Will Richmond at MediaPost 7 hours ago...
According to all the research, consumer demand for online delivery of broadcast network TV programs is soaring. But if this demand is now well-proven, what's less clear is how the broadcast TV networks will profitably evolve in a world where online video distribution eventually becomes the norm.
This question is becoming increasingly urgent because a critical bridge between broadband-delivered video and consumers' TVs is in the process of being built -- assuring that the long-held dream of "convergence" will be fully realized in the near future.
Broadcast networks have been among the early leaders in capitalizing on online distribution. While paid downloading of specific episodes has gained traction, viewing them as free, ad-supported streams -- whether from the networks' own sites or those of aggregators' -- has recently gained the most popularity. Consumers love the convenience of online on-demand viewing, and especially the limited quantity of ads that accompany these programs.
Broadcast networks have purposely limited the number of ad avails in these streams as they've focused on spurring online consumption with minimal friction. Nothing would turn off a DVR user accustomed to ad-skipping faster than having a big load of ads forced into their online viewing experience. But the downside of networks' lean diet of online ads is that, network programs viewed online generate no more than 20-30% of the revenues per viewer as does a traditional-television delivered view. This is at the root of the prevailing concern about "substituting analog (on-air) ad dollars for digital (online) pennies."
Still, because online viewing has rightly been perceived to date as expanding the overall viewership of network programs, industry executives have not been too upset about this issue. The problem is that as consumers' TVs are hooked to broadband, online viewership that can be done on TVs will inevitably cannibalize the amount of time previously spent watching programming from its traditional-television source. In short, absent a course correction by networks, when broadband-to-the-TV gains scales, their traditional ad model will be diminished.
Therefore, it is paramount that broadcast networks cement an online video ad model that can stand on its own legs, ready to profitably assume the P&L mantle from linear/on-air delivery in the coming years. And note, success will not mean loading up online streams with similar quantities of ad avails as in traditional delivery. Rather, the new model must emphasize a reasonable number of well-targeted and actionable ads that major brand advertisers will be willing to pay a premium for because of their superior performance metrics. Whether it's awareness, engagement, sales generated or some other success metric, networks need to prove that their online video ads can deliver superior value.
Beyond advertising, broadcast networks must experiment with paid models that go beyond simple per-episode downloads or rentals commonly available at iTunes, Amazon or others. For example, while DVD versions of networks episodes have been available through Netflix for years, the company's recent move to streaming presents a novel opportunity for broadcast networks to have their programs be immediately available in Netflix's Watch Instantly streaming feature. CBS has already done this with a limited number of its programs. In fact, having made considerable progress in building a network of Watch Instantly-capable devices (e.g. Roku, TiVo, Xbox, etc.), Netflix now needs to scale up its library of streaming titles. Incorporating popular broadcast programs would nicely address this need.
Broadband delivery and online viewership are presenting tremendous opportunities and challenges to broadcast networks. Having established bona fide consumer demand for online viewing of their programs, broadcast networks' most urgent task now is to firm up their online business models.
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