video media) landscape

  Broadcast TV has remained the primary force and driver throughout myriad technological advances - coax birthing cable; VCRs facilitating time-shifting and opening new choices for viewing; satellites transforming signal distribution and leading to an explosion of networks; computer gaming providing an alternative use for TV sets; digital networks & the Web opening the market (especially at broadband speeds); mobile and the "TV Everywhere" potential; social media prompting new levels of engagement; among others.  All these have opened the market to competition, and the explosion of choice has led to shrinking audiences and falling revenues - even with TV ad spot prices increasing.
  Still, the big networks remained the top draws in programming, grabbed the lion's share of national ad revenues, and remained, through its public broadcast outlets, more or less universally accessible.

  That's starting to change.  The audience share for the Big 4 broadcast networks has been falling for almost a half century.  This winter saw one of the Big 4 networks' entire schedule outperformed by Spanish-language broadcaster Univision in the key 18-49 demographic.  In the Winter sweeps, a cable show (A&E's Walking Dead) outperformed every broadcast network regular scripted series program.  If you exclude big sporting events and reality programs, most of the Big 4's current prime time schedule was outperformed by cable TV reality programs (Duck Dynasty, Swamp People) and WWE Pro Wrestling.  That's not a position of strength in the market.

  And then there's the impacts of DVRs and other viewing alternatives. This last ratings year is seeing most scripted programs experiencing significant time-shifting - from 15% to as high as 50% of a shows audience coming from time-shifting - whether through DVR replay, access through Video on Demand offerings, or streamed from network online sites. The shift isn't stopping with broadcasting either; recent studies show that more people are watching Nickelodeon's programming via NetFlix streaming than are watching the network itself.  TV viewing habits seem to be changing.
  Alternative viewing creates problems for an industry dependent on advertising - particularly when a sizable portion of value comes from being able to target times and specific audiences.  One problem is counting those who delay viewing.  That problem's been around since VCRs, although it's really grown significant only recently.  Nielsen's tried to keep pace by developing multiple ratings measures - the original live viewing ratings while introducing new ratings measures that also include delayed viewing within various time-frames.  However, the industry hasn't settled on how to best capture online streamed viewing, so much of that remains unmeasured.  Even with better measures of delayed viewing, much of it occurs through devices that allow users to fast forward through ads or skip them entirely; and VOD and streaming services don't necessarily include the same ads as aired in the original broadcast.  As such, the expanded ratings may capture the additional program viewing, but aren't really helpful in measuring advertising's reach, or adding value to the live ad spots.
  Then there's cord-cutting and the zero-TV homes.  Those terms address different impacts of the rise of online video streaming.  "Cord-cutting" refers to the growing phenomenon of people dropping some or all of their multichannel feeds and relying on a combination of over-the-air broadcasting and online streaming to provide their TV content.  Research suggests around 1 in 10 multichannel subscribers have dropped some or all of their multichannel service (the vast majority dropped pay or more costly advanced tiers while keeping basic service), with another 5-10% considering the move.  While cord-cutting may become a significant problem for those services that are dropped, you would think that it would help broadcasters as the primary source of live TV.  "Zero-TV" homes take things a step further; the term doesn't refer to those without a TV set and who never watch - rather it refers to those who get their TV and video content entirely from non-traditional TV channels.  Primarily from online streaming, online downloads, and recorded home videos (movies and TV programs).  While initially only a small portion of the U.S. TV audience, Nielsen recently announced that it will start including those households in their sampling, and will eventually integrate their viewing into its TV ratings system.  Initial studies suggest as many as 5 million USTV homes fall into the "Zero-TV" category.
  Declining audiences are also evident in drop-offs in advertising revenues.  TV's aggregate share (broadcast and cable) of national ad dollars has fallen below those for online advertising.  Advertising revenues for cable networks surpassed those for broadcast networks a couple of years ago.  At best, TV ad revenues have diminished long term potential.  TV ad revenues, like all advertising media, took a hit in the recent recession, and growth rates have slowed behind other advertising outlets, resulting in a shrinking share of volatile advertising dollars.  TV businesses, like newspapers and cable firms before them, are seeking new revenue streams.
  One potential new revenue source is licensing.  The jump in retransmission fees in the latest round of negotiations, the success of cable and DBS in getting consumers to pay for TV, and the more recent success of online streaming services like Netflix, Hulu, and Amazon Prime, have amply demonstrated the potential value of licensing as a revenue source.  TV and video firms are starting to look in that direction for revenues to replace advertising losses.  In fact, broadcast networks are already scrambling to grab a share of retransmission fees from local broadcasters, creating problems for many local stations.

All of this helps set the stage for the major networks knee-jerk reaction to two innovations fostering the "TV Everywhere" concept: Dish's Hopper with Slingbox, and Aereo.

