• by Manish Bhatia , December 8, 2014

It’s no secret that TV viewers increasingly watch what they want, when they want it, on the screen of their choosing. That might be a TV in the living room connected to a cable box, gaming console or OTT device, a tablet or a smartphone, and will likely depend on a variety of factors such as age, lifestyle, content availability and viewing situation.

As an example of how quickly behaviors are changing, a recent comScore study shows that millennials spend one-third of their original TV series consumption time watching on digital platforms, a number that will likely increase going forward. Perhaps a single person prefers an “a la carte” approach to video content consumption, whereas a family with children might have more diversified viewing needs best met through a more traditional cable offering.

The number and types of preferred connections to content are almost as diverse as consumers themselves.

Whether consumers are embracing the cord, cutting or shaving it, one thing is clear: cable and broadcast networks that want to reach the broadest audience and connect deeply with consumers are embracing new modes of TV distribution. Many networks — HBO, CBS and ESPN, to name a few — are already innovating in support of delivering these new connection options.

By offering additional means of connecting consumers with their content, is there a potential long-term threat to established revenue streams by not just accepting but facilitating this disruption? Sure. Despite the notion they may have reason to resist adapting, many cable and broadcast networks are embracing the innovator’s dilemma in pursuing new content delivery methods such as OTT — ultimately because the short-term economics are attractive enough to support these disruptions:

1) Diversifying content delivery methods = new revenue streams.
While some might assume that millennials and younger generations are ditching their cable boxes, this isn’t entirely true. In a recent comScore survey, 55% of respondents ages 18-34 said they watch original series on a traditional TV only, and 32% said they watch on both a traditional TV and online. Because the online viewing of content is often incremental, this presents a new revenue opportunity.

The bonus: Diversifying distribution to meet the needs of viewers breeds loyalty to the content and potentially gives the content owners leverage in the future when it comes to negotiating with the cable providers. More ways of delivering content also results in greater reach and more fans of the network’s content, leading to increased demand.

2) Digital video CPMs are higher than those of TV.
Digital video CPMs are high — even higher than TV — which means that every viewing instance that shifts from one channel to another represents a net revenue gain for the networks. Online video ads can demand a premium price because they deliver the sight-sound-and-motion of TV ads along with more precise targeting. Even with lower ad loads than TV, a premium price can mean that content consumed online can deliver higher revenues.

3) Ad spending growth is coming from digital.
Recent industry studies indicate that digital advertising is commanding an increasingly large share of ad dollars. A new report from Forrester indicates that digital will represent 36% of all U.S. ad spending by 2019, and an Interactive Advertising Bureau (IAB) report states that “internet advertising revenue now represents 57% of all television (broadcast and cable) advertising” – in 2013 broadcast and cable TV ad spending totaled $74.5B, whereas internet advertising totaled $42.8B. The shift from traditional TV to digital is even more apparent when looking at commitments made during the 2014 upfronts – cable ad commitments fell about 6% from last year.

Cable and broadcast networks are rethinking how they can position themselves for this shift by diversifying their content delivery methods — resulting in a more even distribution of ad dollars — to maximize revenue as advertisers’ budgets continue to be spread across different media.

As networks start to embrace the innovator’s dilemma, additional viewing touchpoints represent a win-win for both the networks and viewers — more revenue and leverage for networks,  more content delivery options that will result in happier and more loyal viewers.

We are truly living in the golden age for media.