Welcome TV 2.0

There are exciting changes in the broadcast/cable industry that are challenging traditional business models. Today I wanted to share with you a few of these disruptive ("black swan") paradigm shifting changes. Whoa! That's a mouthful!

New technologies such as internet protocol TV ("IPTV") and mobile TV are targeting content delivery at the place and time of the viewer's choosing. That's the reason time-shifted viewing (a-la Tivo and DVR) is gaining so much popularity (according to CAB current DVR penetration is 17% projected to reach 22% in the next 5 years, source: CAB 2007 Research Snapshot).

Another interesting trend is the decline of broadcast viewership vs. ad-supported cable (see CAB's 2007 TV Facts "Long Term Total TV Household Share Trends"). Time-shifted viewing and alternative distribution channels (such as mobile TV and web) are increasingly widening the gap between network and cable.

The difficulty with new delivery platforms is that in order to create the content there has to be a clear revenue stream, and that revenue stream is constantly declining as advertisers discover alternatives to traditional TV advertising. Need proof? Look no further than this year's presidential campagin: Mitt Romney, former Mass governor and self-vaulted VC laid out $16m on TV (over 17,000 commercials according to Nielsen) yet struggles in national polls against Mike Huckabee and Rudy Giuliani who have spent $600k and $2.3m respectively. In light of Romney's deep pocket most of their money went into internet advertising and produced-for-the-web videos on sites such as YouTube. In other instances campaigners are seeking broader audiences for their television ads by e-mailing them to supporters or posting them on web sites.

Currency Changes

For the longest time viewership was measured uniformly by sampling "attendance" during the airing of a live show. This method gave birth to the "Nielsen Family."

With the advent of time-shifted viewing, there are now many difficulties in measuring viewership. In response to these difficulties, the market moved to a new currency (Nielsen Live+7) which averages live program viewing plus 7 days of DVR. However, commercial sponsors (ie, advertisers) realized that a highly rated show may not deliver the promised number of eyeballs. Therefore, an additional currency was recently created: C3 ("Nielsen C3, At Long Last", Broadcasting & Cable). The core problem introduced by time-shifted viewing can not be solved, however, by either of these new currencies. The question "Are people watching my commercial?" needs to be supplanted by the question "Are they engaged and will they buy my product?"

The gizmos that are filling our lives are about to take us one step closer to the advertising holy grail: advertisers are not only going to want engaged viewers but they are going to want to know if and when the viewer becomes a customer.

IPTV leverages high speed connectivity to deliver broadcast content directly to the viewer. For viewers this means more content directly on our desktop/notebook. For content providers, this means a large ad-sponsored opportunity that has yet to be defined.

Below are some recent examples of IPTV deployments:

  • In July 2007 ABC launched an HD media player provided by Move Networks in American Fork, Utah. The aspect ratio is 16:9, compared to the typical SD ratio of 4:3 for most players (>ABC).

  • CBS launched its own version of HDTV online with the announcement of "innertube" (>innertube).

  • Verizon is paying CBS about 50 cents per subscriber for the right to carry its TV stations on Verizon's FiOS TV and is also in talks with AT&T.

  • NBC offers its content directly on its website via streaming and an offline player (>NBC Direct).

So what's all the excitement about seeing TV/cable on my desktop, you ask? That's not the point! Whereas traditional advertising supports the production and delivery of high quality content, IPTV has a much more powerful promise to take viewers full circle: rather than delivering "eyeballs" (viewers) to advertisers, IPTV enables the delivery of fully qualified prospects, or even better yet, buying customers and business transactions.

Imagine, for example, you are watching a show when suddenly an advertisement for pizza appears on your screen. You could then press the button for "Yes, I want a pizza" and the pizza order would automatically be placed. The pizza advertiser, by way of your profile, would have access to your credit card information, delivery address and topping preferences. You're back to watching the show with little, to no, interruption and the advertiser for the pizza has instant gratification. They didn't advertise to increase visibility but actually generated real, tangible and measureable business.

OK, so there are a few problems with this model. Do you really enjoy watching your favorite shows sitting at a desk? Does your TV support IPTV yet? Can you use a mouse on your IPTV television set (yet to be defined)?

But if you think this example is far fetched go take a look at what HSN is already doing using a new Microsoft technology that will compete with Flash. Go to http://www.hsn.tv/ (a quick download of Microsoft QuickSilver is required). Notice how the video stream is integrated with the popups and rollovers. When a product is showing live on HSN and you hit the "buy" button you are instantly taken to the product page on HSN’s site. All of the overlaid menus are synchronized to the video content.

Another example of IPTV deployment is something Microsoft has had under wraps for a while: IPTV for the XBOX 360. Check this out:

In Conclusion

The threats to traditional broadcast are clear. Time-shifted viewing gives the viewer control over the content they are watching and the ability to skip over commercials. The traditional ad-supported model will not work in this new paradigm. Advertisers will need to find new ways to entice consumers to watch their ads. Who knows, perhaps one day I won't have to pay $120 a month for my cable bill? Or better yet: your next version of Quake or Call of Duty (5?) will be free thanks to integration with an ad-supported model (see "Google expanding ad empire to computer games")

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