Tuesday, March 31, 2015

E-books Report

A new survey from Nielsen suggests that ebooks continue to make gains in book markets.  The bad news is that some of that seems to be coming from online sales.

The digital formats (ebooks, audiobooks) increased their share of book sales revenues, while traditional print markets saw their share decline to 70%.  The biggest decline was in trade paperbacks, which fell from a third of the market in 2013 to just above a quarter in 2014.  In terms of units sold, ebooks increased their share slightly, to 21% of the market for new books.
 Online retailers (for both print and ebooks) remained the dominant sales channel, although it's share of sales fell slightly, to 35%.  Brick and mortar outlets (bookstore chains, independent bookstores, and other outlets) mostly retained their market shares.  The only big decrease in market share was for bookstore chains.
Diffusion of ebook readers continued apace, with smartphone ownership around 75% of adults, and tablet ownership over 40%.  The graph to the right reports shows the percentage of ebook readers who indicated that they owned a particular device.  Two things are clear from the numbers -- first, that many ebook readers have multiple devices, and second, that market share is variable, and influenced by devices entering and leaving the field.  Last year, for example, saw large increases for Android OS devices (smartphones and tablets). Apple's mobile devices remain the most widely owned, while Amazon's various Kindle devices were the other big branded device.

Source -  E-books Gained, Online Retailers Slipped in 2014, Publishers Weekly

#utsmw15 Infographic: How Digital (& Social) Drive TV Viewing

From Google Insights, How Digital Drives Viewers to New Shows,

Monday, March 30, 2015

#utsmw15 Infographics: Global Penetration & Use

Some slides from WeAreSocial.sg

#utsmw15 Infographic: Social Networking Threats

From the folks at Kaspersky Labs

#utsmw15 Infographic: Social vs. Salary

Many Millennial will sacrifice salary for the freedom to use social media and technologies.

From Online Courses.com - Social Media vs. Salary

#utsmw15 Infographic: Social Media's Going Mobile

From Statistica - Most Social Networks are now Mobile-First

It's Social Media Week #UTSMW15 - Time for Wow

It's Social Media Week here at UTK's College of Communication and Information.  And time for some timely social infographics and reports.

From Leverage and Social Times blog, some quick stats on top outlets' performance in 2014.

Wednesday, March 18, 2015

Apple joins the OTT mini-bundlers

Apple has divulged some details on the new Apple TV service that it will offer next fall.  Like the recently initiated Sling-TV, the plan is to offer a small bundle of streaming channels to consumers with Apple TV OTT boxes (actually, and iOS device).  One big difference from Sling-TV is that the Apple plan will be anchored by live streams of most of the broadcast networks (NBC is not currently listed, allegedly because of a longstanding feud between Apple and Comcast).  Apple's bundle will likely be more expensive than Sling's as a result.  Like Sling-TV, Apple's bundle will include access to a Video-on-Demand library - there's talk that Apple wants to extend VOD access to other iTunes content, if it can get licensing deals in place.

For more on the Web/OTT bundling issue, see this earlier post.

Source: Apple Plans Web TV Service in Fall, Wall Street Journal

Streaming Music Systems Performance (Infographics)

Two interesting pieces recently.  One on the relative performance of top music streaming options, the other on how those services compensate performers and writers.

Researchers at YouGov BrandIndex looked at a variety of metrics for the top 5 music streaming services in the U.S. They found Pandora to be the dominant player in the field, although Spotify has been making inroads recently.  Pandora has dominant leads in most of the metrics, from number of subscribers to awareness (from both ads and word of mouth).  Spotify's numbers were improving, but the researchers concluded that
"Perhaps the brands with the biggest challenge are iHeartRadio and iTunes Radio. They have reasonably high awareness levels, but do not seem to be getting traction with consumers. The conclusion is that these brands may need to try something different to generate excitement with consumers."
Music streaming services largely emerged as a result of major record companies eagerness to open up a second revenue stream to help cope with declining sales of physical recordings.  Initially, they were eager to license their recordings to streaming services, but faced an initial roadblock - the existing royalty systems employed two distinct approaches.  Royalties for sales were based on fixed compensation for each unit sold, while royalties for licensing music to radio stations was based on a percentage of station revenues (and not directly linked to which music was played).  Conceptually, the radio model seemed closest to how streaming services operated, as well as how audiences used them.  Thus, most of the early deals utilized royalty payments as a percentage of revenues.

