The availability of TV programming online has gone from being a nice-to-have to an expect-to-see option in the minds of most Americans, raising major implications for networks and potential new opportunities for advertisers, according to the most recent installment of an ongoing tracking study of the Internet’s effect on TV viewing. The study, Knowledge Networks’ annual “TV Web Connections” report, will be released today and shows that in the four years since their online TV viewing attitudes and behaviors have been tracked, Americans have shifted from thinking of it as a novelty to an expectation. “I think it’s similar to what we went through with print newspapers putting stuff online,” says David Tice, director of the Home Technology Monitor at KN, and author of the new report. Tice says the dilemma for TV networks appears to be similar to the one confronting newspaper publishers whose initial freely available online content publishing models trained consumers to expect total access to their content and to get it for free. While newspaper publishers have been trying to shift their online publishing models by establishing so-called “pay walls,” Tice says the jury is still out on the success of those efforts, and that TV programmers need to pay careful attention, because the consumer backlash could be significant. “It’s a big question for television networks,” he says, adding: “How do they monetize the digital side without cannibalizing the mother ship?” The good news is that TV programmers seem to have strong demand from advertisers for their digital ad inventory -- and so far, reasonable acceptance from users to view it -- but the amount of ad inventory online is still a fraction of what they get with conventional television. Tice says that in the short term, television programmers can look at online access as an opportunity to expose viewers to shows they might not have otherwise seen, so there is a promotional value. He noted that data from KN and other sources such as Nielsen show that the growth in online viewing of TV programs has not hurt conventional TV viewing levels -- and said it’s possible the online access has been a factor in that, although he said KN’s data does not explicitly show that. Nielsen, meanwhile, has begun to integrate online viewing of TV shows into its core TV ratings services, and expects the behavior to become an increasingly important factor in total TV viewing levels. One thing that does not yet appear to be occurring due to the availability of online access to TV shows is so-called “cord-cutting,” or people cutting their conventional TV subscription services, because they can access some or all of the same content online. Tice says KN’s data indicates that there is no difference among people who watch TV online and the total population in terms of cord-cutting behavior. Tice says online viewing tends to be a bigger factor with young adults. He also says that mobile devices -– both smartphones and tablet computers -- increasingly are becoming a factor for viewing TV programs online, but the No. 1 source still is an Internet-connected personal computer. The biggest developing factor, he says, is the shifts in consumer expectations surrounding social sharing. Tice says apps that enable consumers to share TV shows they are watching with friends have become a significant factor -- and that consumers increasingly expect those features too. “That turned out to be a relatively highly used feature,” Tice says, noting: “Over half the people used it, and said it increased their involvement with the program.” Of the features that consumers use most when watching a TV show on a network’s site, Tice says “schedule information” is still No. 1, followed by watching full episodes and watching preview clips. After that, he says, social sharing has become the biggest factor. “The more people watch TV online, the more they want to share those programs with other people,” he says.
One of the challenges Canoe Ventures faced was building a platform where set-top boxes across six cable operators were in sync, allowing interactive TV ads to be served nationally. The boxes had to be linked with an EBIF technology. But not all operators were able to enable their boxes with EBIF (enhanced binary interchange format) at the same rate. On Monday, Charter Communications, one of the six, said it recently completed its deployment across its system, laying a “foundation” for interactive services and advertising. But with Canoe halting its foray into national interactive advertising last week, Charter will only be able to sell iTV ads in its local markets. The same goes for the other Canoe owners, such as Comcast, which has been aggressive in that arena. Charter made the announcement on an investor call, the first featuring new CEO Tom Rutledge, who formerly led Cablevision. (Cablevision is also part of the Canoe group.) Asked whether he might oversee a rebranding at Charter as he did by ushering in Optimum at Cablevision, Rutledge said: “It is an opportunity, but I haven’t worked through the marketing issues with the Charter team yet on that particular issue.” In the fourth quarter, Charter continued to lose video subscribers (45,500), although that was less than the 62,200 lost in the last three months of 2010. Nearly all of the losses in video customers were those who only subscribed to TV service and not a bundle. Company-wide, total revenue in the fourth quarter was up 2.8% to $1.83 billion. It posted a $67 million loss, down from $85 million in the same period the year before. Ad sales dropped about 5% to $81 million, although political dollars may have helped in 2010.
