The Economics of TV

Wow… hasn’t everything changed. I think  that change isn’t only constant, it is increasing at an exponentially rapid rate when it comes to marketing and consumer connections.  TV is one of those mediums that is changing at a breakneck pace, being driven primarily by the web, cheaper broadband, processor speeds and more importantly by human behaviour and the hunger to have it all now. It seems though that the only ones fighting this technological and social trend are the TV networks, somehow trying to hold back change like that boy who put his finger in the dike, trying to hold back the pressure of a tidal tsunami.

Lets define what has changed though…

Humans desire for visual entertainment hasn’t changed, we still want to see great content, be entertained, informed, learn etc. All the usual stuff we know & love in our existing inefficient model of liner TV transmission. Actually, all the stuff we do offline (Read, listen, communicate etc)  is what we NOW want to do on-line, the web has just become a faster more efficient means of content dissemination and connection.  There is a fascinating book on it it if you are really interested – Convergence Culture.  Back to TV….

So what the web has allowed us to do is no longer have to experience video content or TV in old world speak in a linear fashion (wait – start – stop – wait, repeat cycle, repeat cycle etc.) Now we can experience content in a multi-dimensional model where prime time is anytime, and we are no longer at the mercy of the television networks to dictate content and programming schedules to us. With the advent of TV shows on iTunes, Hulu, Video Ninja, etc etc we can watch whatever we want, whenever we want. In my home we see shows like Damages, Entourage, dare I say it Gossip Girl, The Mentalist, Flight of the Concords, Mad Men etc within hours of it airing in the USA. We stream it, download it and watch it all ad free on a schedule that suits our lives, rather than that of the networks. Actually we watch 3 or episodes all back to back, it is a much better experience.

Video Streaming site - Ninjavideo.net

Video Streaming site - Ninjavideo.net

So I ponder the question, what will the future & Economics of TV be? Is there a better way? (yes obviously) Who will hold the balance of power, will it remain with the networks who still today are scratching their heads, wondering if they can fight it the same way the music industry did or will they embrace the change that is being thrust upon them by a technical and consumer lead revolution? Should they look to the pioneers of the web (gambling & porn), watch & listen carefully and adapt and commercialise their models or put their heads in the sand, only to come up for breath & see that everything has moved on without them? So I hear all you naysayers saying the IP TV market is small and nascent, but so too was the wireless broadband market, the 3G handset market and yes our old friend the Music market. Believe me it is sooner than we all think, and much much sooner than the guys paid to believe the old system won’t change.

So whats the new model then….

I think, predict, believe that Goggle will become the biggest TV network in the world in the very near future….here is why:

  1. All TV based content ( that and everything else – Radio, Books etc) will be digitised ( fact is it already is!)
  2. All TVC’s will also become digitised and stored on a TVC Ad Server System (similar to current ad digital display ad servers)
  3. TV’s will be increasingly connected to media centers ( think Windows Media Center, Mac Mini or next Gen Apple TV), or co-exist in harmony with hand held devices like an iPod Touch or iPhone.
  4. Google will be able to behaviorally understand a consumer / household based on a myriad of data sources (web surfing history, Search history, IP TV viewing history etc) & serve TV ads directly into a program that has been legitimately downloaded or is being streamed in realtime. Ad serving will be served on the basis of complex algorithms in a live auction model where market forces set pricing, similar to Paid Search today. Think Google’s recently announced “interest-based” ads on the content network with the mechanic applied to TV.  Media planners & network sales forces will be a thing of the past.
  5. Consumers will decide how much advertising they are willing to bear and will trade the cost of ad free convenience off against receiving free TV, where & when they want it. So if I want no ads, I’ll have to pay a higher cost than someone who is willing to see say 8 or 10 ads an hour who may pay nothing.
  6. TV schedules & post campaign analysis will be more like digital campaign analysis than the current pay, hope and pray approach (what I like to call the Strategy of Hope) to accountable effectiveness reports. Advertisers will be able to  understand who they’ve connected with vs. what shows they’ve bought and most importantly how the consumer has reacted within different latency periods from viewing TVC’s embedded into the content (no time shifting of course). Did they visit the site,buy the product, subscribe, buy something else in the clients product portfolio, did churn drop etc etc. The opportunities are endless. Will all TV in the future be more like DR / internet based campaigns – yes I think so at least.
  7. Content producers / companies may distribute their content or shows directly to their audiences over the web and get a larger cut of ad revenue thereby dis-intermediating the networks.
  8. A new breed of KPI’s will evolve based on value & yield, rather than TARPS and average spot cost.
  9. Creative agencies will need to think of new mechanics to engage their clients audience meaningfully. No longer can they solve marketing challenges 30 seconds at a time, in the same linear fashion as the traditional TV networks serve programs.

I’d really appreciate alternate view on this, either from a Television network’s perspective or from the digital industry’s perspective. All I know is TV is going to change faster than we know it and become more like a Search market than the current state we all know and love ( or hate?).

Interesting update:

http://www.smh.com.au/business/content-rules-needed-for-internet-tv-20091105-i0b0.html

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4 responses to “The Economics of TV

  1. As a kid, Sunday night was the big movie night on network television. Then along came dvds, & suddenly no-one was watching movies on free to air anymore (Foxtel no doubt contributed to this).

    Soon enough dvds will become a thing of the past, as we download more and more movies from torrents, sites like itunes etc.

    But there’s one niche waiting to be filled – being able to download an extensive back catalogue of films. Think of all the films produced around the world in the past 100 years of cinema. Your local video store might carry to the few hundred of the past couple of years if you’re lucky. Sites like QuickFlix have a much larger selection, but when you think of every film ever made, it’s still small.

    The movie industry is being just as hard hit by the internet as music, news, publishing etc. Think of all those films that are impossible to find at your local video store, & then the potential for the internet to deliver – download rare Hitchcock films for a few dollars etc. All the film companies need to do is digitise & upload – no production costs, minimal distribution costs, & the back catalogue starts to earn revenue again (think the long tail of film). I’ve seen sites like the British Film Institute begin to do this, but still very small.

    Not sure of the copyright implications, but perhaps this will be an area for Google also? The next step after their books project? Who knows – maybe a point will be reached when all songs, films, books etc become completely indexed & searchable….

  2. Justn — Very interesting take on the future of TV. I mostly agree with your thesis, although there are challenges along the way. An interesting read on the topic is “TV Disrupted” by Shelly Palmer, if you haven’t already read it. One key add I would make to you points above is that all of this data will increasingly be connected to offline purchase panels. In the US, Nielsen (disclosure: I work at Nielsen) just announced a partnership with Catalina which enable the connection of the ratings data, engagement scores, etc. with actual HH purchase panel data, which has the potential to create real time mix modeling and ROI. Also, Google will need to connect all of its behviour based data to attitudinal and other offline metrics to make best use of its model. You can also read my take on how advertising will evolve to more of a yield management model at: http://randallbeard.wordpress.com/2009/11/16/seismic-shift-yield-management-marketing/

  3. Pingback: The Economics of TV « Economics of Advertising « Canadian Media Policy Portal

  4. Pingback: Update on Economics of TV – Article from AdAge « Economics of Advertising

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