Based on only first-week results, audience erosion levels are essentially the same in live programming and DVR replays, which are compounded by 66% of DVR users skipping through originally broadcast spots. This confirms the worst-case scenario: Consumer support for broadcast shows and advertising continues its precipitous slide--no matter where it appears.
The slightly negative impact of shifting from scheduled program to aggregate commercial ratings was offset by Nielsen Media Research including three days of DVR viewing and increased DVR penetration in the Nielsen samples. Granted--one week does not a season make. However, should Nielsen's Live Program (up to as many as +7 days repeat) and C3 (live commercial ratings plus three days of DVR replay) continue in-line, the broadcast nets could have a dire ratings shortfall on their hands this season. The Big 4 networks' adult 18-49 ratings have declined nearly 15% year-over-year compared to last season's Live Program ratings, when they all finished down from prior years.
As Magna Global and Bernstein Research have pointed out in their continuing analysis, live program viewers are more valuable, since they generally view 91% of the commercials inserted in programs. Conversely, an estimated 66% of DVR users skip through commercials, making it difficult for the networks to grow their commercial ratings. Overall, at least 20% of the viewers for the most-popular broadcast network programs are skipping the commercials during initial live and replay viewing, according to Nielsen Media Research. Growing DVR-like replay options provided by TiVo, major cable operators and others only complicate advertisers' audience understanding. DVR-enabled homes will more than double by 2011.
The good news is that there is considerable consumer interest in viewing all or parts of their favorite network programs on the Web--much of it with on-air commercials intact. The notable difference: online consumers are just a click away from getting drill-down information on services and products they can choose to immediately buy. TNS and The Conference Board say roughly 16% of domestic households watch TV programs online--twice what it was a year ago. Little wonder that an American Advertising Federation survey of ad executives had at least one-third of the respondents say they plan to shift about 20% of their current broadcast TV spending to online video by 2010.
At face value, these circumstances could lead to the conclusion that television's future prosperity is dependent upon the interactive platform promised by the government-mandated digital conversion in early 2009, when broadcasting's static analog backbone gives way to the Web. It is critical to begin making that mental leap now in order to reap the economic advantages later.
Interactive television will fundamentally be about consumers choosing to view programs when and where they want, complete with electronic reporting of their access and response to imbedded promotions and advertising. Advertisers will use this initial exposure to provide targeted consumers with sophisticated levels of information and engagement that ultimately lead to a transaction and long-term marketing ties. That connection will be premium-priced on its own merits, regardless of today's TV commercial prices. The flood of user data, its compilation and analysis, and overall value will be sorted out over time.
The broadcast networks are caught in a bind. They are unable to prove definitively to advertisers the specific numbers or types of viewers watching their shows--still based on sampling and estimates. Moreover, they cannot quantify and monetize who specifically they are reaching online. Advertisers are straddling a plethora of interactive data without standardization and increasingly meaningless standardized estimates. Surveys and panels are as skewed as planted meters. The evolution of digital television and other media cannot transform advertising, marketing and commerce fast enough to keep losses and gains balanced between the new and old delivery platforms.
While the broadcast networks initially will continue to be the online gateway for programs and these shared ad revenues, content producers may find it easier and more profitable to take their products online without paying a middleman. This move would seriously disrupt a TV network program supply chain that has been in place for more than half a century.
There are numerous ways to do it.
The suspect sample-based television ratings that are barely holding together $49 billion in advertiser spending today will be a mute issue by decade's end, when interactivity becomes the backbone of universal digital television. Reinventing "television" with entrenched digital technology will provide the key elements of accountability and growth.
Short-term, the broadcast networks will continue to feel the financial pinch as their old system of content supply and audience metrics disintegrate before they completely transition to a digital interactive platform. Continuing decline in CBS prime-time ratings increases its risk of costly advertiser make-goods. Some 34% of CBS' total earnings tied to television advertising is threatened by DVR and commercial skipping, competing cable networks, Internet use, video games and other media. ABC, NBC and Fox are suffering from the same trends and the same potential advertiser make-goods this season, which could deflate broadcast network profits and the bottom line of their corporate parents. (More on that later this week.)
In the end, no matter how the audience and its measurement is sliced and diced, the broadcast networks are facing their biggest challenge yet this season. Expanding the supply base for their programs from live television to the Internet, and the estimated or direct recording of content access and consumer profiles, ultimately may render some of the same dismal conclusions. Pricey broadcast network programs competing with more content in more places will continue to lose audience and advertiser support. That will result in an economic restructuring of their business from top to bottom. Now would be a good time to begin.