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November 2006 Archives

Once in a while, my DVR (Digital Video Recorder) lets me down. Sometimes it misses recording a show because the hard disk is full. Sometimes recordings mysteriously don't occur. And sometimes the content expires before I get around to watching it or flagging it to be retained until I explicitly erase it.

Such was the case this month with two shows I wanted to see. I lost part one of a two-part A Touch of Frost episode, and I lost the second part of a two-part episode of Studio 60 on the Sunset Strip.

What's a poor TV viewer to do? Of course, this question arises for non-DVR owners, too, and to an even greater extent.

Depending on the show and the broadcaster, different 'recovery' options exist. Historically, the only way to watch a missed episode was to wait for summer repeats. That approach isn't very satisfying if the program is a serial drama where the storyline of subsequent episodes builds upon prior episodes. And there's no guarantee that 'summer re-runs' will even occur - take Studio 60 as an example. Rumours of its imminent demise due to low ratings abound. If it is cancelled, there's a good chance that it will vanish from program schedules entirely - meaning no reruns.

But today, we've got new alternatives, and I used two of these in executing my recovery strategy.

In the case of Studio 60, my timing was good. CTV had just announced that Studio 60 had been added to their broadband station, including past episode availability to provide 'catch up' capabilities. Off I went to CTV's website and watched the episode I missed. This is an option that has been available for a while to viewers of U.S. network programming - but only if they were accessing the Internet with a U.S. IP address (that's the unique identifier that is used when you connect your computer to the Internet). Canadians have only recently, and on a limited basis, begun to have access to U.S. prime-time programming over the Internet through our domestic networks like Global, CHUM and CTV. This is a great step forward for Canadian viewers - and we need more of it!

In the case of A Touch of Frost, which I normally record from TV Ontario (TVO), I had to pursue other means. TVO doesn't provide broadband television so I couldn't do the same sort of catch up that I did with Studio 60 thanks to CTV. Alas, I was driven underground... BitTorrent to the rescue. If you're not familiar with BitTorrent take a quick look at the Wikipedia entry (http://en.wikipedia.org/wiki/BitTorrent). A quick search of various torrent sites allowed me to find a torrent for this lost program - as I knew it would. Virtually any imaginable TV or movie content is out there - 'free' for the illegal taking. After a couple of failed attempts (this is still sometimes a challenging technology to use) and a slow download process, I had the missing episode on my hard disk. [See below for my rationalization for committing this illegal act!] I copied the file to the Media Center PC that is connected to my big-screen TV and watched it on my TV. [Interestingly, both my wife and I felt that the image from the torrent was of superior quality to the up-converted standard definition (SD) broadcast we normally receive from TVO via cable.]

These two different approaches to catching up have one significant difference: one is legal, one is not. By watching Studio 60 on CTV's broadband site, I was operating entirely within the law. The content owner's rights were respected. By downloading A Touch of Frost via BitTorrent, I was committing an illegal act. The copyright of the content owner was not being respected. Now normally I am a law abiding citizen, and I am very respectful of copyright laws. But in this instance, I wasn't. Do I feel guilty about it? No. I financially support TV Ontario and TV Ontario pays the content owner for the right to broadcast that content. Somehow, I missed the opportunity to record (or view live) this specific episode during the broadcast window of opportunity. In my rationalization, the content owner was paid for me to see that content and, although I missed the broadcast and had to obtain the content through unorthodox and unlawful means, the bottom line remains that payment, at a macro level, was made to the content owner for me to see that show. I would not download content for which I could not provide a similar rationalization - but a lot of people do.

In both cases, I availed myself of new technology alternatives to solve my problem. One happened to be legal, the other, not. In the end, though, the fact that I had no legal option to catch the missed episode of Frost (short of renting a DVD, if it is even available) underscores the fact that we've still got a long way to go.

