State of TV: It All Comes Back to Content...With Some 'Big Buts'

This post is part of a series in which LinkedIn Influencers analyze the state and future of their industry. Read all the posts here.

At various points in my career, I’ve worked in the film and digital media sectors. For the past 15 or so years though, I’ve worked primarily in television. I started out in marketing, moved on to programming and ultimately ran a ~1.5B+ revenue P&L as a corporate executive.

When I ponder the state of “my industry,” I’m talking about the “traditional television” industry. The words “traditional” and “television” have vastly different meanings to different constituents, so for today let’s define it as the collective of broad-based media companies whose primary source of revenue is advertising and affiliate revenue associated with the value of acquired or original TV content (sports, news, entertainment).

While we’re at it, let’s define “TV content.” For now, I’ll say it’s original or acquired content, the first broadcast of which is intended for linear television. You know, that dusty old plastic-sheathed rectangle with a bunch of cords coming out of it, in what people used to call a living room.

If you’d like to help me assess the state of the television industry, take this “industry expert” quiz:

TRUE or FALSE

1) The traditional television industry is the same as it was five years ago.

1. TRUE – if this is your choice, stop taking this quiz. You have not been awake, alert or possibly breathing for the past five years.
2. FALSE

Okay, I gave away that answer. It’s FALSE. But just how different is it? Well, it’s pretty fair to say that the rise of technology has never been more concentrated in its effects on the viewing habits and patterns of consumers at any time since the dawn of the television age.

The previous innovations have come from technology, to be sure, but the technology has been a friend to content—all meant to enhance the viewer’s experience from the vantage point of the living room set.

Over approximately 50 years or so, we saw the advent of solid state technology, color TV, remote controls, and cable and satellite distribution. Even VHS and then DVD technology was ultimately a boon to content companies, not a threat.

The speed and impact in a fraction of that amount of time, let’s say the past 5 years or so, has been extraordinary: broad uptake of the DVR (time-shifting), C+3 ratings (commercials replace content as the metric for advertising payments, within a certain timeframe), on-demand programming, mobile technology (place-shifting through non-linear streaming technology, second screen engagement and social media), and finally YouTube, Netflix and the rise of original and acquired programming that completely bypasses the television screen and the traditional content creators themselves.

2) Cost base of acquired and original programming is the same or less than five years ago.

1. TRUE
2. FALSE

False. If you broadcast sports, news or entertainment programming, the cost of doing business is only going in one direction: up. From increased rights fees to acquire major sports franchises, to scarcity in the acquisition market for premium series content, to more outlets bidding on more original programming, you will pay more in every sector. If your revenue doesn’t rise commensurately with your cost base, your margin shrinks. And that’s not good in any business. So let's talk about revenue.

3) Television advertising budgets have shrunk in the past five upfront seasons.

1. TRUE
2. FALSE

FALSE. Total television advertising dollars have risen each year since the Great Recession. Why? Advertisers are desperate to reach large audiences, all at one time. Many believe TV is still the best place for that—and it is, for now. The cost to effectively advertise on TV is rising. This is due to a simple law of economics: supply and demand. Even though the size of premiere audiences IS shrinking (the absolute numbers that constitute the size of a “hit” is substantially smaller than it was years ago), companies can charge more in the form of CPM (cost per thousand viewers) precisely because there is less “supply” (audience) and more demand (marketers trying to reach a valuable audience, in bulk).

So that’s one source of revenue for a traditional media company: advertising. And there's more of it. BUT—and here’s the first important “big but” (my apologies to Sir Mix-A-Lot): it’s based on declining viewership amidst increasing fragmentation and diminished audience attention. So the paradigm is such that pricing is growing at a faster rate than program ratings are declining. An unstable and risk-laden growth trajectory, some would say.

Now let’s talk about the other main source of revenue for most television media companies, which brings us to question number 4.

4) The number of cable and satellite TV subscribers has shrunk in the past five years.

1. TRUE
2. FALSE

FALSE. At the end of 2013, a plethora of reports acknowledged that “the specter of cord-cutting has finally caught up to American pay TV providers,” as Todd Spangler of Variety put it. He cited analyst reports that tracked a loss of 80,000 subscribers over the full year 2013. My next big "but” is that yes, okay, that’s important proof that the subscriber universe is shrinking. BUT, with the increase in time spent viewing television content across multiple devices (yes, more on that, later) the “cliff” theory of cord cutting just hasn’t been born out yet. A simplistic view is that while approximately 45M consumers subscribe to Netflix, only two-tenths of one percent of those customers has chosen to cut the cord. It just isn’t close to a one-to-one, give-to-take ratio.

5) Consumers watch less TV than five years ago.

1. TRUE
2. FALSE

FALSE. Now here’s a series of VERY big "buts.” While audience ratings have “collapsed,” according to some data, including a comprehensive Business Insider report by Jim Edwards in late 2013, overall consumption of television content has never been higher. First off, there’s no clear answer even on the basic fact of whether or not television ratings, as measured by Nielsen, the industry standard, are in “collapse,” or merely stasis. As of 4Q’13, Americans watched almost exactly the same amount of Live television as they did in 4Q’11: Analyst Moffett-Nathanson reports 5 hours 4 minutes compared to 5 hours 6 minutes, for the same period two years earlier.

