This very recent Forbes article focuses more on the situation in the UK, but
most of it translates to the US well enough.
It says here that online ad cpm rates are lower than those of broadcast TV. If
it's true that ads inserted in full length TV episodes are retained at a much
higher rate than those of traditional broadcasts, then it seems to me that cpm
rates for online ads can be pushed up. Or alternatively, that the old fashioned
way will be forced down.
The article puts more emphasis on the impact to OTA TV than probably applies in
the US, where MVPDs long ago reduced the broadcasters' (and conglom) reliance
on the OTA infrastructure.
Still, the title does seem custom-made for this FCC auction coming up.
Bert
---------------------------------------------------
http://www.forbes.com/sites/andrewsheehy/2015/10/15/tv-broadcasters-will-one-day-be-kicked-off-the-airwaves/
Oct 15, 2015 @ 08:23 AM
TV Broadcasters Will One Day Be Kicked Off The Airwaves
Andrew Sheehy, Contributor
The media industry is adjusting to a structural contraction in its cost base -
newspapers are struggling to justify the costs of running a traditional
printing press in the face of dwindling print circulations and the music
industry is finding it hard to justify the costs of manufacturing and
distributing physical discs as digital platforms take over. It is becoming
clear that the television broadcast industry will have to go through a similar
upheaval.
Broadcast TV reaches 87% of the world's population, with the supply side of the
industry comprising public service broadcasters and ad-supported private sector
players. Distribution has traditionally required the use of gargantuan
terrestrial wireless transmitters that deliver programming to national and
regional audiences. But broadcast television can also be distributed using the
internet, mainly to homes that have fixed broadband connections, and also to
mobile devices.
If we look at the trends, we are led to one inescapable conclusion: eventually,
the radio spectrum that is being used by TV broadcasters worldwide will be
reallocated to mobile operators and TV broadcasters will have to distribute all
of their TV programming via the internet.
What is the current situation?
Let's look first at a few trends:
1. Mobile penetration is racing ahead of TV penetration: Five years ago, in
2010, the number of individuals who owned a mobile phone had already exceeded
the total number of TV sets. Furthermore, I project that by 2018 there will be
as many smartphone users in the world as TV sets. And beyond that point, TV set
penetration will start levelling off as ongoing cost reductions will allow
smartphone penetration to continue to increase.
This means that the total amount of 'screen time' is increasing at a faster
rate than that for traditionally distributed broadcast television. Eventually,
it is likely that people will spend more time viewing their mobile devices than
they do watching traditional broadcast television - and for some segments of
the viewing audience this point has already been reached.
2. Mobile data revenues are racing ahead of TV advertising revenues:
As TV advertising is a mature industry; the rate of increase is pegged to the
rate of growth of the overall economy - about 5% per year. But because mobile
broadband is still a growth market, its rate of growth can be higher than the
rate of growth of the overall economy, which explains this diverging trend:
What's more, by 2017, revenues derived from the sale of mobile broadband
service will exceed the size of the entire advertising industry (including
digital and non-digital ad formats).
It can be argued that the value that the economy is placing on mobile broadband
service is already more than broadcast television service, and that this value
gap will grow as the mobile industry continues to develop.
3. The radio spectrum allocated to mobile is growing, while that allocated to
TV is shrinking: Currently, in the United Kingdom, a total of 594 MHz is
already allocated to mobile service, compared with 320 MHz for broadcast TV.
And the amount of spectrum allocated to mobile has been increasing steadily
over the last two decades:
Given that mobile data usage is forecasted to keep growing for the foreseeable
future, then the pressure on valuable radio spectrum will keep on increasing.
4. TV viewing is shifting to the internet:
In 2015, the UK media regulator, Ofcom, announced a drop in the number of
TV-owning households. Separately, the UK's television viewing auditing body,
BARB, has also published data showing that all of the major TV networks are
experiencing declining viewing hours on their legacy broadcast platforms.
Meanwhile, data published by the BBC for its iPlayer internet television
service demonstrates a major shift in UK viewing habits away from broadcast
platforms to online platforms. Over the last five years the BBCs data shows a
steady increase in total viewing time, number of people viewing and number of
programmes requested. Interestingly, the BBC's data also shows a dramatic shift
from PC-based viewing to viewing using tablets and smartphones.
Although this analysis is specific for the UK, I feel strongly that it is a
good template for what is happening in other comparable television markets, by
which I mean markets that have a similar penetration level for fixed and mobile
internet and where there is a healthy, competitive media industry.
Broadcast television vs. the mobile sector: a battle for radio spectrum
With the rollout of 3G and 4G mobile technology and, in the coming years 5G,
mobile network operators around the world are investing heavily in the network
infrastructure required to deliver increasingly fast download services to users
around the world: mobile users want faster mobile broadband, they want cheaper
mobile broadband and they want to use their mobile broadband services more and
more. There is no evidence or sign that demand is flattening off.