Technology has changed. The expectations of viewers for alternate viewing and catch-up opportunities have changed. 'Appointment TV' is on the wane. Content on-demand is waxing. In one case (Studio 60), the broadcaster had taken steps that provided a solution that addressed my needs and expectations. In the other, (Frost), the broadcaster hadn't. Now I well understand that TV Ontario is a public broadcaster and CTV is a private one. TVO has limited resources, especially when contrasted with the likes of CTV, but it really is time for all networks to recognize that the viewing paradigm has changed, as have consumer demands. All content needs to be available through alternate channels if we are to meet the consumers' expectations. The old world order for content distribution isn't going away, but there's a new world order coming to the forefront and if TV is to continue to be a compelling experience it has to deliver the flexibility and 'on-demand' nature that other content delivery mechanisms provide.

Targeted advertising

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Advertising has always been used as a way to offset the true cost of many services and provide a profitable business model. This has unquestionably benefited the consumer, and that's arguably truer today than ever before, given the increasing demand (and expectation) for 'free' or low-cost content, information and services.

As is the case with the recent announcement that Sprint Nextel is starting to sell advertising embedded in the mobile 'deck', we sometimes see advertising spring up where it wasn't before. Downward pressure on pricing usually means that companies need to find alternate revenue streams - and advertising has always been the stream of choice. In the U.S., and many other geographies, there is far-greater competition amongst mobile carriers than there is in Canada. Our less-competitive market means we haven't seen the same degree of downward pressure on pricing, but the evolution of mobile devices into much more than just telephones will drive significant increase in data traffic, and, correspondingly, in consumer demand for cheaper data plans. The increase in traffic drives up operator's costs - and advertising-based subsidization of services is a logical route for them to pursue to maintain profit margins. So, as is the case with Sprint Nextel, we may see our carriers turn to advertising sales to continue to provide consumers with what they want at an affordable price point. And, today, effective advertising is targeted advertising.

A wealth of data can be (or is) collected about computer-based users of the Internet, television viewers, or those using mobile devices to access the Internet or other mobile services. This data enables much more accurate targeting of advertising than was ever before possible. More and more, we will see a shift away from broad demographic profiling of consumers toward much more specific consumer profiles that dynamically evolve to reflect their individual actions (for example, searching the Internet for car dealers could cause automobile advertising to be prominent in the ad content they receive from sources unrelated to the actual search activity that they performed. They might see a car ad the next time they go to a newspaper website).

Naturally, advertisers love this as it greatly increases the likelihood that their messages reach a relevant audience. Consumers, too, should appreciate this - if they are to be presented with advertising content, isn't it better for everyone if that content is of interest to them? However, this does, as always, raise privacy concerns.

The issue of consent is important. Privacy policies are a common feature of Internet sites today and they usually tell you what will be done with information provided by the consumer (active disclosure), and, sometimes, what will be done with other passive data that is collected. Carriers (ISPs and mobile operators), too, should provide similar disclosure with respect to how they will use data that they collect. So, too, should search engines, portals, etc. In all cases, an informed consumer has the option of participating in this collection - or taking their business elsewhere. But consent is only meaningful if it is informed consent entered into by an adult or, on behalf of a minor, by a responsible parent or guardian - and that's a challenge. More often than not, in the electronic world, the granting of consent is a passive action. While privacy policies may be available, it is incumbent upon the consumer to look for these to investigate what will be done with information they actively or passively provide - and few consumers read these. As well, it is difficult, and sometimes impossible, to know with certainty that the person giving consent is of legal age to do so.

The advertising ecosystem in the new media world is still nascent and is only beginning to test the true potential of targeted advertising. At times, this may be taken too far and, when that happens, consumer push-back will help in finding an acceptable balance between the use of profiling and the need for privacy. In the interim and at times going forward, advertisers will test consumer tolerance to specifically targeted advertising.

