Fox TV’s Gamble: Fewer Ads in a Break, but Costing More

How do you stop people from fast forwarding or leaving the TV during the break, fewer commercials. That is Fox TV's latest strategy and at the very least, their heart is in the right place. Sure the ads cost more, but if they are watched and not skipped over, it could be worth it. The concern to me is whether the consumer will return to their old ways and watch the show without using trick features. Is :60 short enough for the viewer to not rush to fast forward anyway. And because Fox is the exception, not the rule, will viewers fall into old habits. The good news is that Fox tells the consumer that it is only a :60 break.

But is it working? "Fox says the shorter commercial breaks keep viewers more engaged and improve brand recall for advertisers. Viewers are also less likely to change the channel or fast-forward past the ads — but not to the degree that Fox would have liked. Perhaps more important, the network does not appear to be recouping all the costs of the experiment. It is unclear whether Remote-Free TV will be back next season." Obviously there is a cost return benefit and the premium charged may be too expensive to justify the spending for advertisers. It's kinda like paying more for a larger box only to discover that the packaging hides the fact that what is inside is equivalent to what was in the original size package.

So far, the results are positive. "Last fall Nielsen IAG, an ad research company, analyzed the effect of fewer commercials and found that brand recall was 22 percent higher for 'Fringe' than for 'prime time’s most involving dramas.' Shorter breaks are also resulting in somewhat less skipping of commercials, according to Nielsen." Perhaps it can be possible to retrain the viewer that shorter breaks don't require skipping. Hopefully the test is expanded to all prime time shows.

Charter Cable Files Chapter 11

Goodbye old debt, so long shareholders, welcome to the new and hopefully improved Charter Cable. "Charter Communications said Thursday that it has reached a deal in principle with certain debtholders in a restructuring that will reduce its debt by $8 billion and result in the St. Louis-based MSO filing a Chapter 11 bankruptcy petition." And while their is less debt, there is still debt. Financial results indicate improved revenues, but will it be enough to sustain them. Telco and satellite competition, lower advertising, could put Charter again in a bad situation. Is this new life short term or just a precursor to a pending merger with another cable operator. I believe the latter is most likely.

DirecTV Owner Said to Seek Deal for Sirius XM

Is Direct TV, through its owner Liberty Media, interested in obtaining Sirius XM Radio? Are there synergies that make this a good merger Sirius clearly has subscribers, mainly through deals with the automakers, but are these subscribers here for the long haul and can they be merchandised with Direct TV. Perhaps there are other reasons at play. There seems no love lost between John Malone, who heads Liberty, and Charlie Ergen, who leads his competitor Echostar. "Mr. Ergen and Mr. Malone are longtime rivals. In the past they have discussed a possible merger or joint venture to cut costs, but those talks stalled over antitrust concerns in 2002. Mr. Malone’s involvement with Sirius may just be a ploy to make a takeover by EchoStar more expensive, analysts suggest. If that is the case, Mr. Malone would be taking a page from Mr. Ergen’s playbook — EchoStar has been known for becoming involved in potential mergers to drive up the price a rival must pay."

Let's assume the former that there are synergies at play that could be mined with the merger of a radio and cable satellite company. Beyond marketing opportunities, could there be technical efficiencies that could save the radio business. Howard Stern, in a Reuters article, believes that satellite radio is a viable business and can survive."'I'm not concerned. I think satellite radio is great and will be a successful business and it will survive,' he said." As of today, Sirius has a large debt payment due, so timing is everything. Who controls Sirius may simply determine Howard and Sirius' future

Is Content Still King In A Bad Economy?

In this week's Time Magazine, they wonder if content has dropped from its lofty perch and is no longer king of the hill. Relegated to "pauper" status, content is now available for free on the web, without subscription, admission, or incremental cost to the consumer. Who needs to buy Time Magazine when it's articles, like this one, can be read for free on the web; the same holds true for newspapers. No need to buy music CDs or DVDs, Apple sells songs for under a $1 and some sites are capable of sharing these same songs as well as movies and other videos for free. Some folks are even stopping their cable subscription to get their content streamed through Hulu and other sites instead. They are indeed paying less.