  Dish's Hopper started as a DVR-type service with two particular twists: it would automatically record every network prime-time program, instead of only those selected by the viewer; and it included technology that allowed viewers to skip all commercials during replay.  To handle the volume of the entire prime-time schedule, much of the program storage would be in Dish's cloud rather than in the subscriber's set-top box.  These factors were enough to get most of the major broadcast firms to challenge Dish in court, trying to prevent its implementation.  Then came another innovation when Dish announced the integration of Slingbox technology, which allows viewers to stream content received at home to Internet-connected devices anywhere.
  With the first announcement of the Hopper service, major networks sought to challenge the legality of the service and technology, largely on copyright and intellectual property grounds, and seeking an injunction that would prevent Dish from implementing and offering the service.  In particular, CBS, and its CEO Les Moonves, not only reacted negatively, but badly.  After the Dish Hopper with Slingbox was voted "Best of Show" at the last CES (Consumer Electronics Show) by C/Net (owned by CBS) editors, Moonves' office ordered them to remove the device from consideration, and to not report any more news or information about the technology or service.  (This was after promising C/Net complete editorial autonomy).  Moonves also threatened to pull CBS off the Dish DBS system if they didn't stop promoting the commercial skip function.  (Revealing also his ignorance of DBS operations and rules: first, Dish doesn't carry the network, they carry local broadcast stations which are CBS affiliates and FCC rules prohibit network interference with local station operations; second, unlike cable, local station carriage rules state that if a satellite service carries any local station, it must carry all local stations in that market.)

  Aereo's technology allows users to access local broadcast signals through the Internet.  It's primarily a place-shifting technology (like Slingbox), rather than a time-shifting technology (DVR, Hopper).  As such, it's impact is to expand the potential audience for local broadcasters, so it's less clear why broadcast networks and station groups would be in opposition to a technology that would only expand their reach and their audiences for advertisers.  Still, a number have joined forces to file a lawsuit aimed at prohibiting the service, again mostly on copyright grounds. (I've speculated it's just because they want to grab a share of Aereo's subscription fees).  A number of the broadcast networks, Fox publicly, have threatened to pull their programming from over-the-air distribution if Aereo and similar "TV Everywhere" technologies are allowed to continue.

  The central question in the two lawsuits is whether the services fall under the guidelines established in the 1984 Betamax case.  In that landmark case, the Court ruled that technologies that technically could be used for copyright violations were legal if they also had substantial non-infringing uses (primarily under "fair use" exemptions).  Among the specific qualifying "fair" uses were time-shifting and/or place-shifting legally acquired content for private use - key features of the challenged services.  Initial rulings in the two cases with respect to seeking preliminary injunctions to ban the services while the case was in progress went against the network/broadcaster groups.  Both judges found that the services had viable "fair use" arguments that would need to be addressed more fully in court, and thus denied the petition for a preliminary injunction.  A Fox spokesman went a bit overboard reacting to one of the rulings:
"the court has ruled that it is OK to steal copyrighted material and retransmit it without compensation."

  This has resulted in an interesting dynamic - Hopper's commercial skipping currently only applies to the the broadcast networks' prime time recordings, and Aereo only redistributes over-the-air broadcast signals.  In other words, those technologies pose issues only for broadcasters. Thus, the renewed interest in "going cable."  It's not a totally new idea for the networks - as early as the 1990s networks looked at cable network licensing fees and thought about grabbing a share of that revenue stream.
  However, it would only work if they abandoned over-the-air broadcasting fully, which would have serious impacts on their own advertising revenues (resulting from the reduced reach and audiences) and the profits from their owned-and-operated local stations (which typically cover losses from network operations). Multichannel coverage has expanded to around 90%, which can qualify as "national" coverage, but there's also the question of whether multichannel operators, and viewers, would be interested in paying for programming that has been proudly touted as free throughout its history (particularly at the price the broadcast networks think they're worth (which is in the range of $10-25 dollars per subscriber per month). 
  Frankly, if they can't draw significant audiences for "free" content, it's not clear why viewers would be willing to pay heavily for it.  Even if the broadcast networks settle for an additional $50 per month per subscriber (for the Big 4 broadcast networks), that would be a huge jump in cost for multichannel subscribers.  It seems likely that a lot more people will drop those channels or services (if possible) with such a price hike.  Multichannel distributors are already moving sports channels into separate tiers (with much smaller reach) in response to concerns over $5-10 monthly subscription increases driven by skyrocketing sports licensing fees.  These jumps are also fueling talk about implementing "a la carte" pricing models (where subscribers pay only for pre-selected channels).  Big price increases would clearly drive demand down (shrinking potential audience), and economic research on "a la carte" also suggests "a la carte" pricing results in huge declines in demand, and thus audiences. And further significant drops in audience would clearly result in sizable drops in advertising value and revenues.
  The move would also significantly impact local broadcasting, removing a large amount of a station's most popular programming, which would also have to be replaced.  Studies suggest that losing a network affiliation can cost a broadcast station as much as 75% of its value, and could result in half to two-thirds of local TV broadcasters running significant losses and most likely ceasing operations.  Including those owned and operated by the networks parent companies.  Are those companies willing to write off some of their most profitable assets in the hope that they can pull big bucks as a cable network? 
  Then consider the PR nightmare of viewers facing price jumps of $50 or higher a month, just to access what they've always been told is "free TV".  And then consider how Congress and the FCC would react to something that would significantly damage (and possibly kill off) free over-the-air broadcasting). 
  The reaction really seems overblown, particularly when considering that the actual economic impact of these new technologies and services is likely to be minimal.  Sure, commercial-skipping may reduces the value of ad spots, but those aren't being counted now anyway.  In addition, keeping programming accessible longer, and available over more devices in more places actually increases the potential for viewing. The net impact of these technologies on the financial bottom line is likely to be minimal.

Source -  Tech upstarts threaten TV broadcast modelIT Business Net

Edits - had to clean up some language and missing phrases. Added a la carte issue

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