What are the acceptable limits? Well, of course, that will vary from consumer to consumer and will, in part, be a factor of what he or she is willing to give up in relation to what he or she gets in return. If a consumer's mobile carrier is part of the same conglomerate that delivers their Internet connection and their television, is it acceptable to use the information collected on one service to affect advertising content delivered to the consumer on another service? Perhaps. Is it acceptable is I've consented to that being done in return for a 5% discount on all of the inter-twined services? Absolutely.

In Canada, the three main mobile carriers are all part of enterprises that offer Internet connection services, television services and voice services. This tends not to be the case in the United States or elsewhere, so our Canadian operators have some unique opportunities that may lead to some innovative ways to address the consumer relationship holistically, from an advertising subsidization point of view. Will they pursue these opportunities in the long term? Perhaps. Perhaps not. On the television side, there are still some technical limitations to be worked out. And the television world is highly-regulated - and policy change would be needed. But, long term, it will depend in large part on how receptive the consumer is to this. But it would not be surprising to see or media empires dip a toe in the water to see what the temperature - and appetite - is for this kind of incentive. Personally, I'd welcome such experimentation and let the consumer decide.

Reader's Digest versus YouTube

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It was just announced that Reader's Digest has been sold for $US 2.4-billion. That's about 1.5 times as much as Google paid for YouTube, which got me thinking.

I think that these two media operations are at opposite ends of the spectrum, and I doubt that there's an overlap in their audiences. I think of YouTube as being very aligned to a younger demographic and, conversely, I think of Reader's Digest as having a primary readership in the 40+ age group. And, according to Wikipedia, RD reaches more $US 100,000+ readers than Fortune, The Wall Street Journal, Business Week and Inc. combined.

Over the years, RD has expanded to include numerous international editions. YouTube had an instant international presence.

YouTube is purely an electronic forum while RD is primarily a paper-based product although it does have websites associated with, at the very least, the American and Canadian editions.

YouTube is primarily based on user-generated content with some legal commercial content (and much illegal commercial content) in the mix. RD is primarily based on commercial content, supplemented by a small amount of user-generated content.

YouTube is a few years old; the venerable RD was founded in 1922. RD is the best-selling magazine in the United States. YouTube is one of the most popular websites.

I haven't looked at the financials of either operation, but RD has a clear and traditionally profitable business model -- you don't last 84 years without being profitable. YouTube hasn't been around long enough to be said to have a track record and its on-going profitability is uncertain given a potentially very fickle audience.

RD commissions much of its own content has been dealing with rights clearance for its acquired content for years. YouTube has serious copyright issues to deal with and may lose audience share by following what much of its audience likely views as the heavy-handed removal of copyright-infringing content.

These two operations couldn't be more different, yet both serve a similar purpose. They provide short-form content to their audiences, though these are vastly different audiences and, arguably, in the long term, one audience demographic is waxing and the other waning.

What has me thinking, though, is whether the 1.5 times price difference between the two is appropriate. Putting a dollar value on a company like Reader's Digest is easy, though projecting long-term trends in these changing media times is a bit tough. Putting a dollar value on a company like YouTube is much more difficult.

Is RD worth 1.5 times what YouTube is worth? Is it worth less than that? Or is it worth more than that? I have no idea... but, like I said, it's got me thinking.
Stuart MacDonald (of Mesh Conference fame) has a posting on his blog at http://stuart.blogware.com/blog/_archives/2006/11/7/2480838.html in which he makes some observations about a panel I moderated two weeks ago.

The panel was at the Interactive To The Max Big Day! conference and was entitled Broadcast Businesses in a Digital Age. Stuart's blog posting is interesting. He says "listening to [the broadcast company execs] sit there and say that nothing seemed likely to change etc... [when] the fact is that in very short order the world of video is going to be turned upside down, the surrounding economic conventional wisdom is going to be seriously challenged and the "shotgun" ad model is going to be under enormous pressure."