BUT (you know by now I like big BUTs), American consumers ALSO spend more than five hours per day in front of a screen, not including the television screen, according to a comprehensive eMarketer study from 2H 2013. While we know those screens include many types of media on web, smartphone and mobile devices, we know that a good portion of those hours not “watching a TV” is spent “watching TV content,” through on-demand, on-the-go and over-the-top avenues.

The answers to these five questions that define the backbone of profitability of the TV industry would lead us to believe that, despite the upheaval in consumer behavior, the economics are still holding. And the stock market agrees. Cable stocks and media company stocks are, for the most part, trading at one-year, and in some cases all-time, highs.

BUT-- does this square with what you, as a consumer—whether or not you’re “in the business”—experience in your daily lives? In your peers’ and friends' lives? Your children’s?

These questions represent a consumer version of the quiz:

1) I consume TV content the same way as I did five years ago.

1. TRUE – okay, stop. Once again, my hypothesis if you answered TRUE is that you have not been awake, alert or possibly even alive for the past five years. Maybe you just haven't recovered from "Alf" going off the air in '90 and you're waiting for the season premiere.
2. FALSE

2) I love TV commercials and always watch them.

1. TRUE
2. FALSE

While we do find some statistics that support low commercial-skipping behavior during DVR playback, and many people (including kids and young demos) DO watch some commercials with good product recall and intent-to-buy, the extraordinary rise in streaming, non- and reduced commercial formats (on-demand, Netflix, HuluPlus, Amazon, Dish satellite provider’s commercial “hopper” technology) belies that fantasy.

3) I have tremendous brand loyalty and a good feeling about my cable or satellite provider.

1. TRUE (please do not laugh)
2. FALSE

There are many good things about cable and satellite providers. I just can't think of one right now. I'll get back to you.

3) What I pay each month for my television content is the same or less than five years ago.

1. TRUE
2. FALSE

Um, no.

There are lots of other rhetorical questions I could ask, to which you will all have the correct answer. But the more important idea is that that we don’t know how these consumer issues will really affect the business constructs of the television industry, or the broader traditional media industry, over time.

My basic view is that great content becomes more, rather than less valuable, even while commodity content will trade at ever lower value. A reasonable debate to have, however, is what constitutes “great” content, and how strictly will the laws of supply and demand apply? To hundreds of millions of users, “great” content IS YouTube content, whether it’s Zach Galifianakis interviewing President Obama on Between Two Ferns, Jimmy Fallon’s latest viral video, or a 17-year-old girl giving instructions on nail art. To millions more, “great content” is professional sports content viewed on a big screen—LIVE. To even more, it’s marathoning, otherwise known as binge viewing, last season’s hot scripted comedy or drama in order to get ready for tonight’s season premiere.

Compensation for that broad spectrum of content? Either it’s here and will stay (sports, long-form entertainment) or it will come (short form, user-generated). The compensation for the latter will come as non-linear and over-the-top content organizes itself in a way that provides value for the consumer and the advertiser alike. New "broadcasters" will rise in the non-linear space. They will be mega-brands, just like the rise of the best cable brands of 20 to 30 years ago. They will function as mediators between content and audiences, and will make sense of the current programming morass through hubbing like content for affinity audiences. Despite the bashes of "too much content," "low quality," and "fragmented audiences," these new brands will harness the energy of unique, discreet audiences—similar to how cable channels and media companies themselves provided billions of dollars of value against an army of broadcast naysayers.

Cord cutting? Maybe, but not in one fell swoop. “Cord delay,” essentially young folks, students, recent grads, who may not sign up for the most expensive cable package as a young adult, at one point or another, will. It stands to reason. Cable or satellite packages are, in the scheme of rite-of-passage purchases, far less costly than a first car, house, or childrearing. Signing up for cable or satellite will come as a matter of economic maturation, especially if the broadband and cellular parts of the “triple-play” continue to be necessary, beneficial and heavily marketed parts of a consumer media proposition.

Significant ad revenue for content that is available in veritable tonnage, in an industry that values scarcity? To be determined, but my firm belief is that consumers, and therefore marketers, will continue to pay for quality, targeted content for audiences who are deeply engaged. As much content as is out there, its value is determined by the affinity value of the audience, the strength of the emotional connection, and the ability to harness that audience in predictable increments. There is an unending appetite to sell things to people who have an unending appetite to buy things they think they need. There’s never been a time that equation hasn't balanced out through a highly valuable set of transactions with great media as the consumer conduit.

My prognosis for “my” industry? It’s been outrageously, stubbornly healthy over the course of its lifetime to date. The future? Maybe we’ve gotten run down. We haven't been taking care of ourselves the way we should. We're just nursing a slight cough, and tomorrow hopefully we’ll decide to get some innovative inoculations against future viruses. We do need a shot in the arm, that's for sure. We need to test some new models of production and distribution in a host of ways. We need to listen to our consumers and learn from them how, where, and why they value our content.

But the long-term prognosis? The media company life span should only be getting longer, more robust. Healthy as can be. No ifs, ands, or “buts” about it.

Want more insight about this industry? Follow our Media channel.

Enjoyed this post? Read what other Influencers had to say:

? Julia Boorstin on the State of Media: Consolidation and Transformation
? Pete Cashmore on the State of Digital Journalism: The Media Business Is, And Will Be, Just Fine
? Neil Weinberg on the State of Journalism: Creative Destruction Rules the Day

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