Compared with the dizzying rate of development in the mobile sector, the
broadcast television industry seems half asleep.
While total viewing hours for television content are increasing every year,
users are increasingly watching this content via connected electronic devices -
in particular, tablets and smartphones, and they are increasingly obtaining
their TV content via the internet - not a terrestrial wireless transmitter.
lf these trends continue then the remaining broadcast TV spectrum will be
placed under unbearable pressure. It seems only a matter of time before a
policy decision is made that television programming should be distributed over
the internet and that the spectrum being used by television broadcasters for
distributing television programming should be auctioned to mobile operators for
the purposes of further developing the mobile internet.
Just like the shift from analogue to digital technology TV broadcast, such a
major shift would take decades, but we should expect the starting gun to be
fired in the next few years.
What would be the implications of such a major shift?
There will be major consequences. Here are a few examples:
1. Commercial television broadcasters will suffer a major revenue contraction:
Today, ad-supported commercial television broadcasters make almost no money
from online advertising. Almost all of their advertising revenue comes from
selling ad inventory to advertisers who want to place ads on broadcast TV,
where they will be able to hit 20 million viewers at 8pm on a Tuesday with a
30-second ad.
The internet is seen as a new distribution channel for their existing
television programming, which is why we are seeing most, if not all, commercial
television broadcasters in developed internet markets introducing internet TV
services over the web or via apps that are installed on tablets, smartphones,
games consoles or connected TV sets.
The broadcaster's main website sometimes does carry advertisements but these
contribute minimally to the top line.
But what happens when the market reaches the point where all of their
television programming will have to be distributed over the internet (because
they will have no spectrum to distribute over the airwaves)?
Clearly, this shift will present advertisers with a problem: is this new form
of internet television advertising or internet advertising?
This is an extremely important question because the CPM rates achieved by
online publisher sites, including those that are experimenting with inserting
video ads into long-form professionally produced filmed entertainment, are
significantly lower than what TV broadcasters enjoy - even when the content is
the same. This implies that when TV broadcasts are ordered by governments
worldwide to distribute their content online then their ad revenues will suffer
a structural contraction, because of structural differences in the CPM rates
for broadcast TV and internet TV.
There is another problem: it will simply be unfeasible for a television
broadcaster to use the ad-targeting 'technologies' that work for network TV in
an online setting. The companies that are at the leading edge of the online ad
market today are using advanced analytical techniques - including using machine
learning - to understand their audiences and how their audiences interact with
the content, and each other.
This means that commercial television broadcasters will be operating at a
competitive disadvantage as they move their business models online.
So not only will commercial TV broadcasters have to manage with structurally
lower CPM rates, they will also be operating at a competitive disadvantage
compared with rivals such as Google and others who are experts in the
fast-changing field of digital advertising. This will mean that their inventory
will not be worth as much as their competitors, thereby suggesting a
double-whammy of a problem.
While the industry will lobby hard to prevent this outcome, I think that, in
the end, consumer demand and fundamental economics will prevail.
2. The TV broadcast equipment market will undergo a massive, structural
contraction
The TV broadcast equipment market consists of a diverse range of companies that
provide the products and services required to distribute a television broadcast
signal from a single injection point to a nationwide audience.
If the internet will in the future be the primary means of distributing
television programming, then what is to become of this legacy infrastructure?
The answer is it will become redundant.
Companies that presently supply television antennas, transmitters and the
multitude of associated equipment will all experience severe contraction and
there will be many business failures. This will not be a quick transition by
any means, but neither was the process that saw the end of photographic film or
the downsizing of the music industry.
Ultimately, I think that those who work in this part of the television industry
should begin making long-range plans to re-purpose their products, services and
business models to serve the growth markets of the future because their core
business will be placed under increasing pressure in the coming years. Those
working in the TV broadcast equipment market should also be looking to exit
their current business altogether.
In summary, there is no problem at the demand end of the broadcast television
industry, or at the supply end: total viewing hours are increasing and there
will always be strong demand for great television.
The problem is with the companies that are involved in getting the content from
the producers to the viewers.
It is already a commercial fact that it is cheaper to use the internet to
distribute television programming than to use a nationwide network of
terrestrial wireless transmitters.
The replacement of the old TV distribution infrastructure with the new will
mean that fewer people will need to work in the TV broadcast industry and many
of the companies that presently supply the TV broadcast industry with products
and services will not be needed anymore.
This means that the overall cost structure of the TV broadcast industry must
come down - eventually, just as has proven the case in other media industries
that have been digitised. The bottom line is that the overall industry revenues
must also come down and, because the result will be a more efficient industry,
any non-defensible excess profit in the industry will be removed.
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