Professor David Waterman

with Sung Wook Ji and Ryland Sherman,

Dept. of Telecommunications, Indiana University

Television Competition in the U.S.: Online vs. Offline

The Digital Media and New Media Platforms: Policy and Marketing StrategiesNational Chengchi University, Taipei

March 29, 2012

非常感謝你們 ,

讓我有機會在這裡發言 ,

並且遊覽美麗的台灣！

Part of a broader project on economic development of 10 media in the U.S. (“Offline vs. Online: Are the Media Shrinking?”)

Focus on professionally produced copyrighted commercial media products

A long term historical perspective

Individual media focus: television

Presentation Today

Overall, revenues of 10 media steadily declining (as a % of GDP) since about 2000

Online revenues very small and not compensating for offline declines

Consistent pattern for newspapers, music, movies, radio, books, magazines…..

The television case

Overall, an exception: robust industry growth, though slowing since 2000s

Online revenues very small—but growing and shifting from advertising to direct pay

For the future, some optimism…First some perspective on all media, then TV

Overview

Overall, revenues of 10 media steadily declining (as a % of GDP) since about 2000

Online revenues very small and not compensating for offline declines

Consistent pattern for newspapers, music, movies, radio, books, magazines…..

The television case

Overall, an exception: robust industry growth, though slowing since 2000s

Online revenues very small—but growing and shifting from advertising to direct payment

Total Revenue of US Commercial Media, as % of GDP; 1950-2010

* includes: newspaper websites; digital music/movies; television station/network websites; Internet radio; e-booksSources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji/Sherman, March, 2012)

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2.6%

2.1%

% o

f G

DP

Multichannel TV

Home Video

Broadcast TV

Radio

Theater

Internet*

Books

Newspapers

Magazines

Rec Music

Three reasons we find for recent revenue declines

2) More difficult Intellectual property (IP) protection Music, movies, news

3) Shortcomings of online business models Advertising faltering, but not direct support

4) Internet distribution is cheaper, more efficient Examples: movies, news

Focus on television

Overview of the U.S. Commercial TV Industry, 2011

Broadcast NetworksNBC,CBS,Fox,ABC

Cable Networks MTV,CNN

Local StationsLocal

Cable/telco Systems

DBS

Viewers

10% ShareViewers

62% Share

Viewers

28% Share

29

Television: Total Revenue by Category,as % of GDP, 1970-2010

Sources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji/Sherman, March, 2012)

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

.38%

.93%

1.12%

% o

f G

DP

Broadcasting

Internet

Cable TV

DBS/Telco

The television case

Drivers of robust economic performance to date

Continuing conversion from free broadcast to pay TV

U.S. Multichannel Subscribersas a % of all U.S. TV HH: 1970-2010

Sources: U.S. Census Bureau; FCC (1998); NCTA; SNL Kagan (2001, 2007, 2010 & 2011)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

6.7%

86.8%

Advertising vs. direct pay support as % of GDP: Television, 1970-2009

Sources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji/Sherman, March, 2012)

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

.35%

.55%

.47%

.03%

.43%

.60%

% G

DP

Advertising (% GDP)

Direct Pay (% GDP)

The television case

Drivers of robust economic performance to date

Continuing conversion from free broadcast to pay TV

Analog digital, especially cable and DBS

The Digital TV Transition, 1995-2010

Sources: SBCA, GMID-Global Market Information Database, MPAA, NCTA, SNL Kagan, TVB, Nielsen, Leichtman research

Pen

etra

tion

s as

% o

f a

ll T

V H

H

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0%

10%

20%

30%

40%

50%

60%

70%

DBS

Digital Cable

Digital/HDTV Sets

The television case

Drivers of robust economic performance to date

Continuing conversion from free broadcast to pay TV

Analog digital, especially cable and DBS

Cheaper, higher quality, more programming

Source: Authors’ compilation from TV Dimensions (2009)

1980

1990

2000

2005

2008

0 20 40 60 80 100 120 140

10

27

72

97

117

Number of Channels

Average Number of Channels per U.S. TV Home

The television case

Drivers of robust economic performance to date

Continuing conversion from free broadcast to pay TV

Analog digital, especially cable and DBS

Cheaper, higher quality, more programming More efficient pricing

Comcast Cable TV Tier Pricing - Bloomington, IN, 2011

Packages 

Number of Channels Price per month** 

Basic  

21 $19.99

Digital Economy    43 $39.95

Digital Starter*    178 $64.99

Digital Preferred*    243 $81.94

Digital Premier*   

295 $137.00

                  * 158 HD Channels are available from Digital Starter with HD Box($8/month)  ** published full rates after 2 years; reduced rates for some packages for first 2 years;  

Source: Comcast website, Program Lineup by Zip code: 47401, Consult with customer center

