The search for lucrative new business models in response to changing technology, economics, content and competition is under way amid the worst slump in advertising history.
Companies and executives whining about the cyclical recession instead of paying attention to trends may miss the key to recovery and future growth.
Program repurposing, buying advertising across multiple media platforms and the gradual but steady emergence of interactive TV are forces reshaping advertising and subscription and licensing revenues-even in tough times.
Central to them all is another seldom mentioned, little understood change force: the personalization of television. Put another way, it is the catering to, measuring of and responding to individual preferences and needs.
The rapid individualization of entertainment and communications that will accompany an economic rebound later next year represents a radical shift for the medium of television, which is devoted to reaching the masses.
While connecting mass-market consumers and advertisers remains a goal of broadcasters, cable operators and networks, their future profit growth will partly hinge on attracting target consumers and companies that will support specific products and services.
The resulting incremental revenues will help cable and broadcast companies get through inevitable economic downturns and offset shifting ad dollars as the media world resets itself for interactivity.
Although personalization is a key to emerging interactive television, it also is a growth catalyst for broadcast and cable television today. It is another incentive for consumers and advertisers to invest in each other and in media at a time when such investments are uncertain and weak.
Until now, the individualization of television primarily has been a matter for niche cable networks (such as The History Channel and even MTV), and the ability of consumers to record and replay TV programs at their discretion, even without commercials, through devices from such companies as TiVo. The video-on-demand options that are part of the digital cable rollout give consumers even more power to watch what they want, when they want.
But the personalization of TV goes beyond that to the issue of creating more comprehensive convenience off a consumer profile to which specific programs, services and products can be attached to generate revenues.
Customized solutions
The customizing of services and connections is already happening in ways we don’t fully realize.
E-mail alerts are developing into a simple but effective form of direct marketing that immediately links consumers to Web sites, movies, TV programs and news reports. Consumers can be alerted to and even receive content and services of choice over myriad wireless interactive devices.
Digital cable provides a shortcut to organizing and servicing consumer and advertiser interests, needs and preferences-for a price.
The tendency of consumers to stick closer to home for leisure-time diversion and entertainment in the wake of terrorist attacks will only accelerate the rollout of these services.
Digital penetration and, more specifically, the access to video-on-demand and other interactive services, will exceed more than one-third of all basic cable subscribers in 2002 and generate $75 billion in digital video revenues alone over the next four years, analysts say.
But the advanced digital set-top boxes also possess the powerful technology to manage home operations as a single network and a consumer’s viewing and communications options as a personal system.
Electronic program guides and personal recording devices are providing personal filters that make it easier for viewers, advertisers and service and content providers to find each other in a 500-channel environment.
Two major announcements last week promise to bring more personalization to consumers.
AOL Time Warner and Sony will collaborate on the development of networking devices for the home with high-speed Internet access. They’re creating a new Internet browser that will universally run on everything from digital televisions to digital camcorders.
At the same time, Microsoft Corp. began selling its highly touted Xbox and Windows XP operating system that will reach well beyond traditional video games and PC software functions to facilitate wireless home networking and customized broadband communications and entertainment. Microsoft also has secured a pact to integrate Xbox and its interactive television platform technology into 1 million of Charter Communications’ advanced set-top boxes. Charter is backed by Microsoft co-founder Paul Allen.
Although such formidable developments will boost the otherwise nascent interactive television industry, they also will advance the personalization of TV in ways that will contribute to generating new revenues sooner rather than later.
Measure it in money
In a new report on interactive TV, Carmel Group analyst Jim Stroud said that if personalized program guides can increase pay-per-view or video-on-demand orders by one movie or by one pay-per-view event per subscriber every two months at a rate of $5 per event, that would render an additional $30,000 in revenue per 1,000 users, or $30 million for every 1 million users.
If personalizing increases t-commerce transactions by one product per subscriber every three months at a rate of $20 per product, that would render $80,000 in revenue per 1,000 users, or $80 million for every 1 million users.
Economic imperative
The “profiling” or personal preference information cable operators can gather from subscribers using advanced digital set-top boxes can be used to match consumers to programming, services and advertisers.
While the use of advanced set-top boxes makes personalization of television an easier proposition for digital cable and satellite providers, it is just as important a growth factor for broadcasters during these economically challenging times.
But broadcasters would be mistaken to overlook the valuable bond they already enjoy with local advertisers and viewers, a bond that can be refined and made even more lucrative through the understanding and use of interactive technology.
In fact, the challenge of using the Internet, wireless interactive platforms and various interactive program devices to measure, understand and cater to viewers’ personal preferences and needs is an economic imperative, with TV station owners looking at flat revenue growth and broadcast networks looking at a 6 percent revenue decline in 2002 despite the advent of Olympics and elections.
In his report, Mr. Stroud acknowledged that network operators are finding it difficult to give up control to viewers at a time when emerging interactive options “interrupt the traditional advertising model, which has long been programming-centric.”
The truth is, it’s already gone.