FUTURE OF...television

2

3

Mindshare’s Future of… programme rigorously interrogates the received wisdom and common assumptions that exist about the evolving communications landscape.

Using a wide range of techniques – from co-creation communities through to extensive quantitative studies – Future of… rejects the conjecture that we believe underpins the advice offered by so many agencies. Instead, it seeks out surprising, challenging and verifiable answers to questions communications professionals face every day.

What follows is an analysis of the Future of Television, which we’ve prepared for advertisers and media owners, which we gleaned from a mixture of qual and quant research plus exclusive interviews with industry experts.

An important read for key insights into this most popular of media.

Future of...

4

TV has come under increasing pressure in recent years and there have been plenty of observers ready to write it off as a mass medium. Much of the challenge has come from technology, of course. Newer pursuits like gaming and the web have competed with TV for our attention. It was predicted that innovations like Sky + could make live viewing

obsolete. Empowered by this technology, we would all watch whatever we wanted, whenever we wanted it. We would fast-forward through all the ads. And the once-sacred TV set itself would take second place in the home to the all-conquering PC.

A medium in terminal decline?

5

Only it hasn’t really happened that way - or not to the extent that the industry feared. The reality has turned out to be much more subtle. So we thought it was time to take an unbiased look at the trends likely to affect the development of the industry between now and the end of this decade.

We interviewed a number of key industry figures and asked what they considered to be the

key factors determining the TV landscape between now and 2020. And we also analysed lots of industry data about current consumption habits, how they are changing and how they might continue to change in the future.These subjective and objective sources both pointed to the same conclusion: while many of the existing trends - fuelled in the main by technology - will continue to gain ground, there are many

aspects that will change more slowly and less radically than anticipated. The overall picture is most definitely one of evolution, not revolution.

Evolution, not revolution

6

key findings

7

01 Linear viewing will remain resilient as viewing choices proliferate. We expect consumers to retain their preference for live, scheduled TV viewing.

02 The brand becomes even more important in TV. Strong channel brands will thrive as viewers look for guidance through all the choice; and the programme brand will become critical as social media help drive viewing to live, blockbuster content.

03 Spot advertising survives as new revenue streams emerge. The more commercially valuable audiences will watch more on-demand programming than the average. This will force broadcasters to adapt in two ways, developing branded content solutions primarily for younger audiences, and addressable advertising for higher value audiences.

8

detail

9

Crucially, we’re not watching any less TV. We love TV. For all the newer alternatives vying for our time, we still spend an average of four hours a day in front of our TV sets – essentially the same amount as 20 years ago. In fact, viewing time has actually increased slightly in the past couple of years. And the majority of that time is still spent watching live, broadcast TV. The much-trumpeted shift to self-scheduling has yet to make a significant dent. Time-shifting in homes that use PVRs hovers around the 20% mark, a lot less than had been predicted and there’s little evidence that people use their PVRs more the longer they’ve owned them.

On-line video is another perceived threat to traditional TV and it is growing, but at the current level of around 19 minutes a day, it is not yet making a significant dent in traditional TV viewing. And this viewing time is incremental to standard viewing, not an alternative. Plus, 80% of that time is spent watching YouTube or porn, neither of which can really be considered direct competitors to traditional TV programming. Likewise, there are many enthusiastic users of broadcaster sites like itv.com and iPlayer but the volume of viewing of these is still relatively insignificant despite healthy penetration.

Video on demand is also growing – especially among younger audiences – but doesn’t yet represent a marked shift in consumption despite considerable marketing effort. As with PVR time shifting, we expect viewers to continue their preference for their TV viewing to be live and of-the-moment.

Factoring in all of these changes, we estimate that linear TV will still account for 70% of video viewing in 2020 (see Fig.1). That is a long way short of the collapse that many had forecast. Traditional viewing is in fact proving remarkably resilient.

01 Linear viewing will remain resilient as viewing choices proliferate.

10

In households where people have got many tens of thousands of video on demand we’re still seeing about half of all viewing to fairly traditional, ad funded much of it, shiny floor entertainment television.

Mark ThompsonDirector General, BBC

11

40

48

193

19

17

22370%

259281

2010 2020

LIVE TV

ONLINE VIDEO

TIMESHIFTED TV

Figure 1Estimated video viewing by type2010-2020 (f),Minutes

Source: BARB / Comscore / Mindshare estimates

We believe 70% of video viewing will still be linear in 2020.

12

What I would say about 2020 is that linear television will still be there. It will take time for the evolution of television into the non-linear world to happen and it’s never going to quite happen like that because we still want to share things together.

Alan YentobCreative Director, BBC

13

Another aspect of the current TV landscape that seems in no danger of being obsolete by 2020 is the role of brands – both channel brands and content brands. We believe that strong linear TV channel brands will prosper if, as anticipated, total viewing time holds its current level (see Fig.2). In fact brand strength will be more important than ever to maintaining share.

Strong brands will increasingly help consumers manage and navigate the bewildering array of viewing choices they now face. And the evolution of the electronic programming guide (EPG) is likely to play an important role in supporting channel brands’ influence. EPGs will evolve to feature both “brand zones” and recommendation features as well as the familiar listings.

When these technologies take off, a strong master channel brand will become the access point for many viewers. The portfolio route taken by many channels will become more blurred and arguably less important at this point.