While the internet has brought great convenience and speed to the consumer; it also let the proverbial cat out of the bag when it enabled free content to rule. It will become much harder to retrain the public to pay for content looking ahead. Need an example, look at Sirius. On the verge of bankruptcy, Sirius has had trouble growing fast enough to make a profit. Who wants to pay for music content when free radio, ipods, and even HD and wireless choices are more preferable. Sirius' exclusive content was not enough to build a sustainable business.

Perhaps the economy is also partly to blame for this downgrade in content value. As consumers find ways to cut back, non-essential purchases stop. People make due with less and rely on what is most valuable to them. Content may still be king, it just may not be worth as much. "No one knows to what extent content will be "re-valued" as the economy improves. The newspaper industry may not be able to get any of its value back. Magazines may face the same problem. To the surprise of many, some of the more valuable content, like expensive feature films, may only make a great deal of money in theaters. The yield from VOD on the internet sales and syndication on the Apple (AAPL) iPod may turn out to be extremely modest. The largest media companies are making the case that the only reason their asset values have dropped is the economy. That case may not hold up."

Local TV Stations Face a Fuzzy Future

This article in the WSJ couldn't be more timely. Local television stations face the same threat from cable and now the internet. It has been getting a large share of its ad dollars from the auto and bank industries and is suffering as each of their media budgets have shrunk considerable. Their local news is threatened by web coverage as well as cable news networks, both national and regional, has led to less eyeballs. We now have a DTV conversion that will potentially cause some households to stop receiving TV signals and simply make the local broadcaster just another cable type network.

"Now, with their viewership in decline and ad revenue on a downward spiral, many local TV stations face the prospect of being cut out of the picture. Executives at some major networks are beginning to talk about an option that once would have been unthinkable: eventually taking shows straight to cable, where networks can take in a steady stream of subscriber fees even in an advertising slump." How does the local broadcaster survive? Cut costs, exclusive content, build stronger local brand value?

It is not all doom and gloom. "Local TV stations won't vanish overnight. Networks' parent companies still own some of the largest stations, giving them a possible incentive to preserve that slice of the business. And while their profits are down, the vast majority of stations are making money: Local, regional and national businesses, like car dealers and retailers, spent more than $20 billion on local TV-station ads in 2008, according to some estimates." Still it is about watching the trend and the arrow is pointing lower. Local broadcasters must find away to adapt and re-grow its stature in the community and its brand preference. For those owned and operated stations, a strong parent will be helpful; for others, the challenges will be higher.

Can the Long Tail Survive Or Will It Just Fall Off?

Web content faces an interesting dilemma...itself. As consumers seek more choice among more distribution paths, new viewing options are cutting into and perhaps killing traditional models. Where syndication once enabled broadcasters to recoup costs and achieve profitability, the traditional placeholders, local TV broadcasters, have been replaced, first by national cable networks like USA and TBS, and now by online sites like Hulu and Joost. And in these latest models, the demand is growing, but the revenue models don't offset the losses from traditional models. And so if revenues can't grow, costs must be cut. The big companies can ride out this storm, the small guys can not.

As more content flows from the broadcasters and deep-pocketed producers, armed with more money to promote their awareness and value, what is left for the niche on-line content creators to do. Add to this scenario that advertising dollars have dried up, can this fragmentation of content survive for long?

The answer is no. Some of these long tail content creators will be bought by the big fish. Others will lose their VC dollars and withdraw. Fragmentation only inevitably leads back to segmentation. Let history be your guide to predicting this future. In too many instances, the many turn into the few. Just look at the cable operator as one example. Less than 15 years ago, there were many cable operators across the country; but size does matter and cost efficiencies mean that you must get larger and let economies of scale improve your cost efficiencies. Today, the cable industry is perceived more as an oligopoly, a few powerful cable operators cover the entire country. The same holds true with programming. Where there were once many independent networks existed, acquisition and merger have led to most cable networks represented by few companies.