As sales in the traditional music markets continued to fade, the record industry wanted more from streamers.  They started arguing that the current system (which they had eagerly negotiated) was "unfair" - largely because streaming revenues were slow to develop.  The attack came on three fronts.
First, that not enough money trickled down to artists and songwriters.  The biggest problem with that argument is the fact that the share that trickles down to the artists and composers is determined by the rights organizations (like ASCAP and BMI) and the actual rights holders (predominantly the record labels), who take their cut off the top.  So the industry argues for a larger royalty rate, of which only a small fraction would actually go to the artists and composers.
Second, streaming services differ from radio stations in that they can and do track individual consumer plays.  There's no mechanism to measure how many listeners hear a song on radio.  The current licensing deal with Spotify calls for royalties to be paid according to a formula that includes both a revenue percentage and the number of streams.  Spotify also pays an additional set of royalties to songwriters and composers for what is termed "streaming mechanical royalties".  As a consequence, Spotify pays a much higher total percentage of its revenues than Pandora.  (Pandora is currently classified as an online radio service, and radio stations are currently not required to pay mechanical royalties).
The third argument is that most streaming services offer a free streaming option, which the music industry argues "cheats" the rights holders because revenues from the ads are less than subscription-based revenues.  The fact that the free/paid proportions for Pandora is roughly 75/25, while Spotify's audience is more of a 50-50 split, also contributes to the difference in royalty payments.  As one record label executive summarized,
"Based on the free model, the payouts we're getting on streaming is so small... The problem that we're running into is Spotify is just not converting users to the paid version quick enough."
That perspective contributed to the fact that the music labels pressured Apple to raise its proposed starting subscription price for the new Beats streaming service (much like the book publishers did for iBook pricing - which the courts later ruled was an antitrust violation).  But the underlying issue is that the record companies want more money, and are using artist payments to engender sympathy.  If artist payments are the real problem, the music industry could solve that easily by granting them a bigger share of the payments they get, or changing accounting practices so that the artist share comes from gross payments, and not what's left after music industry costs (and profits) are covered.

One can look at this situation from the "level playing field" metaphor.  Spotify wants a level playing field by getting the same deal Pandora has, Pandora wants a level playing field with broadcast radio (straight percentage of revenues, and lower percentage), and the music industry wants to raise the height of the field several feet because they cut the grass (i.e. royalties to artists and composers) too short, and aren't making enough profits from their traditional business models.

The current copyright and royalty system is a mess, largely because it was designed to deal with selling physical copies of intellectual property.  The current model has never really worked well with digital reproduction, or with the growing need to replace shrinking sales revenues with licensing arrangements for emerging digital streaming channels.  Add the fact that digital markets are global and have the potential to scale much higher than physical copy sales (tens of millions for hit albums in digital, while in the physical medium heyday, hits sold hundreds of thousands).  Plus, they're now having to deal with younger audiences who care more about access to music than owning copies of music.  In addition, artists need to recognize that the scale differences should be reflected in the setting of royalty fees - and that because digital access to their recordings remain available long after labels drop them, that they'll benefit from their work much longer under digital deals.

The debate and fights over music royalties is likely to continue for a long time, in part because the music industry is trying to hold on to an increasingly problematic business model, and is hoping to find a way to maintain their control over revenues derived from their historic role as the choke point between artists and their audiences.  However, the growth of the digital economy is showing that it doesn't require multiple layers of distributors (and their growing costs) to provide access to products for potential purchasers.  There are already content creators (including musicians) who have discovered that going independent can provide them much higher levels of return, as well as more control over use of their work.  For the big labels, this is a fight for survival; but for society, it's a fight for who gets to control access to content (and who gets to benefit from that).  As for the question of whether streaming will leave artists unhappy - the answer is yes, if the big labels remain in control, and no, if we can shift focus from preserving a declining music industry to how to develop a rights and licensing regime that promotes and protects creation of, and access to, intellectual property.
It's time we shifted our concern from protecting the old ways to think about how to develop copyright and licensing systems that benefits the creators and users of intellectual property rather than those who merely reproduce and distribute it.

(For more background, see this post about a digital music licensing panel at the 2014 CES).

