TV viewing in home at all-time high


Despite the fear and loathing of new media in Hollywood, the digital lessons of the past decade point to the same conclusion: The TV set in the home is the American hearth.

So far, data suggests that the new video technologies -- broadband-enabled PCs, iPhones, PDAs and now the iPad -- have expanded video usage, not cannibalized it, despite phenomenal growth during the past three years. TV viewing in the home is at an all-time high, averaging 5.13 hours per viewer per day during fourth-quarter 2009 and more than eight hours a day for the entire household, according to Nielsen tracking. During fourth-quarter 2007, TV viewing in the home was 4.86 hours per viewer per day.

Viewing on laptops and portable devices, in addition to being additive to in-home TV viewing, also tends to be shorter segments sandwiched between other activities, and mobile devices are taking the lead. In early 2008, the average Web user watched 3.9 minutes of video a day, according to Nielsen; by the end of 2009, that figure was 6.73 minutes and could grow with the introduction of the 3G-enabled iPad. Video viewing on mobile phones now averages seven minutes a day, and the overall user base with access to mobile video has doubled the past two years.

Even the boxcar numbers generated by YouTube, which according to ComScore serves up 40% of all online video, barely move the overall video-usage metric. ComScore said that YouTube delivered about 11.95 billion streams in February, with an average length of 4.3 minutes. That works out to 850 million hours of video viewing for the month. However, when compared to the 44.16 billion hours of television watched in American homes each month, YouTube's audience share is less than 2% of the total. (Here's the math: 5.13 hours per viewer per day x 286.95 million TV viewers x 30 days = 44.16 billion hours a month).

More good news for video: Despite the ongoing recession, subscription models are making a comeback.

Netflix reports that 55% of its subscribers have used its Watch Instantly service, and there are early indications that streaming is supplanting some DVD-rental activity. For Netflix, the substitution is a bottom-line plus: Depending on scale, it can cost 5 cents-25 cents to deliver a movie online (and the bandwidth portions of that cost equation continue to drop), less than postage and handling expense.

There are reports that Hulu is considering a $9.95-a-month premium-access tier for its growing archive of video amid growing frustration among network owners over the low ad revenue it generates compared with the primetime broadcast window. The average Hulu viewer sees three or four commercial units during a 30-minute show and five to six during a 60-minute show. This compares to a primetime commercial inventory of up to a dozen for a 30-minute show and 22-24 units for a 60-minute show.

Assuming a primetime network CPM in the $20 range, a viewer is worth 2 cents per commercial unit, so a 30-minute show might generate 20 cents-24 cents per viewer on television. Even if Hulu can charge a CPM premium because of younger demographics and greater engagement, the revenue per online viewer is likely less than half that of a broadcast viewer.

As such services as Hulu find their way to the big screen in the living room, the disparity between the revenue streams becomes increasingly apparent -- and uneconomic.

Venture capital is beginning to place new bets on where opportunities lie, and a new wave of "over the top" boxes and services are making their way to market that turn the living room TV into the ultimate portal device, equally capable of displaying Web video like YouTube and Hulu -- probably the reason Hulu's owners are tweaking its model), deliver HD movies on demand and store an impressive amount of content on internal DVRs.

One of the first of these services to hit the market commercially is Sezmi, now available in portions of Los Angeles and Orange County through Best Buy. The $299 device contains a large DVR, ATSC tuner and a broadband port. Add in a $4.99 monthly subscription fee and it supercharges viewing of over-the-air television signals -- Los Angeles has more than 70 digital channels -- and adds online and download access. The more controversial feature is that it uses a combination of terrestrial and broadband to deliver a package of 15 cable channels (ranging from Discovery and CNN to TNT and USA, though not the notoriously expensive ESPN) for $19.95 a month.

Lurking in the background is Google. As broadband-delivered video moves inexorably to the TV set, that company's ad-serving and targeting capabilities, vast server capacity, lowest bandwidth cost and control of 40% of online video traffic through YouTube begin to fall into place for it to dominate another screen.

Larry Gerbrandt, a regular commentator for THR, has been a media analyst for 25 years for companies including Kagan and Nielsen. He is a principal at Media Valuation Partners, which provides strategic consulting, research, valuation and expert-witness services to entertainment clients. He can be reached at larry@mediavaluation.com.
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