Is Broadcast TV dying or isn’t it? This week saw two contrasting events which throw some light on how that’s developing. In the US, agencies and broadcasters are preparing for the Upfront advertising extravaganza, where $9 billion of broadcast advertising will hopefully change hands in one week, while in the UK last week we saw the launch of Freesat, a platform that celebrates the broadcast concept and takes it on a considerable distance.
If broadcast is dying, surely that $9 billion becomes gradually unachievable, and the concept behind Freesat will be an unmitigated failure. But we’re afraid it’s more complicated than that.
For the past three years, the US broadcast TV networks have begun to dread the annual Upfront negotiation, whereby $billions of TV advertising changes hands, in the form of regular discounted spots in some of the best prime time TV viewing. This has to happen to ensure that new concepts in programming are funded, and so that broadcasting can re-invent itself constantly, with loyalties shifting and new programming formats making a splash.
Each year broadcasters pride themselves on being able to charge more for each 1,000 viewers which their programming can deliver, but lately each year they deliver less total viewers.
And each year they focus instead on the rate increases. Eventually this will be an industry charging $1 for each viewer that it delivers, but it won’t actually deliver any. And this disturbs us for many reasons.
Broadcast viewers are the least valuable, because it is rare that viewers are watching the right type of programming, occupying the ideal demographic for a side by side advertised product. Often viewers are outside the retail footprint of any given product, or outside the distributor reach. The programming is linear, there is no way to know if ANYBODY is watching (really watching) at any given point and the advert just leaps onto the screen and off again, with no feedback loop or any proof that it was taken in. It is a dead business proposition that everyone in business has a vested interest to revitalize, somehow, so that we can all go on as usual ‘ because without it, no one would know how to build a brand and no broadcaster would know how to fund professional content creation.
In its favor, national broadcast TV is the easiest decision to make because it’s effect is so immediate and it used to take in virtually everyone, so although for each 1,000 people reached, it is cheap advertising, it is so often ALL the advertising budget on some campaigns.
Broadcast content has the same problems as broadcast advertising. It arrives and can be missed, and has little lasting value. The American content industry has come up with a clever way around this, although it is far from unique. A 24 part TV series, repeated in secondary viewing slots, backed up by online viewing, or mobile TV viewing, and a complex plot which defies any viewer to fill in the gaps after missing even a single episode. This makes up the formula for 24, Lost, Desperate Housewives and the Sopranos, some of the most profitable viewing properties
It has become a formula that has held the dark at bay in US broadcasting. The national broadcast channels, for the most part, are not broadcast at all, but are also carried by pay TV operators. In essence there is little difference here between broadcast networks and cable networks. They may be delivered via NSTC, ATSC, cable or satellite, but they arrive as a linear construction, limited by the national broadcast footprint that they were originally designed to be broadcast to.
They are beset by a number of undeniable trends. Kids use their TVs with games consoles attached, everyone watches DVDs on their TVs, or watch DVR held content. Everyone spends more time on the internet, and even watch TV programs on their PC and they are expected to also transition to video on the handset at some point.
As a result, two years ago the Upfront convinced advertisers that DVR watched content should still count. Last year the Upfront reached its inevitable conclusion that it grew business, but this was after advertisers changed their mind about DVR held adverts, but to make up for that said yes to booking both TV advertising, along with chunks of web advertising around the same content properties. So the $9 billion was hit, but it took in a load of new web inventory that previously was not counted. Effectively TV advertising in the US got smaller, but no-one could agree a) that this had happened, and b) by how much. It is kindest to say that some of it has transitioned to the web.
It now has to go through another difficult period ‘ with recent Nielsen figures ‘ the sweeps as May viewing figures are called because they indicate the tone of the Upfront ‘ showing that broadcast viewers have fallen away by as many as 6 million across the main national broadcast channels Fox, CBS, NBC, ABC and CW.
Let’s blame the writers strike, has been the immediate lament around the industry, and since we won’t have that for another ten years, let’s forget about it and get back to business. But the real rascal here is the DVR. DVR penetration is accelerating. It first caused trouble when there were perhaps 11 million of the devices installed, last year it was perhaps 17 or 18 million, this year it is running past the 25 million mark, depending on which market research company you believe.
