News Items Reveal A Changing T/V Landscape
Two items reported in the news this month demonstrate how oft-overlooked media consumer preferences are beginning to shift the landscape and business model for ad-supported T/V (television/video).
News item #1: an across-the-board decline in traditional, linear TV audiences.
Observers suggest the reasons for recent, surprising drops in network and cable prime-time audiences range from poor measurement to DVR playbacks taking time away from live viewing to an early and warm spring.
I would add another: that viewers moving to various on-demand platforms account for more viewing in locations where traditional (Nielsen) ratings are not picked up. Advertisers who haven’t yet expanded their media investments into on-demand platforms (Hulu, Xfinity, cable operator on-demand channels, Xbox Live, etc.) will suffer a further loss of “potential exposure” with these drops. This loss will be particularly acute in younger demos, who grew up with the on-demand world of the Internet and are shifting more rapidly to online and mobile T/V viewing platforms.
The big challenge and opportunity for ad spenders moving money to on-demand platforms will be that content providers are installing far less ad loads per program than for linear television (see my recent article for a snapshot of this). These advertisers will need to be prepared to 1) use a hybrid audience measurement approach tailored to their specific buys in order to evaluate whether their investment goals have been realized; and 2) be prepared to pay a higher CPM (cost-per-thousand “opportunities for exposure”), though in reality, this will no longer be “opportunities for exposure,” but actually a verified CPE (cost-per-engagement) for ads that are actually seen. In a marketplace where supply is declining, this shift to a different valuation system will be necessary.
I offer, though, that this is not a bad thing for advertisers, as the decrease in clutter, reduced ad-avoidance and the assurance of engagement will more than make up for any blind adherence to outdated CPM measurements and criteria.
There’s a strong viewer hunger for quality T/V programming, seen in the popularity of shows like “Downton Abbey” (PBS), “Mad Men” (AMC), “The Killing” (AMC), “Game of Thrones” (HBO), “The Borgias” (Showtime), “The Good Wife” (CBS), “Revenge” (ABC), “The Closer “(TNT), “In Plain Sight” (USA) and others. Notice how many of these programs come from cable networks. Back in the early 1980s, when cable was new and had insignificant ratings, it would have been unimaginable that they could fund quality content to compete with the big 3 networks. What cable networks had that the broadcast networks didn’t was strong dual revenue streams -- subscriptions and advertising -- that they could (and still do) reinvest into content, attracting new audiences, increasing both subscription and advertising revenue, and reinvesting again into content.
Today we see Netflix and Hulu beginning to produce original content, some of it pretty high quality (Netflix’s “House of Cards” employs top talent and is based on the successful BBC/PBS mini-series). Hulu has the dual revenue stream of subscriptions (Hulu Plus) and advertising, and Netflix would be well-advised to develop the same. Even when players like Fox and most cable networks are limiting/denying programming rights to these over-the-top distributors, they shouldn’t be ignored.
The Internet today offers a low cost and broad-based distribution system that has never been seen in the media industry, already dramatically shifting consumer habits, business models and pricing for music and book publishing. With players like Amazon Plus, Xbox Live -- and, rumor has it, Google and Apple -- ready to join the fray, the proprietary cable systems and their content partners will no longer have the kind of control over viewing consumption that have made them so profitable in the past.
Perhaps that is why CBS is working with Netflix, seeing it not as a competitor but as a category-expander and even a potential customer. This kind of smart reframe around industry change, embracing rather than trying to control and defend old ways, can and will make for some very positive outcomes for all parties -- financially and in the overall T/V viewing experience