Sources: Infographic: Which Streaming Services Are Winning the Battle for Millenial Eardrums,  Adweek
Is the Music Streaming Industry Destined to Leave Artists Unhappy?, Adweek

Monday, March 16, 2015

Primetime ratings continue decline

The February C3 ratings averages (live + 3 days), the current advertising standard, showed a 12% decline for broadcast networks, and a 11% decline for cable networks.  In fact, only 3 of the networks measured showed an increase over their ratings for February 2014 - HGTV, Discovery, and TBS.

While the article indicated that Primetime TV ratings have seen "double digit" declines in each of the last five months, the situation isn't quite as bad as that suggests.  Looking deeper shows that the ratings since last September have been consistently down - that percentage decline is based on a comparison with the ratings for the same month the year before.  So in terms of the actual ratings, those aren't down by a third or more. It's still not good news for TV networks.

What is a more troubling indicator, following up on previous posts (here and here), is the fact that the decline over the previous year has been consistent, and its been so for both broadcast and cable networks.  That's indicative of a systemic structural change - one more likely based on audience behaviors than network programming efforts.  In the long term, that means trouble for an industry that is so heavily reliant on getting viewers for advertising.

In looking at the pattern of consistent declines, media analyst Michael Nathanson commented:
“It’s clear the downward spiral in TV ratings continues with no end in sight..." and that while changes in the ratings process might account for some overall change, “we believe these terrible ratings trends are also indicative of changing viewership habits.”
Source: TV ratings see double-digit declines for fifth straight month, New York Post

Tuesday, March 10, 2015

The end of big bundles? Going "a la carte" via OTT

OK, first let me take care of clarifying the terminology.

Assembling big (often 50+ channels) bundles of cable networks has been the primary strategy of multichannel video service providers (cable, DBS, telco cable, etc.) for the last couple of decades. Keeping bundles big helps minimize transaction costs for the bundler, while offering maximal potential audience reach for advertisers, and maximizing the viewer's ability to browse and discover the value of channels and their content.  On the other hand, critics complain that it "forces consumers to purchase channels they aren't interested in."  That's not necessarily true, as purchase decisions are based on the aggregate perceived value of the bundle, not the "costs" of undesired channels (see here for more detailed analysis).

Still, as the networks and local stations seek to increase licensing fees from multichannel providers, those costs are passed on to the consumer in the form of higher bundle prices.  Bundle subscription costs are rising rapidly, and may be nearing a threshold point for many subscribers - the point where their perceived value of the bundle is less than the subscription price.  We're seeing the beginning of this in the rise of cord-cutters - those replacing paid multichannel access with a combination of online and free over-the-air TV sources.

However irrelevant, the claim of paying for unwanted channels is a major theme for those who would prefer to force multichannel services to unbundle channels and offer them to consumers in small focused bundles (like the various Discovery channels), or individually (i.e. "a la carte").  This may seem to be a good deal for consumers - until you realize that going a la carte will, in most cases, reduce audience reach numbers significantly.  One study (discussed here) forecast that forced unbundling could result in a loss of 60% of advertising revenues for cable networks, and result in more than 100 channels going out of business.  And since cable networks would need to significantly increase their a la carte prices to recapture some of those losses, going a la carte would also likely result in higher total costs for cable network access for most consumers.

Meanwhile, some multichannel video providers are finding that the increased licensing demands made by some networks are crossing that value threshold, and are dropping channels, or in one case offering to provide the channel - but only as an a la carte service.  The networks have so far been smart enough to realize that either option is a net loss for them, but the gleam of a licensing El Dorado of unlimited wealth keeps them trying to push licensing fees ever higher.  Viacom, and its package of networks, is the latest battleground, with their channels being dropped by a number of mid-range and smaller cable systems unwilling to cave into their licensing demands.  As one analyst noted,
“The stage is set... As consumers are less interested in large bundles, somebody is going to get hurt in the process by asking for too much.”
If multichannel service providers remained the only option for access, the impact on the industry would be bad enough.  However, they're facing rapid growth in the ability of broadband internet connections to provide access to high-quality TV streams to mobile devices and wired connected devices.  The term OTT (over-the-top) refers to these alternative sources of video and TV content. Both the diffusion and use of these technologies for TV viewing are growing rapidly (see here and here).  Combined with increased time-shifting of programs and place-shifting, audience TV viewing habits are clearly changing.  For cable networks, going online for their content distribution - either as single channels or as a part of a more limited (and much less expensive) bundle offered online - is an increasingly viable supplement, and potential substitute, for traditional delivery media.

