TV content owners resist less lucrative online ad model

Part 1 of 2

An annual look at North American couch potatoes shows more people are watching video online, but very few are cutting off paid TV services. Given the $66 billion in traditional TV advertising revenue and $32 billion in programming fees that would be at risk if TV shows are offered for free online, content providers are not likely to let that happen, according to the The Battle for the American Couch Potato: New Challenges & Opportunities in the Content Market from Convergence Consulting Group Ltd.

Certainly TV viewing habits are changing, as consumers expect to see more content on demand, but video service providers and content owners need to find ways to accommodate that change while protecting existing revenues, said Brahm Eiley, Convergence Consulting Group analyst and an author of the report.

"We are never going to see the kinds of advertising returns online that companies get today on television, so we don’t think they are ever going to put everything online," Eiley said. "Even with Hulu, you only get two minutes of ad space per half-hour program versus eight minutes per program on traditional TV. Last year, the broadcast advertising from last year was $46 billion. That compares to less than $1 billion in on-line TV advertising."

Convergence Consulting estimated that online TV advertising represented 2.4% of the total advertising pie in 2008 and is forecasting those revenues will be 4.64% of the total advertising picture in 2011.

Cable networks such as ESPN and Discovery Channel continue to see advertising revenue growth and continue to raise their programming fees annually. "They aren’t likely to say to Comcast and Cox, ‘We’ll continue to raise your fees, but we’re going to give our content away free as well.’"

Broadcasters are the ones "taking it on the chin," Eiley admitted, and many of them are making their shows available online, with required commercial spots, but only after they’ve run on television. According to the study, an average of 15% of the weekly TV viewing audience also watched a full episode on a Website of a broadcast company or cable network, and that number is predicted to hit 19% for 2009, 22% for 2010, and 24% for 2011.

"Most of that viewing is by people who missed a show, so they are protecting the franchise by making those episodes available," Eiley said. "They want to build brand loyalty [and] keep down piracy but not destroy the TV franchise. They don’t want to kill the cash cow."