Study: Online won’t replace traditional TV anytime soon

The latest edition of an annual study on “The Battle for the North American Couch Potato” indicates the online viewing of video content is not going to supplant broadcast and cable/satellite/IPTV delivery of video into the TV set anytime soon, if ever.

The study, conducted by The Convergence Consulting Group, concludes that there is “no current economic rationale for broadcasters and cable networks to abandon traditional TV or attempt to accelerate a transition to an all online model,” since that would risk the $66 billion in traditional adverting revenue and the $30 billion in programming fees paid to content creators.

“On the online side, the major broadcasters and cable networks are running, on average, two to five minutes per hour of advertising, as opposed to 16 minutes on traditional television,” said Brahm Eiley, one of the study’s authors. “That’s one big reason why they won’t generate in the near term any kind of similar advertising return.”

Broadcast executives also know that online eyeballs are fewer and that the audience attracted to online videos will be turned off if they are forced to watch more ads, Eiley said.

Convergence estimates that 9% of TV viewers had viewed full-episode broadcast/cable/network TV shows in 2007, up from 6% in 2006. It would hit 14% in 2008 and 23% in 2010. By contrast, viewers were watching many more clips online – five times as many clips were viewed as full episodes.

The same study showed that digital video recorders (DVRs) are getting more popular, hitting 25% US penetration in 2007 and projected to reach 48% penetration in 2010. Because DVR users often skip commercials, the proliferation of the devices poses a challenge to everyone involved in commercial TV, Eiley admitted.

DVRs may even be negatively influencing viewing of full episodes online, since they offer the same options for time-shifting of TV but deliver the final product on a larger screen with better picture quality, Eiley said.

“The DVR is double-edged sword,” he said. “It’s a negative for advertisers.”

The cable industry is attempting to innovate its way out of the ad-skipping challenge. Time Warner Cable’s Start Over service bans ad-skipping as does the new pilot program launched by Cox Communications, ABC and ESPN to deliver more content on-demand.

“For some customers, what Time Warner Cable is doing and what ABC is doing is interesting,” Eiley said. “It’s not a full solution. The industry is going to have to come up with more alternatives, more product placement, more sponsorship – there is going to have to be an answer, but online is not the salvation or the solution.”

Offering more on-demand content is likely to be one answer, and targeted advertising is another, Eiley said. “Getting content to people when they want it but saying you can’t fast-forward through ads can work, particularly if the ads are more targeted. Advertising is going to have to get smarter, delivery is going to have to get smarter. This is going to take time to work itself out.”

In a separate study that looked at the broadband battle in the US, Convergence shows the cable industry is adding broadband subscribers at a faster rate than telcos and continuing to cut into the residential phone line market as well.

Convergence forecasts a 19% share of the residential telephone market for cable by the end of this year and a 29% share by 2010. Cable has been able to sell high-speed Internet service to 58% of its video customers, compared to 33% of residential telephone customers buying Internet access from their telco. Eiley attributes this to the cable companies offering higher speed services at lower prices.