May 25, 2018

Will cherry picking undermine the market for ad-supported television?

Want to watch a popular television show without all the ads? Your options are increasing. There’s the iTunes store, moving toward HD video formats, in which a growing range of shows can be bought on a per-episode or per-season basis, to be watched without advertisements on a growing range of devices at a time of your chooing. Or you could buy a Netflix subscription and Roku streaming box on top of your existing media expenditures, and stream many TV episodes directly over the web. Thirdly, there’s the growing market for DVDs or Blu-ray discs themselves, which are higher definition and particularly rewarding for those who are able to shell out for top-end home theater systems that can make the most of the added information in a disc as opposed to a  broadcast. I’m sure there are yet more options for turning a willingness to pay into an ad-free viewing experience — video-on-demand over the pricey but by most accounts great FiOS service, perhaps? Finally, TiVo and other options like it reward those who can afford DVRs, and further reward those savvy enough to bother programming their remotes with the 30-second skip feature.

In any case, the growing popularity of these options and others like them pose a challenge, or at least a subtle shift in pricing incentives, for the makers of television content. Traditionally, content has been monetized by ads, where advertisers could be confident that the whole viewership of a given show would be tuned in for whatever was placed in the midst of an episode. Now, the wealthiest, best educated, most consumer electronics hungry segments of the television audience–among the most valuable viewers to advertisers–is able to absent itself from the ad viewing public.

This problem is worse than just losing some fraction of the audience: it’s about losing a particular fraction of the audience. If x percent of the audience skips the ads for the reasons mentioned in the first paragraph, then the remaining 100-x percent of the audience is the least tech-savvy, least consumer electronics acquistive part of the audience, by and large a much less attractive demographic for advertisers. (A converse version of this effect may be true for the online advertising market, where every viewer is in front of a web browser or relatively fancy phone, but I’m less confident of that because of the active interest in ad-blocking technologies. Maybe online ad viewers will be a middle slice, savvy enough to be online but not to block ads?)

What will this mean for TV? Here’s one scenario: Television bifurcates. Ad-supported TV goes after the audience that still watches ads, those toward the lower part of the socioeconomic spectrum. Ads for Walmart replace those for designer brands. The content of ad-supported TV itself trends toward options that cater to the ad-watching demographic. Meanwhile, high end TV emerges as an always ad-free medium supported by more direct revenue channels, with more and more of it coming along something like the HBO route. These shows are underwritten by, and ultimately directed to, the ad-skipping but high-income crowd. So there won’t be advertisers clamoring to attract the higher income viewers, as such, but those who invest in creating the shows in the first place will learn over time to cater to the interests and viewing habits of the elite.

Another scenario, that could play out in tandem with the first, is that there may be a strong appetite for a truly universal advertising medium, either because of the ease this creates for certain advertisers or because of the increasing revenue premium as such broad audiences become rarer and are bid up in value. In this case, you could imagine a Truman Show-esque effort to integrate advertising with the TV content. The ads would be unskippable because they wouldn’t exist or, put another way, would be the only thing on (some parts of) television.

Comments

  1. We are aware that comments on this post were not working until a moment ago… They should work now.

  2. You can see the future of ad-supported TV in your supermarket – ad-supported TV will become increasingly tabloid-like. You can make a case its well on the way already. Also, there will be increasingly little difference between show content and show advertisements.

    one man’s opinion, surely not original.

  3. I have an odd perspective on this, since we’ve had no electrical power through so many of the television series premieres. All the stuff that my TiVo would have just grabbed hasn’t happened. Now that we’ve got power back (an entry will be appearing on my personal blog soon with the details), I’ve been able to ponder this issue.

    For “Chuck”, I was able to download the premier episode, gratis, from either Apple’s iTunes or from TiVo’s Amazon store. (Apple seems to have better audio quality and higher resolution than TiVo/Amazon, but Apple’s SD video compression is still embarrassingly bad. They take any dark colors and pull them down to pure black. They seem to do better with their HD content, but you can’t get many shows in HD, and you can’t order HD directly from an AppleTV. You have to order it from your PC and then sync it to the AppleTV. What’s up with that?)

    For “Heroes”, they’re rerunning the show several times on several different NBC-Universal networks, some even in HD, so I’ve got ample opportunity to pick it up again with the TiVo. No need to monkey around with downloads.

    For “Terminator: The Sarah Connor Chronicles”, Fox seems to have adopted a “no repeat” policy. If you miss it, for whatever reason, then your only recourse is downloads. As such, I’ll probably buy the missing episodes from Apple’s iTunes, paying $2.99 each so I can get semi-decent HD quality rather than Apple’s not-even SD quality.