The viability of online TV delivery has been a significant component of the "TV Everywhere" marketing push.  The initial conceptualization, though, saw "TV Everywhere" as a way of achieving multichannel services beyond the household's TV sets - and not as a substitute or replacement for those services.  That was one reason for the rapid reaction to the Aereo service.  One would think that local stations and networks would be eager to extend their range of service via mobile as a way of enhancing (or at least maintaining) audience reach.  However, it seemed that the industry hated the notion of a video service that paid no licensing fees; and the courts bought that argument.

More recently, the industry has seen several TV networks pursue the option of offering their programs and content online. The WWE initiated a very successful online subscription service last year, and many of the Pay TV networks have announced plans for providing online access channels separate from multichannel provider subscriptions.  HBO, in particular, is scheduled to provide a separate online channel called HBO Now starting April 12, 2015.  A research report released in January by Park Associates suggested that HBO Now could generate an additional 15 million subscribers.  More critically for multichannel providers, half of those interested in HBO Now said they'd not only be likely to drop HBO pay channels, they'd drop the whole multichannel pay service (about 7 million subscribers).  That's still a big win for HBO, who not only would likely net an added 8 million subscribers, but would not have to split the subscription fee with the multichannel provider.

In addition, CBS has been offering an online video service since last fall, and it is thought that ABC, NBC, and ESPN are considering taking their online video channels public (currently access is limited to subscribers of some of the largest multichannel providers).  Most cable networks provide some access to their content, but not to live streams of the channel.

Still, it's likely that the new DishTV service, Sling-TV, may unleash the deluge.  Sling-TV is an OTT service that bundles a number of the most popular cable networks as a minibundle at a very low subscription price ($20/mo. for about 20 channels), and supplements that with targeted minibundles (sports, movies, children, etc.) at $5 a pop.  The service combines live streams of the network, as well as on-demand access to the previous week's programs. Sling-TV has managed to sign up some 100,000 subscribers in its first month, despite being initially limited to those with a Roku OTT box.

The Sling-TV service could well force the big multichannel services to start unbundling.  It offers an intriguing alternative for those who would be satisfied with a lesser selection of channels.  And even for those viewers who place high value on channels not included in the Sling TV packages, the price contrast between the "big bundle" options ($50-$150+ on new subscriber deals) and Sling-TV will prompt consumers to reconsider if their demand for favorite channels will justify the price differential (and to wonder how the costs of channels they don't want inflate bundle prices).

The big multichannel providers have been shedding TV subscribers slowly, but consistently, for years.  Now that viable and less costly OTT and online video options are coming available, expect the decline in pay TV subscribers to increase, particularly for major MSOs and multichannel providers.

Sources - Updating: HBO Now The Big Test for Cord Cutters?, Online Video Daily VidBlog
Sling TV notches 100,000 users in a month, TechHive
Seventeen percent of U.S. broadband households are likely to subscribe to an OTT HBO service, Parks Associates report.
Provider's Dispute with Viacom Highlights Skirmish Over the Cable Bundle, New York Times

Pew - Demographics and Local News Habits

From Pew, some nice graphics on demographic differences in local news use.

Infographic shows rise of online video viewing

From the fine folks at ComScore:

Some highlights:

-- Broadcast network live viewing down 30% over last 5-6 years
-- 87% of US Internet users report regular online video viewing
-- 40% of online video viewing is done on mobile devices
-- 15% of internet users report watching video on smartphones daily
-- viewing on tablets and OTT are leading a shift to online video viewing

Tuesday, March 3, 2015

TV on the verge of transformation

Is the television industry on the threshold of a major transformation?  A number of recent industry research and reports are suggesting that major changes in how people access and view television is coming, and that will severely impact advertising revenues for local TV stations, broadcast networks, and multichannel video distributors (cable, DBS, etc.)

The changes have been going on for a decade or more, as video shifted to digital, as Internet connection speeds increased, and as new viewing platforms (PCs, smartphones, mobile tablets) emerged, and huge new collections of video content have been made available to viewers (YouTube, Netflix, etc.)  These have opened new options for viewing, and have shifted control over viewing from the media outlet to the audience.  Online video (from online rather than traditional TV sources) is booming, audiences are increasingly using options for time-shifting. The last few years have also seen audiences becoming increasingly multi-platform - watching TV on a wider range of devices.  Use of mobile devices for watching video has risen rapidly in the last few years, particularly among younger audiences and ethnic audiences.