No one watches DVR held advertising, the latest figure we could find was that 82% of viewers skip through most advertising when they watch on a DVR. Increasingly, as families become more sophisticated, they plan their viewing around watching programs starting 15 minutes late, so that they can view the program in less time, using fast forward through all advertising. Once everyone in the household gets used to the controls, this becomes a given.
So it is not that national broadcast TV is declining in viewing, more that the linearity of the experience is in decline.
Ultimately that will have to rob broadcasters of a significant amount of revenue. But if a one hour program has 25 minutes of interruptive inserted advertising, then it can be watched in 35 minutes. The two key questions are what happens to the 25 minutes the viewers save? and what can we do about the lost advertising revenues. One key answer is that families are not watching less TV, so they are using their saved time to watch more programs in roughly the same time. It’s just the advertising that’s the problem.
TiVo has explored many new ideas for the advertising industry on DVRs. Even if it never establishes the fact that it invented DVRs and gets intellectual property credit for that, it clearly has invented a number of other things ‘ such as overlay advertising during the fast forwards, and voluntary stored ads, and adverts that link to web sites. Of course program sponsorship provides the ‘bookends’ around the ad break used to identify when to stop the fast forward, so that’s another form of DVR friendly advertising. The use of TV viewing on web sites will also lead to new formats for advertising. The pre-roll and post roll, animation overlays, surround ads, and shorter adverts that are too short for anyone to bother fast forwarding through can all emerge on the web editions, and grow.
This innovation will slow the rate of advertising leaving the broadcast TV platform, but will we be looking at a $9 billion up front in a few years? We don’t think so. Linear TV has to fall away, perhaps take two thirds of that amount, and less linear viewing has to be expected, but it will still have its place.
But all the coverage that this process gets, makes it appear to be a drift from broadcast TV (which after all is not really broadcast in the US any more) to cable, which has its own $6 billion Upfront a few weeks later.
This doesn’t make any kind of sense at all and it goes against everything we’ve observed in the broadcast cable divide. The ease and habitual purchasing of a huge nationwide footprint has always meant that cable gets far less for each 1,000 people reached than broadcast. And although cable (and to a much lesser extent satellite) has the chance to build in some higher yielding addressable advertising, and demographic advertising, that’s not often to the benefit of the channel owners.
What we have is the beginning of a drift in advertising revenues from being embedded ‘in’ the channels, to being inserted, at the points of viewing. VoD advertising for instance can be shared with the content owner, but what about advertising that is shown when the VoD service is loading, or in overlay when the DVR is fast forwarding? Surely that belongs to the pay TV operator not the channel supplier.
All this has meant so far has been a shift in the economic relationships between these groups. Comcast may get a little more advertising each year, but then each year Viacom may ask for a little more in carriage fees because its own advertising is yielding less cash. Eventually this economic ‘adjustment’ causes friction and new relationships ‘ for instance between operators like Comcast, and content that it owns directly.
In total then if broadcast TV advertising is cheap, broadcast adverts that are downloaded to DVRs and fast forwarded are even cheaper. The total amount
of money must go down. The question is just who is to get squeezed out of the equation? The broadcast and cable networks or the pay TV operator. It can’t be neither.
Those last two Upfronts tell us that the networks are getting some money from investment in web properties which are NOT going through cable operators and broadcasters. That means the carriage proposition is both less productive and over time less important to those companies that own content.
In any market where there are more and more sources of delivery, and the same number of sources of supply, that becomes a sellers market and the delivery routes take the economic strain.
Now cross the Atlantic and look at that in the light of the Freesat launch which happened in the UK. It’s a simple proposition. Instead of offering TV where a satellite direct to home service contains a monthly charge, enough channel owners and public service broadcast entities get together and create a service which is free from a satellite. They contract for existing satellite owners (all of which have excess capacity and which can support multiple HD streams quite cheaply) and they promise a number of consumer electronics suppliers a retail proposition on both the set top and the satellite dish, and partner with major retailers.
If enough channels can be attracted to such a service it has entirely cut out the pay TV supplier but provided a 200 channel experiences.
The satellite providers are SES Astra and Eutelsat, using some of the same satellites that rival pay TV operator Sky uses, while the box providers are Korea’s Humax and Japan’s Panasonic and those from the Alba Group, which includes the Goodmans, Bush and Grundig brands from Europe, with more to come.
The set tops do not support encryption, which might deny the service some content, but they use the interactive features of the MHEG-5 language, the ISO standard used to describe interactive television services.
