I don't work for the WSJ (as if my poor writing skills didn't give that away already), but if you are interested in the consumer electronics industry, cable industry, entertainment industry, or the DVR market you must run out and get a copy of the Monday WSJ. It has a great article on the inherent risk that cable companies face when they roll out DVRs.
In summary the article runs through all of the conflicts that exist in companies like Time Warner and Comcast who are both cable operators and owners of cable channels (Time Warner owns TNT, TBS, etc. & Comcast owns E!, etc.). While the cable operations portion of these firms want to roll out DVRs to raise their average revenue per subscriber (ARPU), the content side of the house is still scared about what DVRs will do to their advertising revenue. The article also outlines great statistics around DVR adoption, consumer TV viewing habits, and the basic economics of the market.
Now that we got the basics out of the way here are some of my thoughts on the issue:
Satellite companies like EchoStar and DirecTV rolled out DVRs well in advance of the cable companies since at the time they didn't have the programming conflict of interest. This service helped EchoStar & DirecTV gain thousands of converts from the cable companies. Recognizing that the DVR was a feature they couldn't afford to ignore all the cable companies have jumped into the market to offer their own solution. This doesn't mean that the content side of these firms is happy about the change. I believe that DVRs will fundamentally change the economics of the TV industry, but the question is what form will it take. Some in the cable industry will want consumers to pony up more cash for a "commercial free" TV service. Some TV shows will try and make money by doing more product placement deals (think Coke and American Idol). I think both of these models are flawed.
Paying for "commercial free TV": I don't believe the majority of consumers are willing to pay hundreds of dollars a year to just not see commercials. I honestly believe that consumers are interested in commercials that either entertain them or are targets specifically to their current needs. (More on this in a second)
More product placement: When I talk with marketing executives they say the following: "I shell out millions a year on commercials, and I don't know if anyone is watching, I don't know the demographic very well, I have no ability to follow up with interested consumers, etc." I don't see how product placement really changes all these problems.
So here is the model I support: DVRs represent a platform for changing the advertising market in a positive way for everyone. As I mentioned before, I believe consumers are interested in ads that target their current needs. There is no reason a DVR couldn't know what your needs are. For example, I am in the market for a new car, I really wouldn't mind watching 2 minutes of car commercials targeted specifically at me. I am also about to move to a new city, so I wouldn't mind ads for moving services or places to live in my new city. (I am assuming this can all be done without revealing all this personal information to the world) Additionally, DVRs represent a much better platform to understand the demographics of viewers at a much deeper level. Advertisers could then target their ads at a much more receptive demographic.
BOTTOM LINE: It is easy to say that DVRs represent a threat to the TV value chain, but the industry should look at DVRs more as an opportunity. Advertisers today have the ability to spend money with Google and perfectly understand the return on that spending and the demographics they are reaching. The TV industry now has the opportunity to provide greater demographic information to a more interested audience, and they should take advantage of this opportunity. Ultimately, the industry will have no choice, just ask a current user of TiVo what they think of their device and they are likely to tell you that it has changed their life. DVRs really do deliver on the unfulfilled promise of VCRs (that promise was the easy ability to record shows), and consumers will continue to snap up these devices quickly so the industry better adjust as quickly.
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