EMMYS: Looking Far Into The Future of TV

There’s one thing we can say with absolute confidence about the Emmy awards a decade or so from now: Apple, Google, Netflix or possibly some other broadband and digital technology companies will be part of the ceremony after having wreaked havoc with the TV business. What’s less clear is how big a role current media powers will play as the TV community moves to an on-demand world where few companies may find it worth their while to spend $3 million to produce an hour-long show. Many executives are terrified as they look at what’s ahead for television. The industry consists of an ecosystem of companies that Needham & Co analyst Laura Martin estimated last year had a market value of $345 billion. All of that is in jeopardy as advertisers and consumers reassess what they want from television, and how much they’re willing to pay for it. Here are some of the potential changes they face.

Broadcast networks. As a former CBS executive, Discovery Communications’ ad sales president Joe Abruzzese spoke with the authority of a convert when he explained to buyers at his company’s recent upfront presentation why they should spend more on cable channels like his – and less at ABC, CBS, Fox, and NBC. “They’re still raising prices,” he said as he noted that broadcast ratings declined in the season that just ended and the vast majority of their new shows flopped. That hit a nerve with advertisers even though the industry’s herd mentality and infatuation with the Big Four networks’ mystique should enable the broadcasters to score the higher prices they want this year as the economy slowly recovers. It won’t be long, though, before advertisers grow tired of paying top dollar for time on broadcasters’ primetime shows when there are so many new, growing, and less expensive alternatives in cable and new media platforms. Many buyers also are anxious about the growing number of people – especially among the wealthy — who watch TV shows on DVRs, where users typically zap about half of the commercials. About 40% of all viewers now have a DVR, and that will grow to 48% in 2014, research firm SNL Kagan forecasts. With all of that uncertainty, it’s easy to see why advertisers find it so appealing when cable and Internet services offer precise data from set top boxes and user clicks to show how audiences respond to ads while the broadcasters still largely depend on Nielsen’s surveys.

As you’d expect, broadcasters say the threats to their dominant role in the ad market are overblown. For example, the impact of DVRs and ad-skipping “is slowing down,” says David Poltrack, CBS’ chief researcher. Surveys of people who don’t already have one show that “they don’t feel that they need a DVR.” Ad viewing might even increase, he says, if networks can entice people who want to watch shows at their leisure to switch from DVRs to VOD — especially if networks can also persuade all cable VOD providers to disable ad zapping. On Web sites including CBS.com, people who stream shows “don’t have the ability to fast-forward through the ads,” he says.  He’s also optimistic that digital media will help TV ad sales. Cable operators are rolling out technologies that make it possible to target ads to different consumers. Viewers also increasingly will be able to use their remote controls to ask for additional information or coupons – or possibly buy items on impulse. He’s more intrigued by the possibility that TV networks will be able to sync their shows with ads that viewers can access on their smartphones or iPads. “That’s what people tell us they want,” Poltrack says. “They’re not interested in turning the television into a big computer monitor that also shows video.” In the end, he says, broadcasters will be able to satisfy advertisers by blending precise measurements showing who’s watching and responding to their spots with survey data showing what consumers liked or hated about the sales pitch.

Still, his company and other broadcast networks plead poverty in Washington as they ask lawmakers not to limit their ability to negotiate cash payments from cable and satellite companies that want to retransmit their shows. “In a digital world of increasing fragmentation where advertisers have ever-expanding choices, it is simply unrealistic to believe broadcasters can compete with cable channels without a dual revenue stream,” News Corp. COO Chase Carey told the U.S. Senate Subcommittee on Communications last year.  Broadcast networks likely will collect $3.6 billion billion in retransmission payments from cable and satellite companies in 2017, up from $1.1 billion last year,  SNL Kagan forecasts.

Cable channels. Will cable and satellite television soon become as anachronistic as wireline telephones appear to be to millions of people? It’s possible, and that’s a terrifying prospect for many cable network executives. More than half of the revenue for basic cable channels such as ESPN, CNN, and Comedy Central comes from the monthly payments consumers make to their cable and satellite providers. That cash could start to dry up if lots of subscribers discover that they can save money and still be satisfied by cutting the cord and watching programs they find on free, over-the-air broadcasts and inexpensive Internet streaming services such as Netflix.

Although cord cutting is not a mass phenomenon just yet, some analysts say that we may see something akin to a jail break as it becomes easier for people to access programming on the Web and more shows become available.  No amount of cute advertising by cable and satellite providers can hide the fact that consumers are fed up with paying for 150 channels when they only watch 14. Many also resent seeing pay TV prices rise 29% over the last five years  while average household incomes have fallen. “Today’s cable network model is a rigged game, where media companies push through price increases to cable and satellite operators, which in turn pass them along to consumers in impenetrable bundles,” says Bernstein Research analyst Craig Moffett.   The price hikes have been especially troublesome for the poorest 40% of the population, which is barely able to make ends meet. That’s why Moffett says that “cord cutting will not be a technological phenomenon – it will be an economic one.”

Whatever the cause, if cord cutting catches on then it could lead to the demise of dozens of channels – especially those that few people watch. Pay TV providers might try to keep subscribers by offering smaller and less expensive packages of channels, or even a la carte pricing. If given a choice, more than half of consumers questioned last year in a survey commissioned by Needham & Co said that they wouldn’t pay more than $20 a month for their 20 favorite channels. CBS, ABC, Fox, and NBC led the list of favorites followed by ESPN, Discovery, History, HBO, and Comedy Central.

