Wednesday, January 19, 2005

'Tivoing' Turns Industry to On-Demand Model

Simon Waldman makes the point that the growth of ad blocking technology will simply mean that users will have to pay for their content directly. This is already beginning to take shape with cable TV, where networks are looking at ways to circumvent the "Tivoing" public’s tendency to fast-forward through ads.

According to a report in Monday’s LA Times, at least 70% of today’s estimated 6.5 million digital video recorders are routinely used for skipping over ads, a practice that has become known as "commercial avoidance:"
With [digital video recorder] use expected to grow tenfold over the next five years, the devices are threatening to bring the $60-billion-a-year TV advertising business to its knees. . . . Many executives believe the networks' very survival depends on viewers accepting that some might see as a radical idea: that the audience, not just advertisers, must subsidize the high cost of producing the shows that so many Americans love to watch. If they don't, executives say, the networks won't have the money to produce expensive shows.
Moreover, by 2010, half of U.S. households with TV sets, or 58 million homes, are expected to have digital recorders, according to a recent Smith Barney report. The tipping point could come as early as 2007, the report said, when the television industry may lose as much as $7.6 billion -- or about 10 percent of its annual ad revenue -- as companies seek other ways of reaching consumers.

The cable industry has spent nearly $95 billion since 1996 to lay one of these new paths to consumers -- a system that allows audiences to select and pay (say $0.30 to $1) for each show they wish to watch; it's called content-on-demand. Now more than 91% of cable-ready homes in the U.S. have access to interactive television services that make this service possible -- with more than a third of U.S. cable customers now subscribing to digital cable.

It's precisely here where cable providers are seeking to gain an edge over satellite vendors who cannot provide seamless back and forth between provider and consumer. With that in mind, content-on-demand is becoming the distinguishing service on the new cable menu. Users will be able to self program their viewing from a startling array of video contet -- from movies to sporting events and niche news and information -- all at the click of their remotes. It's a part of the transition from mass- to micro-audiences that was much of the buzz coming out of the Las Vegas Consumer Electronics Show earlier this month.

About 20 million U.S. homes subscribe to video-on-demand services already, according to media business analysis firm Kagan Research. The number is expected to increase apace as cable providers roll out more interactive technology.

Chris Anderson writes that this decentralized distribution platform for video content will break the broadcast monopoly on TV. But is a system that frees viewers from the top-down programming of the networks a good thing? Anderson thinks so, but with some conditions:

. . . it's more likely to lead to an open marketplace in which anyone can play. I don't, however, think that an entirely bottoms-up self-service market such as eBay will dominate. Programming is not a commodity and the quality of the shows, which is the most important thing, is not easy to ascertain without trusted advice and recommendations. Instead, what seems to work best for entertainment media is a somewhat more structured environment, such as Amazon and iTunes, where critics' reviews, customer comments and expert taxonomies can all combine to help people find great stuff fast.

And Jeff Jarvis shares Anderson's view but also throws user created and uploaded content into the mix (more on this to come):
In the future of exploding TV, a few months away, anybody can create video programming and do it inexpensively with new equipment and tools; they can distribute it online and they can "market" it (that is, it can be found) thanks to metadata and search and links. All this levels the playing field.
The challenge before consumer groups is to ensure that the costs for a content-on-demand future are kept low by an open, fair and diverse marketplace.

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