Channelized versus OTT Video: More Data

Some of the latest data on TV providers seems to reinforce the notion that the video world is changing, and of course that’s true.  The problem for TV delivery strategists is that it’s hard to tell just what factors are driving the changes, and without that key insight you can’t easily address the problems that change might create for your bottom line.

The market data for the spring, drawn from the quarterly earnings numbers, suggests that subscription television services are losing ground more rapidly than usual.  Spring is typically a bad time for TV because of a combination of movement to summer homes (or away from winter homes) and the return of students from college.  This spring does seem a bit worse than usual, but I’m not sure how much of the loss can really be recovered.

TV viewing is about households, not people, because households are what subscribe.  Data I’ve cited before suggests that when people establish a multi-person household they tend to gravitate toward traditional viewing patterns regardless of how committed to iPhones/iPads and YouTube or Netflix they might have been.  Thus, one important point is that any time you have a lack of growth in the number of households you have a loss of stimulus for subscriber gains in subscription TV overall.  And guess what?  We’re in a period when record numbers of adult children are not leaving the nest for economic reasons.  Nothing TV can do is likely to push these kids out, other than perhaps hiring them all.  Even then, I think there’s compelling data to suggest that young adults value the added disposable income they get from living at home more than the independence they lose.

Another interesting thing about spring, astronomically speaking, is that it’s going to lead to summer, meaning summer reruns.  People traditionally flee subscription TV in the summer because of the dearth of good material.  Remember, the largest reason people don’t watch subscription TV is because they’re not home, and the second largest that there’s nothing worthwhile on.  Even “good” summer shows often fail to attract the dedicated audience because the shows can be preempted for sporting events, and because in the summer it’s more likely that viewers will be out somewhere.

I think anyone who’s gone through their share of summers and TV viewing knows that in fact the quality of summer material is better this year, and has been getting better for the last couple of years.  The number of people who tell me that they have shifted to on-demand or OTT viewing for lack of something to watch is down by almost 30% this summer versus last, a big change.  Most of this gain is due to the fact that cable channels are increasingly taking up the slack and even major networks are running summer-season shows.  This is smart because viewing habits are just that—habits, and you don’t want to train your viewers to go elsewhere.

That raises some questions on the TV Everywhere concept.  Is the use of OTT video to supplement channelized viewing a good thing or a bad thing?  There I think the jury is still out.  My data says that people who can’t watch something in its regular slot would rather watch it via on-demand viewing unless it’s a sporting event.  For sporting events, the preference is to view it in a social/hospitality environment (a bar comes to mind) if you can’t view it at home.  So it’s not clear whether having the game or the show available “live” helps much, and it’s pretty likely that having it available on-demand on a different device doesn’t move the ball very much.

Where TV Everywhere is good for providers is in holding customers as channelized subscribers where the viewer is likely mobile a good chunk of the time.  In general this means the young independents, people whose viewing habits seem destined to change anyway as soon as they establish a true household, with a partner and perhaps children.  But just as this year reveals some gains in summer-viewing loyalty, it illustrates weakness in the traditional fall-through-spring prime TV season.  Remember that almost 30% told me that they were happier with summer shows?  Almost 20% said they were significantly less happy with prime-season programming.  Too much reality TV, they said, and also too short a season for new material.  TV Everywhere could give viewers access to material that would substitute for this poorer fare.

“Could” is the operative word.  People watch more on-demand these days because they miss more regular program times.  On-demand breaks the cycle of dedicated viewers who schedule their lives around programming, and when that cycle is broken the viewer becomes increasingly interested in just getting something that suits their momentary fancy.  That’s as easily done with OTT.  Yes, you need prime-time on-demand, but there’s no question that over time this is weakening the bonds that hold us to traditional viewing.

IMHO, people want virtual channels with specific shows slotted into their own convenient slots and with material selected based on what they like and what their peers recommend.  I think Apple and Google would like to see this model prosper, but the problem for both is that the commercials just aren’t as valuable in that model.  We’ve gotten a bit better in leveling TV per-minute advertising and OTT video advertising—it’s gone from TV being worth 33 times as much to only 28 times as much—but we’re still a long way from being able to fund new material, and if you distill all of what I’ve said about video, you see that it’s the material that makes channelized TV stand or fall, material and demographics.

A shift to OTT viewing would also have profound consequences for broadband delivery, not so much to the home (U-verse proves that you can give the average household enough capacity to view TV even over copper) but in the metro aggregation network.  Instead of feeding linear RF programming to head-end sites to serve tens of thousands of customers, you now have to deliver thousands of independent video streams to every CO to reflect the diversity of viewing there.  And with revenue per bit in the toilet, how exactly do you build out to make that happen?  So until we can answer the dual questions of paying for programming and paying for delivery, I don’t think we’re heading for an OTT revolution.

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