    These shows are a microcosm of how modern TV business models are evolving around the modern universe of gadget freaks (like me). NBC-Universal is trying everything. Give away the first show of the series to try to hook people. Rerun shows all over the place to draw attention to obscure cable TV channels you’d otherwise ignore. I’m sure they look at this as a loss-leader strategy. Sure, I saw “Chuck” without commercial interruption, but then the “Buy More” store (a thinly-veiled homage to “Best Buy”), is full of genuine products that you see in the background throughout the show. Indeed, I’ll be watching “Heroes” from an obscure TV channel and fast-forwarding through the commercials, but maybe I’ll pay more attention to those obscure TV channels in the future. And, since I don’t want to miss out, I’ll pay some cash to watch Fox’s “Terminator” episodes that I missed.

    Another interesting data point is HBO. I’m way behind on HBO’s “Entourage”, since my sabbatical last year wherein getting HBO wasn’t an option. If I want to watch Entourage episodes live, I have to pay the $20/month that Comcast would charge me for HBO (unless I somehow negotiated a better deal; one show isn’t worth $20/month to me). If I were to pony up for HBO, I could at least get Entourage “on demand”, but apparently you can’t get older seasons this way to catch yourself up. (Why not?) That, and it’s not clear that “on demand” plays nicely with my TiVo. (I’m not interested in adding yet another box into my home theater, just so I can do Comcast Video on Demand.)

    Alternatively, for older Entourage episodes but not current ones, I can get them from AppleTV for $1.99/each (but not in HD) or buy them on DVD (season 4 has 12 episodes, and Amazon is selling the DVD set for $26). HBO is clearly trying to incentivize me to sign up for a monthly subscription to the cable channel. That is the only way they’re willing to give me Entourage in HD (not via download and not via Blu-Ray); if you want HD, you have to pay up. HBO presumably see sales of older material as gravy, but not as a primary mechanism for people to watch their shows, versus the wide variety of shows that you can subscribe to and watch in real time via iTunes.

    That’s all quite a mess, but it’s clear that TV people aren’t sitting still. There’s a lot of experimentation with different business models coming from the established players. Furthermore, we haven’t even touched on more radical experiments like the brilliant Dr. Horrible’s Sing-Along Blog, which you can watch for free on their web site (via Hulu with embedded advertisements) or download via iTunes ($1.99/episode for three episodes yielding maybe 43 minutes of content). The whole thing was produced on a shoestring, yet with remarkably good production values, and distributed entirely outside of any “normal” TV channels. It’s been a smashing success, at least with the nerdy community it so clearly targets.

  4. I’m reminded of a quote from a 1996 J. Michael Straczynski GEnie post:

    (A network suit actually *said* thsi to me: “Our operating philosophy these days is that the people with upper or middle-class incomes, and an education, are watching cable, or laser disks, or videotapes. So what we have to do is to program for the rest of the audience, who may be under educated, but don’t have any other options.” Scared the hell outta me.)

    Source: http://www.midwinter.com/b5/GEnie/jms96-01

    Television has been bifurcating into the high-end (paid-for) and low-end (free but ad-supported) for many years now… it’s just that it’s only within the last few years that this has become blatantly obvious to the outside analysts.

  5. Maybe it’s just that my taste changes with time, but I’m under the impression that since pay TV and “premium” channels have been introduced, the “free” channels have mostly turned unwatchable, and the “premium” ones are approaching the former quality of the free channels prior to “premium”.

    As I get only the most basic TV package I can get, I’m watching HBO only when traveling (or I should rather say I review the programming guide and decide to skip as I have already seen all the “premium” movies).

    There seems to be overall very little quality content, and most of the “new” or “original” additions are cheap game, “talk”, or reality shows.

  6. I think it would be good for our society if TV advertising were to fail as a business model replaced by more direct payment. The interruptions have a disproportionate detrimental effect on what can be presented. This is especially true for news and political discourse where TV advertising interruptions and the short rapidly changing format they engender are so important to the rise of sound bites. See Neil Postman’s writing for a much more complete indictment.

  7. Sounds like this could be a prequel to Idiocracy

    • Yes — as I was writing the post, I thought about including a reference to H. G. Wells’s morlocks and eloi, but ultimately thought better of it: I’m much more confident about present trends than long-range futures.

  8. Alternative distribution channels aren’t a problem–they’re simply a different revenue model. The real problem is the DVR/PVR, which allows non-paying viewers to skip ads. As the technology spreads, the old 30-second spot model may well be doomed.

    It’s very clear that content producers are aware of this problem, and have moved to address it. I haven’t watched TV in years, but I’m often in the room when my wife watches, and I’m continually bowled over by the amount of “product placement” that’s crammed into shows these days, compared to what I remember from my youth. (I might add that movies are following suit–consider, for instance, Cast Away, a two-hour FedEx ad successfully marketed as a feature film.) There’s no doubt in my mind that to the extent that broadcast television survives, it will do so by following “Cast Away”‘s lead.