And so the long tail cannot remain viable; it must either combine with other content providers to gain bigger share or it will simply become too costly to maintain. VC money can only go so far and at some point they will demand a return on their investment. How soon will this happen? It seems that the pace has quicken and it wouldn't surprise me to see major changes within 5 years. Regardless of the time frame, it is going to happen.

Kindle 2.0 Has Arrived

Amazon announced today that the next generation of Kindle is ready for release and will be available by the end of the month. And like the Model T before it, it still comes in only one color, white. Still, it seems to have improved in speed, functionality, design, and storage. And while it its price point hasn't changed, it may still be priced high for assuring that supply meets demand. At about $360 for the device, and a poor economy, does the consumer see it as another hi tech toy or as something more. Is there enough content to satisfy this niche of a reader? Unlike the iPod, I don't see anyone using one on the train when I commute into the city. Will this next generation model be the replacement to print or is there something else on the horizon?

And why isn't Apple pursuing this segment. They have the infrastructure in place and it could complement the iPod and iPhone line of products. Yet Apple is absent in this space while Amazon is making inroads in Apple's video and audio online business. How fast will this new Kindle sell out and will the consumer embrace it? Will know soon enough, the Kindle is in pre-order now.

Power to the :30

Maybe the 30 second commercial isn't so bad after all. As advertising budgets shrink and scale and measurement matter, media buyers have grown disenchanted with the long tail on the web and banner ads that don't get clicked. Interactivity remains the buzzword, and the :30 may just have the power to not only inform the viewer about its brand but to allow them to engage and interact with the product as well. "For example, at Cablevision we’ve developed the Power: 30 (SM), which uses the 30-second unit as the entry point into video on demand (VOD) and interactive television (ITV) channels dedicated to a specific advertiser, and provides marketers and agencies with addressable advertising and telescoping functionality." It certainly appears that this interactivity provides added value. It allows the consumer to take their interest to the next level and explore the ad message in more detail.

As a viewer, the biggest challenge remains switching from the linear content, where you have invested your time to watch a show, to view this advertising content. Whether it would be possible to "bookmark" this message for later interaction could provide even more value as well as consumer friendliness. I may be willing to watch a Disney Park message, but let me wait till after Lost ends. The web enables multiple screens to open and allows me to review my history and my favorites; the TV screen is less flexible at the moment.

Interactivity with ads through the television screen seems the next frontier to conquer. How quickly the consumer embraces this new accessibility and interaction determines its viability. The added value that interactivity brings to a :30 spot should intrigue advertisers trying to measure interest and action. TV is no longer a passive screen and cable has the ability to enable and foster this interactivity. The timing might just be right.

Wall Street Journal To New York Times, Subscription Model Does Work

According to Rupert Murdoch, there is still a subscription business, and the New York Times should follow the Wall Street Journal's lead and put its content inside a gated wall. If the old adage is true, you get what you pay for, free content only gets you so much; the good stuff has more value and should be purchased. And while the NYT generated more advertising revenue than WSJ, The added subscription stream that WSJ gets boosted their total revenue above the NYT. As the NYT is facing financial problems, following the WSJ playbook may just be a viable solution for them.

"We've already noted that the Wall Street Journal has half as much traffic as the New York Times, despite having an $80/year pay wall. Why? Because the WSJ implemented its subscription fee brilliantly: WSJ.com offers some content for free, and the whole site is still fully searchable by Google. Readers can access pieces of Wall Street Journal content for free all across the Internet. They can also access some free stuff on WSJ.com. If they want to read the Wall Street Journal, though, they need to pony up, and about 1 million of them do."

Those subscribers of the Wall Street Journal recognize the unique content that comes from its pages. And today, a million online customers seem to agree. The print edition will someday go away; but these customers are already being introduced to subscribing to a digital version; brand preference and value is being maintained as distribution models change. Perhaps the NYT should heed Murdoch's message.