A small US consulting group reckons that already, almost 1 million US homes have thrown away their pay TV service and opted instead for a combination of online video, Netflix, and over the top (OTT) services. Most reports out recently have said that OTT services are not mature enough and will take years before they affect traditional TV business models.
But the Convergence Consulting Group reckons that so far 800,000 US homes have made the step and that in the next two years another 800,000 will follow. However don’t panic, as this represents less than 3% of online TV viewing, so quite a lot of US viewers are watching online as well as retaining their Pay TV services and broadcast viewing habits.
But if this is true then what will happen once Broadcast and Cable Networks take more of their content to the internet?
This is perhaps the first time a serious attempt has been made to quantify just how precarious a state broadcasting is in, in the US and the report is strewn with intriguing factoids such as Convergence estimating that 17% of traditional TV viewers are watching online regularly (up from 12% last year and 21% expected this year) and that already 2.5% of TV advertising (from traditional suppliers like CBS, ABC, NBC, Fox, Time Warner and Viacom) is bought online. The report says this will rise to 2.8% this year and thereafter keep going up.
The whole balancing act is that TV networks want to grow online advertising revenues, but at the same time keep traditional TV advertising revenue static. It doesn’t look to us like this can be done, but it is the reason why online is only a secondary route to market for content, because if this transition is done badly Convergence reckons that $86 billion of advertising revenue ($62 billion broadcast and $34 billion pay TV) could go up in smoke.
Think about it, with that much revenue at risk these players are hardly likely to accelerate the rate at which they are embracing the internet, and we can see why the TV Everywhere concept is so vital to pay TV players right now ‘ because it preserves the status quo.
But this is why TV Networks delay the time when full-episodes of a TV show appears online and why they don’t run all episodes online. Given that the TV Networks sell 75% less advertising minutes online per episode right now, if all advertising revenue was to shift to online, then these networks would get only 25% of their current revenues.
Broadcast Networks (rather than Cable Networks), says Convergence, tend to make full episodes available and this has also now shifted to Hulu which is leading the push towards full online episodes on TV. Cable Networks are not expected to embrace this trend until after 2011, the reports says and adds ‘that given the option of watching TV and skipping ads, or watching TV online with ads, we believe the majority of consumers will choose TV and the DVR.’
Convergence says that buoyed by the digital transition, 2 million US TV subscribers were added in 2009, up from 1.46 million in 2008 and it forecasts 1.8 million sub additions in 2010 and 1.65 million in 2011.
Alarmingly the report shows that iTunes video has hit a wall, saying that although iTunes more than doubled its stock of TV shows in 2009, it only saw 100 million US episodes downloaded, up from 90 million the year before. iTunes video then is stalling which is perhaps the real reason that Apple is speaking to hordes of content owners trying to put together iTunes TV, an OTT streaming service with complete channels ‘ like cable over the internet. More about stagnation than innovation perhaps.
Convergence also says that in 2009 US cable, satellite, and telco TV providers brought in $84 billion in TV subscription revenue and that each homes watched an average of 240 hours of TV a month. This equates to $0.29 per hour rather than the $2 to $3 per episode from iTunes.
The report also shows how DVD and Blu-ray movie sales have been hurt by Netflix and Redbox DVD Rental as much as by the recession, because they both offer customers lower prices.
In our view this sounds like the first major US report that is as pessimistic (realistic) as Faultline tends to be over the future of US traditional TV and sounds well worth a read.