Commentary

How Much Entertainment Can We Afford?

Are Americans over-subscribed on fun?

Think gas prices are inflated? Worried about the housing "bubble"? While economists and soothsayers dwell on the obvious economic indicators, they may also want to check out America's relentlessly growing monthly media bill: magazines, cable, TiVo, video-on-demand, broadband Internet, iPod downloads, and mobile TV. The un-examined flip side of media fragmentation is that more platforms require more consumer spending: more than $1,000 per person by 2010, according to projections from Veronis Suhler/PQ Media. All of which raises the obvious question of whether Americans are approaching some kind of media threshold -- an unsustainable bubble of subscriptions?

Sorry to play the bean-counting dad here, but have you kids looked at our escalating media bill lately?

Veronis Suhler/PQMedia projects that by 2010 per capita spending on communications and media will have nearly doubled in about a decade. The tab is adding up quickly (see chart).

Worse yet, we are only at the early adopter phase of emerging platforms like satellite radio, online music services, digital video recorders, and mobile content, let alone applications like in-car global positioning systems, information services, and wireless broadband. Each platform is building business models and adding yet another monthly subscription fee to the tab. In 1975, consumers had only eight choices for entertainment and information, but in 2006 they have 21, according to PQ Media.

Catharsis and Community

Still, all the numbers point to Americans' remarkable willingness to open their wallets wider, especially for entertainment media. "At the present time, there are no signs of it letting up," says Leo Kivijarv, Ph.D., and vice president, PQ Media, who has researched media use and spending escalation for 30 years. Individually, Americans wince at growing monthly cable and wireless bills, but "in aggregate, they keep saying they are willing to spend dollars," he finds.

In fact, consumer media spending can actually spike during dips in the gross domestic product, such as during the post-9/11 period, because we value diversions in tough times. "Americans want a catharsis, and they will continue to do so as they go forward," Kivijarv predicts.

The youth market's increasing use of media as a form of personal expression, social identity, and community is also contributing to the escalating monthly media tab. Tolerance for new media spending varies by segment, says Bill Stone, chief operating officer, Amp'd, the youth-focused mobile phone and data service that launched in late 2005.

On top of the basic voice-minutes fees, Stone says, "We are seeing something north of $20 per subscriber using wireless data services." The wireless generation is discovering bands on MySpace, swapping songs, buying ring tones, downloading tunes, purchasing concert tickets, and accessing promotions. All of these functions make young consumers feel like part of a community. "The propensity to consume content in that social network is dramatically underrepresented today," says Stone.

Payment Due?

By fragmenting content into countless new packages, from iTunes TV episode downloads to movie trailers and games, publishers believe they can monetize their content better. The idea is that smaller, more numerous slices actually make the pie bigger. Perhaps understandably, media companies appear reluctant to discuss the prospects of subscription max-out. Neither Disney nor Time Warner, the gorillas of cross-platform distribution, could even figure out where in their companies to direct a question on the topic.

But advertisers are starting to take notice, particularly as consumers demonstrate a reluctance to pony up for even more content services on such platforms as VOD and mobile. "As media options expand, subscription fees could quickly add up to a considerable amount," says Tom Tercek, senior vice president, ventures at Publicis Groupe's Denuo. "A judicious form of new ad messaging, which is relevant and targeted, could help defray those costs and make it easier for them."

It's no slam dunk for emerging media platforms, because Americans don't spend media dollars arbitrarily; they need to see the value in spending more. The farmer in Iowa is buying into broadband because it delivers more need-to-know information faster, but he certainly isn't embracing DVRs, satellite radio, or mobile, says Kivijarv, because none of these technologies really has made the case for itself where it counts. So long as Wal-Mart sells DVDs for $5 and the TV experience is good, DVR and mobile video may have trouble moving out of the early adopter phase.

Joe Pilotta, vice president of BIGresearch, warns that media spending may suffer serious indirect pressure from what is fast becoming the elephant in the American economy's living room: the overextended consumer. "When it hits [media], it's not going to come from the technology but from an exogenous source," says Pilotta. Credit card debt is enormous, pushing American households into a negative savings state that inevitably will force the middle class to rethink tech and media priorities in the face of making, say, the car payment.

Tough choice: Keep the Beemer or pay for the TiVo?

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