02 The brand becomes even more important in TV

14

The Big Head

The Sagging Middle

The Long Tail

Emerging Media Age

Top Bottom

Rev

enue

Trad Media age

Figure 2Distribution of Revenue Traditional vs emerging media

‘Strong TV brandswill prosper’

15

The value of a strong content brand can be seen in how well the top 5 programmes have held up in the digital era. These programmes have lost fewer viewers over the past 10 years than the rest of the top 100 (see Fig 3). For all the fragmentation in our viewing we still have that communal need for the big blockbuster programme.

And this big content has taken full advantage of the rise of social media where it is a natural and popular topic. This creates a kind of “water-cooler online” effect. Social interaction around blockbuster content is expected to grow through the phenomenon of two-screen viewing - watching linear TV while monitoring the buzz of a live

programme, chatting to friends or even interacting directly with the programme on a second device, whether it’s an iPad or a smart phone. Social media chatter helps big content get bigger. And social communities provide ready-made fan bases for leveraging content off the back of the most popular programmes.

Big content gets even bigger

16

-30

-35

-25

-20

-15

-10

-5

0

UK

US*

Source: BARB / Nielsen *2001-2009

Figure 3TV Viewing Figures by rank(% change 2000 – 2010 ytd)

‘The blockbuster continues to thrive in the digital era’

%

17

Mass audience television still has its appeal not just to advertisers but also to the public. There is something about being involved in something a lot of other people are watching that you can talk about the next day. The commonly enjoyed moment that everybody can reflect on together.

Sir Peter BazalgetteFormer Chairman Endemol UK

18

Dual-screen consumption will support live, linear TV – good news for the future of spot advertising. Overall, the continuing growth of pay TV (about 50% of revenues by 2020) will further reduce the industry’s dependence on advertising, but spot advertising will still account for 80% of the reduced advertising total in 2020, we estimate (see figure 4). New advertising revenue streams, namely branded content and addressable advertising, will continue to develop, albeit relatively slowly, because of the higher rates of time-shifting amongst the more commercially valuable audiences. There are a number of factors that will hold this back though.

Branded content will grow, particularly for brands with younger target audiences, but it is still challenging in terms of transaction costs, the risks involved and its ability to demonstrate credible ROI. Ultimately there are only a finite number of brands and programming genres suitable for ad funded programming, and this will also act as a natural ceiling.

03 Spot advertising survives as new revenue streams emerge

19

Addressable advertising – using data about individual households’ spending habits and profile in order to serve specific tailored ads to those consumers through their set-top box – is likely to be more fertile ground.

Sky’s AdSmart is probably the best known current system. It’s something of a holy grail for advertisers, but it will be 2013 before advertisers are able to tailor messages accurately and reach credible numbers of viewers with sufficient accuracy. It’s also potentially

a headache in the context of consumers’ – and legislators’ – growing concerns over privacy.

Nonetheless, it is an area of real potential and one set to grow, particularly for advertisers who are currently heavy users of direct marketing.

We believe addressable ads will generate much more revenue than branded content by 2020.

20

12 billion 17 billion

2010 2020 (f) Advertising 2020 (f)

41% Subscription

30% Advertising

23% Public Funds (BBC)

6% Other 10% Other

17% Public Funds (BBC)

24% Advertising

49% Subscription

15% Addressable

5% Content

80% Spot

Source: Ofcom / Mindshare Estimates

Figure 4TV industry revenue in £bn,

real terms 2010 - 2020 (f)

21

implications

22

Traditional viewing lives on and conventional TV spot advertising will continue to be a critical medium for many years to come.

The challenge for TV advertisers in the coming years is twofold:

1] To work out how to use social media and two screen viewing, to leverage their spot advertising in must-view, blockbuster content. How can the 30s spot be best used to drive engagement or interaction on the second screen?

2] While addressable advertising is in its infancy, advertisers need to consider how exactly one-to-one TV advertising could be used and to experiment with broadcasters and TV platforms as opportunities develop. Advertisers will need to understand their consumers in ever greater detail to truly reap the benefits of targeting.

For advertisers

23

Brands will be more important than ever as viewing choices proliferate, so it will become even more critical to build channel brands that truly resonate and offer a sense of editorial endorsement over programme choices. Big brands and well-defined niche brands will thrive, but the challenge will be to avoid the dangerous middle ground.

Developing addressable advertising systems and approaches that are coordinated across the industry will cut down on advertiser and agency transactions costs and encourage experimentation.

For broadcasters and platform operators

24

I think there will be more opportunities for advertisers to target their potential customers more accurately and I think there will be more opportunities therefore for advertisements to smarten up, to be better focused and to be better directed, not having to cover too many bases in any one message. And so I’m confident that the 30 second spot ad will survive as it has for 50 years, I am sure it will survive another 10. But we will see far more variations on the theme and far more intelligence in the way those messages are communicated.

25

David ElsteinFormer Chief Executive Channel 5, Head of programming at BSkyB& Director of Programmes at Thames Television

26

what’s Next?

27

In 2012, Mindshare’s Future of... programme will follow up its study of television with anaylsis of Mobile, Social, Connected TV and Consumer Choice.

To receive these reports on their publication - or to request a place at one of our breakfast briefings on each subject - please email rsvp.london@mindshareworld.com with your details. Alternatively, you can contact Jeremy Pounder or Louise Richardson via firstname.surname@mindshareworld.com.

2012 Mindshare Media UK Limited. These materials remain the intellectual property of Mindshare and no licence or permission given to use or adapt these materials, the underlying ideas expressed therein, or any part thereof.