I agree with Stuart about the impending impact to the broadcasting industry. I hope that he is wrong, though, when he says "those broadcast kids seems violently ill prepared". Here's the comment I wrote with respect to Stuart's blog entry, explaining why:

Hi Stuart,

I moderated the panel you discuss here.

I think it's important to note a couple of things. None of the panelists were actually the heads of any networks. They were all heads of the interactive arm of their networks or, in the case of Ron Suter, head of the Canadian distribution arm of a U.S. network. This is important only with respect to my next point.

I tried to get some frank conversation going by, for example, throwing the 800-pound video-on-demand gorilla onto the stage (and by VOD, I mean VOD in all its forms (including broadband and broadcast) and by questioning whether Rogers had disintermediatd Global in their direct-to-CBS on-demand deal for Survivor. Not surprisingly, no one really took the bait. There are at least two possible reasons for this, and for the overall "Holy snappin' are those kids out of touch" feeling you came away with. The first, obviously, is that these execs could really be missing what's happening. But, personally, I don't think that's the case (and I certainly hope that's not the case). I think it has a lot to do with the fact that this was a public forum, with press in attendance. Had any of these folks come out and said anything along the lines of "the days of broadcast television are numbered" or "the role of broadcasters in the entertainment value chain is endangered", their careers at their respective companies would have been over the moment those comments hit the street. The big broadcasters are all publicly-traded companies and none of them are likely willing to publicly acknowledge the true battles the industry is facing. So, I think, while the interactive folks have their marching orders, which may include "save the company!", they probably are also somewhat muzzled, whether by command from on high or by self-preservation instincts.

I hope I'm right about this, but, of course, you never know what others are really thinking (or not thinking, as the case may be).

Alan Sawyer
I was asked today why I thought private equity investors were buying media companies like Reader's Digest (today) and Clear Channel Communications (Tuesday).

Here's what I think:

In the case of Clear Channel, the simultaneous announcement that they are selling their TV business (all in small and mid-size markets) and their small-market and mid-market radio holdings would lead me to think that the private equity investors are looking at the out-of-home (OOH) advertising component as the strategically significant part of things - and they are probably right. OOH has great growth potential due to technology innovations and an almost unlimited 'spectrum'. Radio and TV are both industries that are facing considerable challenge at the moment, in particular TV. Broadcast TV, at least as we know it today, is an endangered beast - even more so for small operators and network affiliates. So... perhaps the buyers looked at Clear Channel and saw one unit with great long-term growth potential and other business units that could be divested today and still command a reasonable price that they won't be able to get down the road. Perhaps that makes the sum of the parts, today, greater than the whole and a good time to break up the operations. There's little synergy between the OOH, TV and radio pieces and, therefore, no added value from a media convergence point of view.

As for Reader's Digest, without looking at the financials, I expect that it is a profitable business and will continue to be so. They will never capture the younger demographic - but so what? There's still that big group that IBM called the "massive passives" who aren't going to radically change the way they consume media, whether that be TV or magazines. They will, however, inevitably turn more and more to the Internet for media content - and who better than a trusted brand like Reader's Digest to address their lifestyle content needs? Despite its enormous popularity, RD is really a niche magazine, at least in one sense - that is, it has a stranglehold on the magazine market for pre-digested and quick-fix content. So, its hard-copy operations probably have a future, but it also has an opportunity - if seized, and executed upon effectively - to build a strong on-line presence to satisfy the same demographic and same niche as the hard-copy magazine - and this could be additive rather than cannibalistic and contribute strongly to the bottom line. In their current incarnations, though, neither the Canadian nor American Reader's Digest websites seem to do much to extend the content or value of the magazine version. There is considerable value in the familiar and trusted Reader's Digest brand name, but that isn't being leveraged well online. Perhaps that's the hidden value that's being seen by the buyers of the company. The brand isn't broken, and it doesn't need fixing, but it could be better - and more profitably - utilized.

[Update: some of my analysis was used by Barbara Schecter in her story in the November 17th, 2006 Financial Post]