This past November, AMC joined Turner in backing Neilsen’s Online+ TV rating system that attempts to provide a single currency for marketers looking to buy video ad impressions across both television networks and online properties. The general concept is that buyers can value video ad impressions within a single C3 rating -- ads viewed live and within three days of broadcast. Digital video advertising surpassed $1.5 billion on the Web in 2011. Internet video is minuscule when compared to its older brother, television. Still, money spent on both media--while a gaping discrepancy--is proportionally closer than you’d expect. In one corner is TV. Take a weekly hour-long program that runs on a major network. On average, there are 44 commercials that air during that show’s run time. Let’s say it’s a popular show, like “The X Factor,” which racked up 12.14 million viewers for its season premier. This would equate to roughly 534 million ads delivered for the premier last September. In the other is online video. If we look at the largest online video ad properties, Hulu tops the list at 1.02 billion video ads served in that same month (September 2011). This means Hulu’s total ad load for a month represents a little under two weeks of the third-ranked show on a single network. “Modern Family” and “Criminal Minds” did better in that time slot. So while the online video ad market only weighs in at about 2% of the television ad market in terms of spend, that spend is actually right about where it should be in relation to television budgets. That’s if you assume that online video will continue to be priced in a way that resembles broadcast television. But what is becoming more apparent is that the quality and diversity of inventory online is far more varied than on television. On television, reach and frequency is everything. Online, pricing is based on many more factors. When digital buyers look at inventory online, one of the first things they value is transparency in inventory characteristics across a variety of metrics because of a vast discrepancy in pricing. Today, a video ad impression can be purchased for as little as $0.002 or as much as $2.00. This isn’t due to pricing inefficiency; it is due mainly to variations in placement, user-intent, player size and other factors that TV buyers don’t consider. The $0.002 view is likely manifested in as an auto-playing 300x250 banner unit across a network of mid-tier sites. In this case the user hasn’t elected to watch the ad, but the impression has been served. This is a rational pricing decision that enables brands to value that impression to a standard display unit The $2.00 view is likely a view that is delivered in-page in a large format player in which the viewer is part of a tightly defined demographic and has expressed specific intent to watch the video. For many brands, this impression is three orders of magnitude more valuable. As long as these attributes are clear to the buyer, they can accurately determine the value of that unit and make a rational decision as to how they want to spend their media budget. However, even if the market is perfectly transparent, which it isn’t, this variance in inventory types makes the job of a digital video buyer much more complicated. But it also spells opportunity for publishers, networks and exchanges to create diverse revenue streams from their audience and to maximize the value of each level of audience engagement with video. It is true that television spending will continue to slow as incremental daily video minutes viewed migrate online and merged ratings blur the distinction between online and broadcast interstitials. But in a way, the relative size of these two markets as the primary metric to analyze the comparative value of each misses the point. This is not about digital’s ability to create more avails for 30 second spots, it’s about digital’s ability to create units beyond the 30-second spot. The television and digital video markets are simultaneously merging and becoming more distinct. This is leading to the creation of more avails for traditional interstitials, while exploding the diversity of ad units to satisfy every price point and engagement level. Increases in total online viewership will continue to drive growth in online video ad budgets, greater transparency in placements, targeting, user-initiation and other metrics will result in digital video budgets expanding at a faster rate. We have a long way to go before online video advertising can even begin to challenge television advertising in scale and budgets, but eventually, it will happen. Digital devices have given publishers and networks a blank canvas to design a variety of inventory for every type of buyer. This Cambrian explosion in digital video units will be just as critical to growth and should put increasing pressure on television to mimic the interactivity of other video-enabled devices. Let the modern evolution of video advertising begin.
