Video On The Go
Media giants scramble to deliver entertainment wherever and whenever you want. Will it pay off?
Along for the ride. Media executives are clear that even if the take is low at the moment (many companies haven't even attempted to sell advertising with their downloads), the stakes are high. "The truth is, we don't know where we're headed. We know we are going for the ride," says Nina Tassler, president of CBS Entertainment, which recently sealed a deal with Comcast to make episodes of certain prime-time CBS shows available to subscribers.
The bet is that the new services will lead to advertising. The online ad market is growing by 40 percent a year and is expected to double its share of the overall ad market to 10 percent by 2010, according to Horizon Media. While Web video ads still account for less than $1 billion in revenue, a fraction of network TV's ad take, network ad dollars were up only 2.6 percent last year. And revenues are expected to fall off as audiences dwindle. But it is hardly the death of television. Overall TV viewership is growing steadily (the average household logged a record 57 hours a week last year, according to Nielsen Media Research), and purchases of ever bigger and more-expensive TV sets are climbing. Some downloads, such as those for NBC's The Office, have actually helped drive more viewers to prime-time shows. "The demise of the traditional media is badly overhyped," says Craig Moffett, an analyst with Sanford C. Bernstein in New York. "A la carte is only going to prevail if the economic model is better for the consumer, and at $1.99 a download, for 57 hours of TV a week, that would mean a $500 monthly cable bill."
But growth of video on demand, from movies to next-day downloads of TV episodes, threatens to render DVDs, the ATM of the entertainment industry, a minor profit player. A free cable movie, or one on cable pay-per-view for a few dollars, generates substantially less revenue than a DVD sale. Ditto for television. The six-disk boxed set of the first season of Desperate Housewives has sold more than 1 million units, with a list price of $59.99. But such sales could plummet if viewers decide to download episodes instead. Moreover, providers--in this case Disney--have to share a part of the download fee with the deliverer, Apple. With DVDs, the bulk of the profit goes straight to the studio.
One area where analysts say video on demand shows good potential is streaming video, which can range from episodic shows, such as Gold Rush! and Yahoo!'s upcoming The Runner, to news and sports. "There's a robust advertising market around streaming video, especially if it's actually tailored to the Web,"says Forrester Research analyst Josh Bernoff. Big national advertisers such as Ben Gay and Acura are paying significantly higher rates per thousand viewers for online ads than those charged in prime-time television to reach a much smaller but more targeted audience.
Winning hand. The cable companies are also well positioned to be big winners in this new era. Forrester Research estimates there were 23.9 million households with video-on-demand capability at the end of 2005, an increase of 27 percent from 2004. By 2010, virtually all of the 46.9 million digital cable homes will have video-on-demand capability. Comcast, which has been particularly aggressive, reported $100 million in ad revenue from the service last year, more than five times what it made in 2004. "If you ask consumers whether they would rather have video for free with ads or pay for a show and see it commercial free, they choose the advertising," says Brad Adgate, corporate research director for Horizon Media.
The same can be said for putting messages on cellphones, which seem likely to be the most ubiquitous portable content carriers. Consider: There were 20 million multimedia cellphones in the United States in January 2005. By September, there were 40 million. And by 2010, more than 25 percent of the 279 million digital TV devices are expected to be cellphones. As with much of the digital world, the business model of mobile TV isn't exactly there yet. Nonetheless, both broadcasters like Disney/ABC and cable giants such as Cox Communications have been signing partnerships with wireless providers to deliver content to phones. Later this year, Sprint Nextel will roll out a phone that allows customers to program their digital video recorders and then download the material to be played back whenever the mood strikes. Customers can even use the phone to do something as mundane as making a call.
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