The television case

Drivers of robust economic performance to date

Continuing conversion from free broadcast to pay TV

Analog digital, especially cable and DBS

Cheaper, higher quality, more programming More efficient pricing

TV use keeps rising

Early 1970s: 43 hrs./HH/week Late 2000s: 57 hrs./HH/week

TV Viewing in U.S.: Weekly Hours per Person

Source: Nielson 2010-2011 Audience Report

2008-09 2009-10 2010-110

5

10

15

20

25

30

35

40

33:48

34:01 34:12

The television case

Drivers of robust economic performance to date

Continuing conversion from free broadcast to pay TV

Analog digital, especially cable and DBS

Cheaper, higher quality, more programming More efficient pricing

TV use keeps rising

Early 1970s: 43 hrs./HH/week Late 2000s: 57 hrs./HH/week

Result: massive growth of industry revenues since 1970s

Online Television Timeline

• YouTube launch; Free broadcast TV programs posted

• iTunes offers TV programs for sale ($1.99)2005

• Networks give “takedown” orders to YouTube/lawsuits2007

• Fox, NBC launch hulu.com

• CBS launches tv.com2008

• ABC joins hulu.com2009

• Comcast, other cable operators launch Everywhere TV 2010

2011-12• Amazon, others launch or announce online video services

Some Major Online TV Program Providers

Service Primary Content Primary Business Model(s)

Comcast Xfinity* Cable/Broadcast networks/moviesFree to offline cable subscribers/PPV

CBS CBS Broadcast network programs adv

huluBroadcast networks (Fox, NBC, ABC…) Adv/subscription

Viacom DigitalViacom cable networks programs (MTV, Comedy Central…) Adv

Netflix Broadcast/cable programs/movies Subscription (also DVDs by mail)

iTunes Broadcast/cable programs PPV

Amazon Broadcast/cable programs PPV/subscription

*Similar services offered by other leading cable operators

Characteristics of Online TV Providers

Now many providers and business models Independent networks (eg, HBO-GO, ESPN 360) or program

suppliers (eg, Viacom Digital) …but aggregators appear to dominate

To date, online TV contributes relatively tiny revenues

Sharp contrasts in 2010

National U.S. Television industry revenues by source2010

Total: $130.2 bil.* Subscriptions include movies

Sources: trade associations; industry analysts; 10-K reports; SNL Kagan; authors’ estimation

Multichannel subscriptions

42.6%

Broadcast/Cable Advertising

56.0%

Online TV adv.(Hulu & CBS)

0.3%

Online TV sales and video subscrip-tions*1.2%

Characteristics of Online TV Providers

Now many providers and business models Independent networks (eg, HBO-GO, ESPN 360) or program

suppliers (eg, Viacom Digital) …but aggregators appear to dominate

To date, online TV contributes relatively tiny revenues Sharp contrasts in 2010 Online TV episodes account for 5% of viewing, 2.7% of industry

revenues in 2010 (CSG, April, 2011)* Our estimate of total 2010 revenue per viewing hour :

All U.S. TV (exc. online): $ .79; hulu: $.28 Online increases in 2011, but contrasts still high

Very little Internet- original programming launched or announced by netflix, hulu, YouTube, in 2011-12

The Future for Online Video Services

Healthy industry growth depends on….. IP protection successful business model development low cost distribution

These factors will determine the quality and variety of programming– especially Internet-original programming –that is made available to viewers.

U.S. Broadcast TV case: reasons for optimism

Relatively easy IP control Fairly strong U.S. copyright law Low incentive to steal programs that are already “free”

Business model development

in-program ad model transfers to Internet Direct payment models growing—esp. subscription (eg, Netflix)

Apparently lower cost of distribution

Especially compared to clumsy system for broadcast signal distribution to 200 local stations

Broadcast networks (for now) have mass audience and advertisers want that!

Source: Authors’ compilation from Nielsen TV Ratings Data via tvbythenumbers.com

Week of February 27th to March 4th, 2012

* Authors' calculation based on Nielsen TV weekly ratings data Rating is defined as the average % of possible viewers with access to T.V. (out of 289.7 million) who are watching at any given time.

Snapshot of Top 10 Broadcast & Cable TV Networks

Network  Primetime

Rating*Type Some popular programs

CBS   4.2 Broadcast CSI, Survivor, Two and a Half Men

FOX   3.2 Broadcast American Idol, Glee, Simpsons

ABC   2.9 Broadcast Modern Family, 20/20, The View

NBC   2.7 Broadcast The Office, 30 Rock

Univision   1.2 Broadcast Spanish language

USA   1.0 Cable Psych, WWE Monday Night Raw

Discovery   .8 Cable Mythbusters, Dirty Jobs, Planet Earth

TBS   .7 Cable Conan O'Brien, movies

History   .7 Cable Pawn Stars, Swamp People

Fox News   .6 Cable News and debate

The U.S. Cable TV System case

Over the long term, a different threat..

Cable systems are themselves offline program network aggregators

IPTV can potentially disaggregate cable (like newspapers)

Potential Cable TV Disaggregation

Programming Networks

Cable TV SystemsIndependent

networks/aggregator websites

(YouTube, hulu)

Subscribers

U.S. Cable TV case

Over the long term, a different threat..

Cable systems are themselves offline program network aggregators

IPTV can potentially disaggregate cable (like newspapers)

Can cable operators make Everywhere TV work?

Cable System Operator Websites

ProgrammingNetworks

Cable TV Systems

Subscribers

TV Everywhere TV Business Model

U.S. Cable TV System Case

Over the long term, a different threat..

Cable systems are themselves offline program network aggregators

IPTV can potentially disaggregate cable (like newspapers)

Can cable operators make Everywhere TV work?

Cable TV is a very versatile and efficient broadband technology, but…

Many contracting/coordination problems reported It will be very difficult to compete with independent

aggregators.

The End, Thank you