Why Internet Won't Kill the Video Sub

by: Steve Hassett

Social media helps extend live-worthy programming beyond sports, news and weather - stemming the time-shifting tide by making live viewing a richer experience than time-shifted.

According to a recent Comcast (Nasdaq: CMCSA) study, the use of TiVo (Nasdaq: TIVO) and other DVRs to time-shift is up 60% from a year ago and 80% over two years. Other than sports, news and weather, are viewers destined to stop watching live TV? Many treat it as a foregone conclusion that cord cutting will kill linear TV, eliminate the need for consumers to maintain linear video subscriptions to cable and satellite and destroy ad-supported television models along with the major networks. This is reflected in the low growth expectations for the major providers of video subscription television:

Click to enlarge:

P/E for Telecos/Video Subscription Providers

Source: Yahoo Finance, Standard & Poor's, September 17, 2010

The lower average P/E indicates that the market expects slower growth rate than the S&P 500 overall with only Verizon and DirecTV edging out the S&P. The argument is that if all programming is time shifted, then live TV does not matter and expensive linear video subscription packages become unnecessary.

Hold on a second. While time shifting will continue to increase, that does not equate to cord cutting. One often overlooked factor is that availability of streaming through Netflix (NASDAQ: NFLX) and Amazon (NASDAQ: AMZN) combined with the convenience of DVRs has led to an increase in the amount of viewing time. According to Nielsen’s Q1 Three Screens report, the number of hours spent watching TV in homes increased by about 2 hours, while the time-watching time shifted from TV increased by 1 hour 15 minutes. It seems that all PC and mobile viewing, along with much of the time-shifting, is incremental. So an increase in on-demand, PC and mobile does not mean a reduction in traditional TV time.

Something big is emerging

Another factor is social TV, including co-viewing, where viewers will discuss shows online and watch together, sometimes at a distance. In their 2009 report, Nielsen found 59% watch TV while simultaneously browsing the internet and the percentage of time spent doing so has increased by 34% in the past year – more people, more often – but still only 3.1% of viewing time.

Social media can stem the time-shifting tide

Most of the conversations regarding social TV revolve around apps or websites and how they can be used to expand audiences while monetizing the online component. Lost in this conversation is the important role that social media is playing in promoting the watching of live TV.

Television watching is a social activity where we enjoy watching in groups and discussing with friends. Twitter and Facebook expand the intimate group of television watching beyond the living room to friends anywhere. Meanwhile, Google (NASDAQ:GOOG) TV is trying to gain leverage by mashing it together on one screen. I’ve watched my children evolve from watching everything on TiVo to demanding to see shows live. It is important to them that they see Modern Family, Pretty Little Liars and other shows live – exactly the opposite of conventional wisdom. Picture the room – two children, one TV, two laptops, two phones for texting – multiple conversations.

Why is that? By connecting through Facebook they get instant reactions from friends to the story as it happens. On the other hand, if they don't watch the program live, they may have to avoid these outlets (as if that’s even possible), since they are sure to be full of spoilers.

Major implications and prescriptions

Live viewers are not only more valuable to advertisers but important to preserving cable and satellite TV subscription. Social TV is an antidote to cord-cutting by making linear television a must-have. With the trend just emerging, networks, cable and satellite operators need to encourage this behavior. Some easy suggestions:

  • Build platforms to encourage interaction: In addition to putting applications on the TV through built-in apps or the set-top box (with or without Google), smart phones, tablets and laptops need to be considered a major, perhaps the major platform. ABC (NYSE: DIS) recently announced a co-viewing app for the iPad that uses audio cues to sync application content with action on the screen for ‘My Generation’ a new fall show. While it’s unclear whether this will promote live-viewing, directionally this makes a lot of sense.

  • Promote the place: Promote the platforms during shows to encourage live conversation and show time-shifters what they missed.

  • Integrate conversations into the show: Late Night with Jimmy Fallon had “Watch Jimmy with Jimmy Week” in May, where he interacted live with fans during his recorded show. What a great model.

  • Be smart with content distribution: Employ strategies that give viewers more value for watching live to make cord cutting less attractive.

  • Look toward frenemies: Ustream and YouTube’s live streaming provide a channel for co-viewing and interacting with show hosts, like Jimmy Fallon, and cast members.

Buried here is an aspect of one-to-one marketing. While making live viewing matter to most of the audience for any one show is prize worthy, it is not the only way to win. Winning live viewers in small segments across a large number of shows also makes networks and linear TV relevant – you can win with many shows that are important to a small percentage of households in addition to trying to find a few hits that are important to a large percentage of households. In fact, here is where network economics kicks in: The more networks that produce live-worthy TV, the better for all. That's because it reinforces the habit of watching things live, rather than diluting their impact.

These behaviors are still being formed with just a small amount of time spent watching and browsing at the same time, but the growth rates are significant, so if the social TV trend continues, video sub should remain strong.

Disclosure: Long TWC, CMCSA