THE END OF TELEVISION AS WE KNOW IT
Dec 1, 2006 12:00 PM, BY BRAD DICK, EDITORIAL DIRECTOR
For those who experienced the early days of television with its black-and-white images, limited channels and snowy pictures, today's television resembles “Star Wars” technology. Black-and-white shows like “Hopilong Cassidy,” “Sky King” and “The Ed Sullivan Show” were hits.
Sometimes the picture was snowy, but that was normal and expected. Viewers were satisfied with three channels, with maybe only one being in color. Stations stopped broadcasting at midnight because, after all, who watched television overnight?
Today's television experience, with high-definition pictures, multichannel sound, sports, prime-time serials, documentaries and even HD local newscasts, seems light years from yesterday's technology. Yet, even brighter days may be ahead. To understand how this industry will get there, it's worth examining the structural changes that broadcasters will need to make.
Institutional changes
Figure 1. Americans receive their television from one of three sources; OTA local stations, cable or satellite. Fortunately for broadcasters, the number of viewers moving to cable has stabilized. Figure courtesy Television Disrupted.
Today's viewers expect 100 TV channels, all in color, some in HD. In addition, viewers expect their entertainment centers to provide special features, including pay-per-view, video-on-demand, exclusive sporting events and even caller ID.
In most communities, the competition is between cable and satellite. Broadcasters used to deliver 100 percent of the viewing audience OTA. Today, less than 15 million TV homes use an OTA signal. The rest connect by cable, satellite and, soon, IPTV. (See Figure 1 on page 46.)
Why have broadcasters moved from the driver's seat to the back seat? What can be done to maintain or improve station revenue? Will cable, satellite, telco and broadband relegate broadcast television to the equivalent technological status of AM radio?
Today's demanding viewer
There are an estimated 110 million total TV households. Out of those, 73 million are connected to cable, 22 million use satellite, and the rest receive OTA transmission. It's anyone's guess how IPTV from the telcos will affect these numbers.
Figure 2. The big three broadcast networks continue to lose viewers to cable news
networks and broadband. Figure courtesy The State of the News Media 2006.
Click image to enlarge.
The average cable viewer receives 91 channels of programming. Most of the larger multiple systems operators (MSOs) and multichannel video programming distributors (MVPDs) will gladly supply hundreds of video and audio channels into the home — if you can pay for it. When that happens, the local station is no longer one-third or one-fifth of the viewer's options; it's often less than one-one-hundredth. It's pretty hard to maintain visibility in such a crowded field.
Today's viewers no longer tune to broadcasters' programming like they used to. Last year, 57 percent of TV viewing was from cable networks, not broadcast networks. Original content is moving to cable. For example, the NFL sold the hit program “Monday Night Football” to ESPN. Those games are now shown only on cable, with home team OTA exceptions.
Fortunately for broadcasters, even as the number of content channels has increased, so has viewing time. Last year, the average home watched more than five hours of television per day. That represents a 2.5 percent increase over the previous year. Experts say that even with the draw of alternative entertainment platforms, such as mobile video, IPTV and broadband, TV viewership will continue to grow at about 2 percent per year through 2008. Despite all the media options, viewers still use their televisions three to four times as much as they do computers or video games.
Advertiser expectations
As broadcasters lose viewership, advertisers increasingly complain about paying more for less. Figure 2 on page 46 shows the average early evening news share for the three broadcast networks. An advertiser may have been able to reach 20 percent of the audience 10 years ago, but today, that advertiser reaches only about 15 percent — and at highly increased prices.
Figure 3. Local TV station newscasts continue to lose market share, primarily to the
cable news networks. The mobile audience could help recoup these lost viewers.
Figure courtesy The State of the News Media 2006.
Click image to enlarge.
Local newscasts haven't fared much better. (See Figure 3.) Note the precipitous drop in viewership starting in 1999. While the rate of loss has diminished in recent years, local TV viewership is still declining.
Cable has an audience almost twice the size of broadcast, yet it collects only 30 percent of today's advertising revenue. Advertising executives say that this difference between performance and revenues makes the market prime for significant change.
On the upside for broadcasters, cable penetration has reached saturation. (See Table 1.) For the past five years, cable audiences have hovered around the 68 percent penetration level, with only a 2 percent change. Last year, penetration dipped by 0.5 percent.
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