The set tops also have an Ethernet broadband connection and enough processing power so that the BBC iPlayer, and the soon to be launched Kangaroo software for offering UK programming over the internet, could be retrospectively added, and electrical retailers Comet, Currys, John Lewis and Argos are taking the proposition to the public with sign up and cheap satellite dish installations services.
We spoke this week to Simon Gauntlett, the technical director for the Digital TV Group, which is, an industry association, set up to promote digital TV and which is supplying test and conformance services for Freesat.
Gauntlett said, ‘We have ITV on HD exclusively, and although it is not encrypted, it is hidden behind a red button service. The service will have 200 TV channels signed up by the end of 2008, many of them in HD. There are already 9.6 million HD-ready TVs in the UK, but only a tiny fraction currently getting HD programs. Freesat will lead the way in introducing HD.’
The starting line up for Freesat are all the usual broadcast channels BBC One, BBC Two, BBC Three and BBC Four; ITV1, ITV2, ITV3 and ITV4; Channel 4, E4, More4 and Film4; news channels BBC News and Al-Jazeera English; children’s channels CBBC, CBeebies and CiTV; music channels Chartshow TV and The Vault; interactivity from BBCi and digital radio.
Freesat will carry the BBC HD channel from day one, with ITV HD launching exclusively soon afterwards.
Already in France a similar service TNTSat also free, has launched in February and already signed up 350,000 customers, so this is really a continuation of this battle between broadcast networks and pay TV operators, with channels owners banding together to make satellite delivery cheap enough and HD enabled enough, so that even a depleted supply of advertising revenue should still be able to pay for all the satellite costs, while all the equipment is a retail proposition.
It won’t be all plain sailing. Who do you call when your set top doesn’t work or your satellite no longer gets good reception? And what happens when these MHEG set tops also come in DVR variety for a small upgrade price?
The sudden arrival of 200 new channels (by Christmas 2008), many of them in HD, available anywhere, you would think would make life easy for broadcasters, but then you have to spare a little time for their advertising departments? The onus will be on each of these channels to pay for their portion of satellite costs etc’. And that has to come from existing advertising revenues. And suddenly they are up against 200 other options which all want to gain the most viewers, and therefore advertisers, on this new platform. All of which will gradually become more and more diluted in value by progressive use of DVRs.
The result is sure to be that no new channel owners/broadcasters will be able to survive purely on the revenues from Freesat, which will lead to a shake out and constant chopping and changing of what’s available on UK TV.
The platform itself will be a success, and it will slow the development of cable operators, British Telecom’s BT Vision IPTV service and BSkyB with its almost 9 million paying households and Virgin Media, the UK’s main cable operator. The phenomenal growth of DVB-T based digital terrestrial services will also be halted, offering only 40 of the 200 Freesat channels, and having problems with the regulator in its attempt to gain more bandwidth for development, especially the introduction of HD services.
If uptake of Freesat is anything like Freeview the local DVB-T service (well over 10 million homes in four years), then there will be a list of lookalike initiatives springing up all over the world, but especially in the big European countries ‘ France, Germany, Italy and Spain ‘ all countries with thriving pay TV operations which will all have to find ways to fight back.
The entire movement will lead to a glut of even cheaper linear TV advertising, while one of the ways for Pay TV operators to fight back is to continue to innovate with advertising platforms which they control, which are not ‘in-band’ with existing programming. This schism between broadcaster/channel owners and platform owners will reduce profits, and change the landscape for content creation.
Both Free platforms and Pay TV will have to bring in advertising systems which take account of who and where advertisers are as well as what types of programs they are watching, in order to maximize payback.
But in a world where people no longer organize what they are doing around the TV, but where they organize their TV around what they are doing, they will be able to watch more TV, but fewer ads ‘ feeding the need to find yet more routes to market for advertising messages (in-game, Internet, mobile).
The entire broadcast industry is on the edge of its seat over the coming weeks/months to see just how the Upfronts in the US pan out, and whether or not US TV can let go a huge sigh of relief at having kept its revenue base for another year. Meanwhile the Freesat uptake figures could point to yet another vast dilution of broadcast revenues across more and more players, each just that little bit less profitable.
We will always need broadcast TV to establish the next generation of public favorite TV programs, but it doesn’t have a god given right to remain the bulk of future visual entertainment.