Broadband video's open delivery platform poses significant threats to the broadcast industry. For broadcast networks, broadband promises to heighten the audience fragmentation process that cable TV networks have been fomenting for years. This will in turn continue splintering advertisers, who are ever eager to reach their target audiences as efficiently as possible.
Meanwhile, local stations face not only the prospects of audience and advertiser fragmentation, but also the loss of their hegemony in carrying network programming to local audiences. With ad-supported free streaming of last night's hit programs now readily available at the networks' web sites (not to mention on personal digital video recorders and cable's video-on-demand services soon enough), local stations' use of prime time programming to drive audiences to their late newscasts is also jeopardized.
Despite all of these threats, broadband also offers unprecedented new opportunities for both networks and local stations to offer new programming, generate incremental revenues, deepen their relationships with viewers, and pre-empt potential competitors.
To better understand how broadcasters are navigating their way between these new challenges and opportunities, my firm recently released "The Broadcast TV Industry and Broadband Video: Confronting New Challenges, Embracing New Opportunities". Following are a few key highlights.
Broadcast TV networks: New distribution for current programs
Our analysis of the networks' broadband video initiatives reveals that at year-end 2006, broadcast networks have focused mainly on using broadband as a new distribution path for their existing programs. This has included delivering paid TV program downloads, primarily through Apple's iTunes store, and more recently streaming ad-supported episodes from their web sites and/or their affiliates. This is perfectly understandable as networks would naturally like to generate any incremental revenue possible from investments in existing programs and franchises.
Early evidence suggests that streaming episodes make a ton of sense for the networks. ABC has announced that since its formal launch last fall it has delivered 35 million online episode starts from ABC.com. The other major networks have followed suit in launching streaming episodes from their web sites. At year end, NBC was offering 13 programs, CBS, 12, ABC, 8 and Fox 8. Streaming allows networks to offer uncluttered, non-skippable ad inventory to their advertisers, while satisfying their viewers' desire for free, on-demand viewing and building direct bonds with their viewers to an unprecedented degree.
On the other hand, the benefits of the paid model — which is currently dominated by iTunes — are less clear. Based on our initial analysis (which is being further refined for an upcoming brief on this subject) the revenue opportunities for paid downloads look modest when compared to on-air and online advertising opportunities. Further, download activity appears to be concentrated to handful of programs. Given this conclusion, a key recommendation in the report is that networks expand their broadband video activities into more promising areas.
Pursuing the "Clip Culture"
The most promising broadband initiatives for networks are in community-building around video clips on their sites. Much of this type of activity for the networks' own programs currently happens at sites like YouTube and MySpace. They have pioneered new consumer behaviors — what the report calls a "clip culture" — in which users are allowed and encouraged to use interactive tools and available video clips to build their affinities for certain shows. Yet doesn't it seem crazy that so much fan activity for a show like CSI:Miami occurs at any site other than CBS's?
But the fact that it does speaks volumes about the gap that the networks' inactivity in the "clip culture" has created — and how sites like YouTube and MySpace have succeeded in filling it.
As one example cited in the report illustrates, contrast the CSI:Miami area of CBS.com with the results turned up at YouTube upon doing a keyword search for "CSI:Miami." At CBS.com there are a few old clips available, with no user interactivity or tools provided, while at YouTube there are literally hundreds of CSI:Miami clips (unauthorized of course) and a lively community of fans interacting.
In short, the networks have a huge revenue-generating and promotional opportunity in building out superior "clip culture" offerings on their own sites. These should augment, not replace, their budding partnerships with YouTube and the like. With a few modest exceptions (and recent announcements in this area), our analysis found that most networks have not yet turned their energies on this sizable broadband opportunity. This is a key area for the networks to focus on in 2007.
Local stations: Diverse broadband video initiatives
Meanwhile, our analysis of 50 local stations selected for the report revealed a wide diversity of broadband video initiatives. As one might expect, generally the stations in larger markets offered more well-developed video initiatives. However, we found plenty of exceptions to this — big Designated Market Area ("DMA") stations with meager broadband video offerings and small DMA stations with rich broadband video offerings.
Of the 50 local stations' web sites we reviewed, 40 of these (80%) offered broadband video. The type of content they offered and the reasons for pursuing broadband varied considerably. Not surprisingly, the most prevalent type of content offered is local news, which is these stations' specialty. The most common reason for pursuing broadband video cited in our industry briefings was to drive new revenues and promote on-air programming.
In fact, our analysis found that for the 40 local stations offering broadband video, 33 (82%) were generating revenue. Of these 33, 29 (88%) were using video pre-roll video ads, while the remainder were using display ads only. Conversely, for many stations, broadband is viewed as principally an on-demand platform for viewers to catch news they may have missed, or to create awareness of on-air video and extend their brands online.
As a result, our general impression is that most stations recognize the potential of broadband video but are still very early in determining what specifically they should be doing. The report identifies at least 8 different approaches that various stations in our sample are currently taking, and also provides numerous examples of each.
These highlights represent just a small fraction of the results found in my firm's new report. The broadcast TV industry is only starting to recognize the impact broadband will have on it and it is encouraging to see the industry going on the offense in pursuing broadband video initiatives. The key to success will be leveraging its considerable assets in a way that aligns with new consumer behaviors already beginning to emerge in the broadband world.
An Update on Apple's new Apple TV Product
In my December newsletter I described Apple's code-named "ITV" product as potentially the first successful bridge between the PC/broadband video world and the TV. I suggested that one of the key elements to this product's success would be Apple's content strategy. If users were allowed to easily use the new device to access free, ad-supported video outside of the paid iTunes store, that would constitute a distinctive value proposition, separating Apple TV from other products in this space that have failed to gain traction. Conversely, if the product's usage was restricted primarily to paid video downloads through iTunes that would limit the product's appeal considerably and I would consequently downgrade my opinion of the product's likelihood for success.
As most of you likely know by know, Steve Jobs took the wraps off the "ITV" product in his Macworld keynote on January 9th renaming the product "Apple TV". Regrettably, Apple did not choose the content path I had recommended (I know, shocking, Steve Jobs didn't listen to me!) and has instead positioned Apple TV as primarily a bridge for viewing iTunes content on the TV. I think this is a big missed opportunity and will relegate Apple TV to niche product status, at least for now. I don't think there are many people willing to shell out $300 for the privilege of seeing programs that for which they have to pay incrementally when they could have alternatively been viewed on their TVs via DVR, VOD or DVD. Sorry, Steve, don't expect Apple TV, in its current incarnation, to be a blockbuster.