A recent Morgan Stanley analysis noted that shifting viewing patterns have contributed to a 50% drop in broadcast network average "live" ratings over the last decade - the measure of audience that watched the initial live broadcast. While some of that decline has resulted from cable networks capturing various niche segments, more recent declines have resulted from the rise of time-shifting options. This has led the TV industry to push for a shift to other ratings measures that include delayed viewing - Live+3 (any viewing within three days of initial broadcast) and Live+7 (any viewing within a week).
Underlying this has been a major shift in what ratings represent - from audience at a certain time, to audience for a specific program/episode.  And created a problem for advertisers, as the delayed viewing options do not necessarily include the advertisements aired during the initial live broadcast.
The figure above shows that the decline hasn't been fully reflected in TV advertising rates and revenues.
The broadcast networks have been able to remain the access points for the very large, mass, audiences, and have used that status that to push advertising rates higher (on a CPM, or per-viewer, basis).  But the advertising industry is starting to push back, as some cable networks are reaching broadcast network viewing levels (for certain programs, at least) and mass advertisers are less willing to buy ads at inflated CPMs for programs with large proportions of delayed viewing.  Analysts suggest that the broadcast networks will be unable to maintain all of the current premium CPM pricing in the long term.
The shift in audience viewing patterns is holding true for cable networks as well.  While the decline in live viewing for cable networks has not been as precipitous as that of networks, they are subject to the same change in audience viewing behaviors.  The impact on cable networks, however, is mitigated by the fact that many get the majority of their revenues from licensing/subscription fees.  Those rates and prices are based on audience demand for access, rather than the number of viewers.  Thus, while cable networks may take a hit on advertising revenues, the overall impact on revenues is lessened.
The relative stability of licensing/subscription revenues is encouraging broadcast networks and stations to explore, and try to exploit, that additional source of potential revenue.  Licensing and subscription revenue levels have been increasing rapidly over the last decade or so, and are rapidly nearing the cross-over point - where the TV industry will earn more revenues from licensing than it will from advertising.
 The last year has seen a number of retransmission consent battles between the broadcast networks and major MSOs - with the networks arguing that their licensing fees should reflect their audience levels.  However, as noted earlier, licensing/subscription prices and revenues are based on audience demand for content, not on advertiser demand for audiences.  And general-interest mass channels have relatively low overall values for their content, more competition, and more close substitutes, than the targeted niche cable networks.  Licensing network access is not likely to generate the audience demand required to replace advertising losses - although the networks might find better success licensing specific programs rather than the network overall.  (Particularly if the broadcast networks continue to distribute their content through free, over-the-air TV stations.  Audiences are not likely to pay for network content when it's available over-the-air for free).
Increased licensing and subscription fees is already driving some viewers out of the traditional pay TV market.  These "cord-cutters" are finding that online video sources and free over-the-air TV can provide the video content they desire at much lower cost that multichannel bundles.  While the phenomenon is fairly new, studies suggest some 8% of the TV consumers have dropped all traditional pay sources (cable, DBS, etc.), another 15-20% have cut back on pay TV, going for smaller bundles of channels, and/or dropping Pay-TV services (like HBO) in favor of streaming video services (like Netflix).
The newest challenge for traditional multichannel systems is Dish's new SlingTV streaming video service, which bundles live streaming of 15 of the high-value cable networks and Video-On-Demand for just $20 month.  (See earlier post on the subject).  The SlingTV basic bundle is likely to prove to be a close substitute for basic multichannel bundles that cost 3-5 times as much, feeding the flurry of cord-cutting.
One analyst argued that the shift in audience TV viewing behaviors reflects a structural transition from ad-supported networks to streaming video services. It's certainly in progress, particularly among younger viewers. How long the transition will take, or how complete it will be, is still unknown.  But the change is structural. The bad news for traditional TV services is that with a structural change, it is unlikely that viewers will return to old habits.

Sources -   Broadcasters fear falling revenues as viewers switch to on-demand TV, ft.com (Financial Times)
BRUTAL: 50% Decline In TV Viewership Shows Why Your Cable Bill Is So High, Business Insider
CHARTS: Why Audience Ratings Have Collapsed For Cable TV Shows, Business Insider
The Evolution of TV: 7 dynamics transforming TV, ThinkWithGoogle white paper.
Evolution of TV: Reaching Audiences Across Screens, ThinkWithGoogle white paper.