TORONTO – There is no current economic rationale for broadcasters and cable networks to abandon traditional TV or attempt to accelerate a transition to a total online model, says a new report released this week by Convergence Consulting Group.
To do so would put $66 billion in traditional TV advertising revenue and $30 billion in cable, satellite, telco TV provider programming fees at risk, says The Battle for the North American Couch Potato report released this week.
“Our forecasts demonstrate that through 2011 broadcaster and cable network online advertising revenues will equal half the gains of their traditional TV advertising revenues ($5 billion and $10 billion respectively), reflecting strong broadcast/cable network online advertising and viewing growth rate gains,” reads the American market focused edition of the report. Canadian results are below.
“We estimate national broadcaster/local station and cable network (led by Disney/ABC, CBS & Viacom, NBC Universal, News Corp., Time Warner/AOL) U.S. online TV advertising (we have not included non-TV related) revenues represented 2% ($1.4 billion) of US broadcast/cable network TV advertising revenue in 2007 and forecast 8% ($6.4 billion) in 2011. We estimate the online advertising market at $22.5 billion in 2007, growing to $47.5 billion in 2011,” reads the report.
Online is merely another complimentary distribution window for the major TV players which, in contrast to traditional TV, offers 80% less available advertising minutes/per hour, lower CPM rates, and no lucrative upfront market.
“We estimate in 2007 that 9% of TV viewers had also watched full-episode Broadcast/Cable Network TV online, up from 6% in 2006; we forecast 14% for 2008, 19% for 2009, and 23% for 2010. ABC and NBC were the broadcast, and Viacom the cable network, 2007 online full-episode viewing leaders. Viewing video clips online however currently sees five times as many users as full-episodes (should decline to 3-1 in 2011) of which 75% of the content viewed originally emanates from broadcaster, cable network and studio content,” continues the research.
“For major content players bypassing the cable, satellite, telco TV distributors, and selling direct to the consumer is an economic dead-end,” says the report’s author. “The average TV subscriber home pays $64/month and watches 250 hours of TV, equating to $.25/hour. Apple’s run-rate for TV shows ($2 price) sold in 2006 was just 200,000 episodes per TV show, in 2007 this declined to 160,000 episodes per show (per show revenue is underwhelming, equating to an average 30 second TV ad).
“We do not forecast any meaningful negative impact on per annum TV subscriber net additions through 2011,” it continues.
In front of that couch, Convergence says the continued growth rate in PVR penetration will limit full episode viewing on line. “At current run-rate by year-end 2010, 48% of U.S. TV subscribers will have a DVR, up from 25% at year-end 2007. Given the option of watching TV and skipping ads, and watching online video with ads, we believe the majority of consumers will choose TV and the DVR,” says the research.
The company’s Canadian component of its Battle for the North American Couch Potato report shows a lot of similarities with the American figures – and several key differences.
“As in the U.S., there is no current economic rationale for Canadian broadcasters and specialty networks to abandon traditional TV or attempt to accelerate a transition to a total online model. To do so would put $3.4 billion in traditional TV advertising revenue and $1.7 billion in cable, satellite, telco TV provider programming fees at risk,” reads the report.
“As we forecast Canadian broadcast TV advertising revenue will decline starting in 2009, Broadcasters online gains are net positive. We forecast $83 million of online advertising revenue gains between the end of ’07 and the end of 2011 – as opposed to a decline of $150 million in traditional broadcaster TV advertising (from $2.4 billion in 2007 to $2.25 billion in 2011),” says the report.
The company forecast online specialty network gains from year-end 2007 to YE2011 of $68 million in contrast to traditional specialty network TV advertising gains of $400 million.
“We estimate TV content players (we have not included newspaper/magazine, radio revenue, etc) including CanWest, CBC, Corus, CTVglobemedia, Quebecor, online TV-related advertising revenue represented 1% of total TV advertising revenue in 2007 ($40 million) & will grow to 5% ($191 million) in 2011,” it continues.
Online is thus another complimentary distribution window for the TV players, which in contrast to traditional TV offers 70% less available advertising minutes/per hour & lower CPM rates.
We estimate in 2007 that 6% of TV viewers had also watched full-episode Broadcast/Specialty Network TV online, up from 4.5% in 2006; we forecast 8% for 2008, 11% for 2009, 16% for 2010, and 20% for 2011. In 2007, CTV led both broadcast and specialty network (through its deals with Viacom), online full-episode Canadian viewing, says the research.
“Canada lags the U.S. in both broadcast and specialty full-episode online viewing penetration and advertising revenue (as a percentage of traditional TV advertising revenue) by 18 months.”
Compared to their U.S. counterparts, “Canadian broadcasters and specialty networks feature very little U.S. full-episode content online as either the price of the U.S. digital rights are too high, the minimum fee is prohibitive, or the digital rights have not been made available to the Canadian market,: writes the author.
More deals are coming and it “is highly doubtful U.S. broadcasters and cable networks will make deals for online digital rights with anyone but the Canadian broadcasters and specialty networks given what they pay to U.S. providers in TV programming fees.
“We estimate Canadian broadcasters and specialty networks spent $1.1 billion (growing at 10% a year) on U.S. programming in 2007, over 40% of total programming costs. English Canadians spend 55% of their TV viewing watching U.S. programs,” notes the release.
“Based on these programming fees, we see no economic rationale for U.S. broadcasters and cable networks to go around their Canadian counterparts and provide programming online to Canadians. Canadians are currently geo-blocked from major U.S. broadcasters’ and cable networks website programming.
As the American data showed, content players bypassing the cable, satellite, telco TV distributors to sell direct to the consumer is a poor idea. The average Canadian TV subscriber home (with 2.4 persons) is paying $51.50/month and watching on average of 250 hours of TV, equating to $.21/hour. Apple sells a limited number of Canadian TV shows at $2 per episode.
Canadian PVR penetration (9% of TV subs at year end 2007, going to 28% by the end of 2010) lags well behind the American market, “due to less aggressive pricing,” says Convergence. “Given the option of watching TV and skipping ads, and watching online video with ads, we believe the majority of consumers will choose TV and the PVR. But with Canadian PVR penetration so low, the PVR will not have the same limiting effect,” cautions the release. “Canada has also not seen U.S.-style VOD TV innovation in large part due to the restrictions set by the CRTC, which limit cable’s ability to draw advertising revenue from VOD.”
Canadians spend on average more than half of their surfing time on U.S. sites and Canadian versions of American sites, which in part accounts for why Canadian online advertising market revenue is just 4% of the U.S. market.
Google has the leading share of the $1.04 billion Canadian online advertising market (we forecast $1.36 billion for 2008), followed by Yellow Pages, Sympatico-MSN, CanWest, CTVglobemedia and Quebecor. “Google also has, we estimate, 69% share of Canadian search,” says the report.
Sales of online movie and TV show downloads in Canada are almost non-existent. “Given the economics (and take-rates) described in the U.S. commentary above, we do not expect much in this space,” says the release.