  9. When I lived in Germany (1962-65) there was a 2 hour block of time in the late afternoon to early evening when only commercials were shown on TV. The rest of the air time was commercial free. Funny thing was, people would sit and watch the ads as if they were regular shows, and everybody had their favorites.

  10. IN UK we have to pay a “licence fee” for the TV – in return for which we get the BBC – two “full time” channels plus (for those with digital) about another 3 channels worth (plus some extra channels during major sporting events like the Olympics, soccer world cup, Wimbledon etc – exactly how many you get depends on whether your digital TV is satellite or terrestrial).

    All of this is (and always has been) Ad free.

    The question is – how much would this service cost if I had to “buy” it – my guess is that the licence fee is good value.

    It is also generally believed here that the existence of the BBC has forced up up the quality of the Ad supported channels that have to compete with it for viewers.

    Here – as in the US Ad supported TV is in a financial crisis (currently it is trying to water down its public service obligations – local news etc to save money) but the source of this problem is not seen as tech savvy people skipping the ads (after all you don’t need to be tech savvy to take a “comfort break” or make a cup of coffee) but rather the simple dilution of the audience as the number of channels and other entertainment modes has increased (and also the increase in the number of advertising options).

    Here the split between the better educated (watching mainly BBC) and the “masses” watching commercial channels has always existed.
    Even if they don’t take measures to avoid the ads educated people are less likely to respond to them.

    • Richard,

      You are absolutely right that an important factor in the troubles faced by ad-supported TV is

      …the simple dilution of the audience as the number of channels and other entertainment modes has increased (and also the number of advertising options).

      I agree that losing audience is generally bad, and meant only to indicate that losing this particular part of the audience would be worse than losing a different part of the same size.

      As for the question of whether or not compulsory support for the clearly admirable BBC provides “good value for money”—it must depend on whose money we mean. No doubt most British television viewers watch and value the BBC. But as long as there are some TV license fee payers in Britain who do not attach much value to the BBC as such, and would be equally happy with the lesser news options that would probably exist in the BBC’s absence, then (bracketing paternalistic eat-your-vegetables arguments that people ought to consume more news than they do), these TV license fee payers will feel, correctly, that they are getting poor value for money in underwriting the BBC.

      It seems a reasonable bet that in this case, the UK government’s compulsory license does more to subsidize the preferences of those who actively value the BBC over the news environment it that would otherwise exist, out of the pockets of those who do not, than it does to introduce public sector inefficiency or deadweight loss. In other words, it’s a net benefit, to strong proponents of the BBC. But this provides good value for money only to those who prefer to watch the news and value the difference between the BBC and news-watching options that would otherwise exist.

      As for how the presence of the BBC influences surrounding options, it sounds plausible that BBC availability drags, say, Sky News toward greater journalistic heights. But it’s also true, as long as the BBC is the best news option on British TV, that the audience most actively interested in public affairs and most discerning in its choice of news channel will, by watching the BBC, be removed from the pool of people whose attention is on sale in the private advertising market that can support commercial news options. In other words, as long as the BBC does exist, there’s a sense in which the commercial market is playing with one hand behind its back: we don’t know how much better the commercial news options might be if the BBC audience were watching some ads to drive revenue to the commercial news. Admittedly, as argued in my post above, this population is shrinking for technological reasons. But it’s nonzero, and that makes counterfactuals about British TV news with or without the BBC difficult to evaluate.

  11. David,

    The BBC does make/show a wide range of programmes not just news – and I would argue – based on my experiences watching television in other countries where there is no equivalent to the BBC – that the whole TV output – not just news – is better here than elsewhere. So even those who don’t actually watch the BBC still get a better deal.

    To put it bluntly “Coronation Street” (the big commercial soap) is better because “Eastenders” (the BBC equivalent) exists.

    (As an intellectual of course I think both programmes are rubbish…).

    I don’t believe there really is such a thing as a “public sector inefficiency factor” although there may be a “large organisation inefficiency factor” an “old organisation inefficiency factor and a “monopoly organisation inefficiency factor”

    I do know people who work for the BBC and I don’t think their environment is much different from (say) that of a private sector company working on government contracts

    One effect of the public service culture here is that programme makers and scriptwriters have a bigger influence over programmes than they seem to in the US.

    I can think of British shows that would have been cancelled after the first series had they been made in the US where the producers believed in what they were doing and made the later series great success. I also observe a tendency in America to keep a programme going long after its “sell by date” where an equivalent British show would have been stopped by the writers because they knew they couldn’t keep the quality high enough – or the programme was beginning to repeat itself.

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