Indie video network Blip emailed producers to announce that it would discontinue redistribution to Boxee, Samsung, Vizio, DivX TV, MeFeedia, Sony BIVL, TiVo, Vimeo. Blip has done an admirable job of differentiating itself over the years, and has been an important enabler for indie producers. But what does the decision really mean? Hyper-distribution is dead. It was always a foolish premise that because the marginal cost of distribution was nil, then all incremental distribution was accretive. Truth is, it’s not. When you give everything away to everyone you dilute the value of your content and the marginal (additional) revenue is just that: marginal (immaterial). Is OTT hyped? The list of Blip casualties suggests that despite some cord-cutting and all devices being connected in the future, today viewing over-the-top (OTT) connected devices remain immaterial. My company has joined the bandwagon, so I don’t want to appear hypocritical, but I caution video executives not to get too bullish over OTT at a time when online video remains underwhelming relative to the expectations and forecasts. What to Make of Long Form Programming? comScore’s January numbers revealed a rise in long-form programming consumption. Blip’s DNA is in longer form, recurring, episodic content. While OTT aims to mirror the lean-back television experience with long form programming, it’s possible that comScore’s long-form programming spike was an exception -- likely when you consider the Millennial generation’s ADD-like nature. Mobile Viewers Far Outpace Dollars It’s not just OTT that is more sizzle than steak. While everyone remains giddy about mobile, it’s worth noting that the delta between mobile consumption and monetization is even greater than that of online video consumption and monetization. As consumption shifts to wireless devices, the need to remain lean becomes more important than ever. Is YouTube the Only Dog That Matters? Blip argued that “the overwhelming majority of views come from three sources: the Blip destination site, YouTube, and our embedded player.” I don’t want to speak on Blip’s behalf, but I’ll guesstimate that YouTube -- where Blip redistributed its licensed content -- accounts for the lion’s share of streams. It’s likely that over time it will remove additional distribution partners. It’s increasingly hard to justify -- let alone argue for -- hyper-distribution. What Would Machinima Do? Machinima’s critics claim that the LA-based content maker rode the popularity of the generic “machinima” term (and corresponding YouTube tag). But that’s unfair and misleading. While everyone’ssuccess is helped by luck and timing, Machinima executed by focusing on: 1) Subsets (Halo gamers, then shooter games) of a specific vertical (gaming). However, I’ll bet that the company will add new verticals and go horizontal, the same way IGN “won” gaming by merging with Gamespy and then ventured into movies (via RottenTomatoes) and lifestyle (via my old company AskMen). 2) YouTube. According to CEO Allen Debevoise: “We decided not to put all our content on every platform, instead saying ‘let’s just get this one right.’” Yes, the company’s $15 million in financing helped, but it’s less than most. YT Building Massive LA Studio? Machinima’s bet on YouTube paid off; it’s one of the most popular channels on YouTube. But the reality is that practically every video content executive talks privately of his or her frustration about YouTube. None of them will go on record given YouTube’s massive size and scale (the $200 million the company’s spending on content may have something to do with it, too). I’ve long argued that YouTube is the greatest ad platform ever at the macro level, but it’s more of a promotional than commercial platform at the micro level. Beggars can’t be choosers, so to speak. However, when you read that YouTube -- a video aggregator -- is building a massive Los Angeles studio, you have to wonder if it’s indeed to enable producers, or if, rather, YouTube’s super-smart staff has seen the writing on the wall and knows that over time, content providers will need to find ways to succeed outside of YouTube. The same way that Hulu, Netflix are now producing content, it’s really just a matter of time before YouTube evolves from aggregator to underwriter (where it is now) to become a producer (recall a few years ago the notion that Google’s getting into content was unbelievable; last year it bought Zagat). So, what’s the bottom line? Online video is incestuous. The game of musical chairs in the aggregation space has begun. The leaders in aggregation are realizing that they need to own content. And those in the content business realize that their models, cost structures and cap tables are not sustainable -- and they’re running scared. But that’s nothing new if you’ve been reading this column for a while.