The Pay TV industry is experimenting with Internet initiatives designed to keep consumers interested in current system of bundled program packages. Most operators are beginning to give subscribers opportunities to use the Internet to watch the same shows on their computers or mobile devices that they can also see on their living room TV sets. If that doesn’t do the trick, though, then media companies may launch their own Internet strategies. For example, Time Warner has toyed with the idea of selling HBO directly to consumers on the Web – without requiring them to first pay for a collection of basic cable channels.

While cord cutting may create chaos among programmers, cable operators likely will end up just fine. They had more than 55% of of all broadband subscribers at the end of 2010, and their market share is growing so quickly that Liberty Media Chairman John Malone says “cable is pretty much a monopoly now” in broadband.

Syndication. DVRs, TV Everywhere, Netflix and other services that enable viewers to watch any show that interests them whenever they want may sound great to consumers. But it should worry program producers says Tom Wolzien, an industry consultant who sits on the board of TiVo. VOD “will undermine the economics of linear television” he says, because “many more people can see a show in or not too long after its first airing, and therefore have no need to pick it up on the second or third pass.” If he’s right, then it could upend a system that makes it possible for producers to spend $3 million on an hour-long program. They can afford to make that investment now because once in a while they hit the jackpot and land a show that survives long enough so its reruns can be packaged and sold in the syndication market. That business will generate about $20 billion in revenues this year – 70% coming from cable networks —  SNL Kagan estimates. It led A&E to agree to pay an estimated $2.5 million an episode for The Sopranos, USA Network to shell out $2.35 million an episode for NCIS: Los Angeles, and TNT to shake hands on $2.3 million an episode for the new Hawaii Five-0. Producers need the cash from hits like these to cover the deficits they incur on flops.

But many are conflicted when Netflix approaches with an open checkbook to buy the streaming rights to popular re-runs. It’s hard for a producer to blithely spurn an Internet service that agreed to pay an estimated $900K an episode for reruns of Mad Men – a series that’s too identified with AMC to have much appeal for other cable networks. In this case the short term gain for the show’s distributor, Lionsgate Entertainment, outweighed the potential pain that may come from fans who may decide to spend more time with Netflix’s on demand service and less with traditional cable networks.

Others also are willing to play, as long as Netflix doesn’t aspire to offer much more than moldy reruns. CBS’ Poltrack says that although “it’s a little early” to detect long term viewing patterns, “we haven’t seen any evidence” that viewers who use VOD will have less interest in seeing a hit show a few years after it first airs. Indeed, he adds, “people watch comedies over and over again.”

  1. I don’t think tv will “go away”, but it may have to change. I own Friends on DVD, but I’m actually more likely to watch it when it’s on TV. I think the same is true with netflix. I caught up on Parks & Rec and 30 Rock. Now, I anticipate new eps every thursday! I watch SNL on both netflix and vh1, but I use netflix to watch certain sketches again and again and again. I also use netflix to catch missed gems like Veronica Mars and Pushing Daisies.

    None of that will replace my TV.

  2. >>Producers need the cash from hits like these to cover the deficits they incur on flops.<<

    That's exactly what will have to change. No more huge paydays to actors, producers, and writers for unproven shows. Instead, the big paydays will come only after a show has proven itself.

  3. Yay for Netflix!! The collapse of the studio system is the best thing that’s happened for artists since the collapse of the record industry.
    Why should a few people in charge of studios and networks have a say in what gets made and what doesn’t? This opens the door for real talent to shine and show their work. We can go directly to Netflix and/or upload on the Internet instead of having to go through some asshole who thinks sitcoms are funny. Let the canned laughter and beer myth die a horrible death. Vive La Revolution!!!

    1. So a change in technology will suddenly eliminate the need for specialization of skills? Studios don’t exist purely because of rent seeking behavior, they cultivate the business acumen needed to survive in the marketplace while other professionals deliver content. Suits and artists need each other in this industry.

  4. P.S. Can you please take a look at your dumbass comedies on prime time and maybe get some balls and put something original and funny on? That’s why people don’t watch network channels anymore. We HAVE to go to the web or Netflix for quality. Breaking Bad, Mad Men, The Tudors. For real.

    Why do they dumb down shows? It’s insulting and makes the public all that more happy to see the studios fall and an interactive platform take it’s place. Netflix is Itunes for TV. Bye bye assholes. You had your chance to create art and you sold out instead.

    1. Agreed I find myself watching more independent movies because of netflix and now Amazon Prime. Cables charges are rediculous. But I do fear that the future consolidation of internet providers will only jack up the cost again.

  5. In my opinion, I believe a linear system is better for television and creativity. How many shows are going to be able to make money or be produced in this space? Yes- Mad Men, Breaking Bad and The Tudors are top tier television but what about other show’s casts and crews that have mad their living in this industry? Is non-linear better to achieve a higher form of television, yes. However, is it better for the industry, hell no.

  6. Question about VOD and HD: the last time I researched this, the VOD services were not true HD. What is the viewing/listening experience like on the currently available options? I’m a satellite subscriber with DVR and a number of the network/cable offerings are visually stunning (“The Killing” or “Justified” or “Battlestar Gallactica” for example). If I could get comparable quality on-demand, I’d consider switching.

  7. Kickstarter will have a lot of business from former trad-TV producers looking to fund shows directly by a public that wants to see them. The producers of AMC’s cancelled Rubicon should have given that a shot. At one point this will happen. Then all hell will break loose.

  8. I’ve got news for all those network executives living in their pretty fantasy world. I may not be able to zap the ad as I can on my DVR, but when I’m watching VOD I can lower the sound to just audible and switch to my other window and do something else until the three ads have run their course, and I do.

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