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TV networks urged not to rush to Web

Jeff Richgels  —  5/10/2008 7:27 am

TV broadcasters and cable networks shouldn't abandon their traditional mode of business and rush to the Web, a new study reports.

"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," Convergence Consulting Group's sixth annual "The Battle for the North American Couch Potato" report states. "To do so would put $66 billion in traditional TV advertising revenue and $30 billion in cable, satellite, telco (telephone company) TV provider programming fees at risk."

Convergence forecasts that through 2011 broadcaster and cable online ad revenues will amount to just half the gains of their traditional TV advertising revenues -- $5 billion and $10 billion, respectively. Those online ad revenues represent just 2 percent ($1.4 billion) of overall ad revenues for the companies in 2007, with growth forecast to 8 percent in 2011 as the online ad market of $22.5 billion in 2007 grows to $47.5 billion in 2011.

The report calls online "another complimentary distribution window for the major TV players," noting that it offers 80 percent fewer available advertising minutes per hour than traditional TV.

Convergence estimates that in 2007, 9 percent of U.S. TV viewers had watched full episodes of broadcast or cable shows online, up from 6 percent in 2006. It forecasts growth to 14 percent in 2008, 19 percent in 2009 and 23 percent in 2010.

Convergence forecasts no meaningful negative impact on TV subscriber net additions through 2011.

The boom in DVR (digital video recorder) usage, which is expected to reach 48 percent of U.S. TV subscribers by 2010 from 25 percent at the end of the last year, also will hinder migration to Web viewing, the report states.

"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," the report states.

Convergence forecasts that VOD (video on demand) services will nearly double and generate more revenues than stores by 2010, with stores falling from 71 percent of rental market revenue in 2007 to 44 percent in 2010.

Online is only forecast to grow from 2 to 3 percent, as that mode has "major disadvantages" compared to the other channels due to its revenue split with movie studios, movie distribution window and other impediments including the cost of purchasing a separate box for delivery from the computer to TV.

In the battle for customers, current trends are forecast to continue.

Convergence predicts that cable companies will see their share of phone customers rise from 14 percent in 2007 to 19 percent in 2008 to 29 percent in 2009.

However, phone companies will see their share of TV subscribers rise from 2 percent in 2007 to 4 percent in 2008 and 9 percent in 2010. Those new TV customers will come from cable companies, which are projected to lose 1 percent of their customer base, as they did in 2007, while satellite maintains its market share.

Cable companies continued to add more residential broadband subscribers than phone companies and had 57 percent of the broadband market at the end of 2007.

"In most cases, (Verizon) FIOS being the exception, cable offers more speed for the price," the report states.

Convergence forecasts overall residential broadband revenues will grow 17 percent this year after growing 22 percent in 2007.

Jeff Richgels  —  5/10/2008 7:27 am