TV Decline Q2

Analyst: Broadcast Took a Pounding in Q2

DVR playback not enough to offset ratings declines

By Anthony Crupi

Despite the lift from time-shifted viewing, network television appears to be on the ropes, losing nearly 10 percent of its demo deliveries in the second quarter of 2012.

Broadcasters have suffered a second straight quarter of significant prime time ratings declines, according to Nielsen C3 ratings data, which blend live viewership of a program’s commercial load with three days of time-shifted deliveries.

“There is no way to sugarcoat this: broadcast took a beating in Q2,” Nomura Equity Research analyst Michael Nathanson wrote Monday in a note to investors. All told, the Big Four saw 9.4 percent of their prime time 18-to-49 deliveries disappear in Q2, averaging 9.03 million members of the target demo in C3 versus 9.96 million in the year-ago period.

Only CBS posted year-over-year gains, averaging 2.17 million adults 18-to-49 in prime, an improvement of 8.4 percent per Nielsen C3 data. Fox, which won the demo outright, took the biggest hit in the quarter, dropping 19.3 percent in the demo (2.54 million versus 3.13 million in Q2 2011).

Meanwhile, an already precarious situation at NBC deteriorated even further. The Peacock in Q2 averaged just 1.86 million adults 18-to-49 in prime, a drop of 17 percent from the year-ago 2.11 million.

ABC was off 16.8 percent to 2.46 million.

As Nathanson pointed out, the 9.4 percent decline in C3 ratings marks the most severe drop in broadcast deliveries since the currency was adopted in 2007. (The analyst discounted the two instances in which ratings were marred by a year-to-year comparison with an Olympics quarter.)

A major shift in genre preference may be broadcast’s biggest problem, as the drama is rapidly becoming devalued currency. While one-hour dramas remain the biggest magnet for GRPs, their hold over viewers is deteriorating at a steady clip. In the 2006-07 season, dramas accounted for more than half (51.3 percent) of all prime time deliveries; this season saw that share fall to 39.3 percent.

On the flip side, comedy in 2011-12 accounted for 18.1 percent of all GRPs, up from 10.1 percent five years ago.

The drama drain is most evident at 10 p.m., a time slot that has all but surrendered [1] to DVR playback and cable originals. Of the 11 new broadcast dramas that premiered in 2011-12, only three (NBC’s Smash and ABC’s Revenge and Scandal) were renewed for a sophomore run. So lonely has the 10 o’clock hour become that NBC has capitulated to the zeitgeist altogether, ceding its storied Thursday night drama slot to the newsmagazine Rock Center With Brian Williams.

While C3 helped stanch the bleeding in the short term—live viewing in Q2 was actually down 15.2 percent—another encouraging trend is beginning to emerge. “Viewers continue to skip fewer commercials with their DVRs in each passing year—for both broadcast and cable,” Nathanson wrote. Indeed, as DVR penetration/usage grows, the percentage of skipped commercials has declined from 58.8 percent in the inaugural year of C3 to 46.7 percent in 2011-12.

Cable hasn’t enjoyed the same rate of improvement. In 2007-08, viewers avoided 52.8 percent of the advertising on network cable; since then, the needle has crept a few degrees to 50.4 percent.

Upon application of C3 data, the cable networks in Q2 were down slightly (-0.4 percent), averaging 20 million adults 18-to-49 versus 20.1 million in the prior-year period. When taken together, broadcast and cable deliveries were off 3.3 percent to 29.1 million.

MULTISCREEN 2015

Multiscreen Devices To Surpass Set-Tops By 2016 Among Large Providers: Study

Set-Top Boxes to Drop to 51% of Pay-TV Devices in Use by 2015, IHS Forecasts

By Todd Spangler, Multichannel News

The set-top box isn't dead -- but in the next few years, it will relinquish its crown as the primary device pay-TV subscribers use to access television services from many of the world's biggest operators.

That's according to a new forecast from research firm IHS, which predicted that by 2016 more multiscreen devices -- including PCs, tablets, connected TVs and game consoles -- will be used to watch TV than set-top boxes among 43 of the largest global pay-TV operators that have commenced deployment of multiscreen services.

In 2015, 49% of all devices obtaining television services from those providers will be PCs, smartphones, tablets, game consoles, connected TVs and other multiscreen devices, up from just 18% in 2011, according to IHS. Set-tops will decline to 51% of pay-TV operator devices in 2015, down from 82% in 2011.

However, IHS noted, the study included only pay TV operators that have already started offering multiscreen-video services. Those account for only half of the global total of 538.8 million installed set-tops in 2011 and will represent only about one third of the 849 million set-tops expected by 2015.

Among "multiscreen operators," the global installed base of set-top boxes will increase from 274.5 million in 2011 to 321.7 million in 2015, a rise of 17%. Multiscreen devices actively receiving pay-TV services will soar more than fivefold, from 60.1 million in 2011 to 310.1 million in 2015, IHS predicted.

"A new era is dawning in the pay-TV industry, one in which subscribers can access television services on the device of their choosing, rather than being limited to using [set-top boxes]," IHS senior principal analyst for TV technology Tom Morrod said.

In 2011, PCs were the most common devices associated with multiscreen pay-TV deployments, followed by Apple iPads, iPhones and iPod touches. However, the number of iOS devices accessing pay-TV services will rise by nearly 800% with Android-based device set to increase more than 1200% by 2015, while PCs will expand by only about half that rate, according to IHS.

In the U.S. cable market, set-top box deployments are most widespread and American MSOs will be slower to tip the balance toward multiscreen devices, according to IHS. For example, by 2015, Comcast will be "nudging toward" having one multiscreen device per set-top box in service, compared with the U.K.'s BskyB with 1.5 devices per set-top deployed, the firm said.

REACHING KIDS

TV networks try to connect with young, tech-savvy multitaskers

With kids watching less live TV, networks are coming up with new ways to reach young viewers on their smartphones, laptops and tablets

By Dawn C. Chmielewski and Meg James

Hollywood has a problem. He's Cole Chanin-Hassman, and he's 10.

Like many other kids his age, the Los Angeles fourth-grader counts among his entertainment tools his Xbox 360 game console, his Android phone and his computer.

The television is almost an afterthought. When Cole comes home from school, he turns on Cartoon Network's "Regular Show," but the characters on the TV screen compete for his attention with the world-building game "Minecraft" and a parade of YouTube videos on his computer.

"Sometimes, I'll kind of lift my head up a little bit and watch," Cole said. "But usually I'm just kind of listening to [the TV] and playing on my computer."

Cole's habits illustrate the enormous challenges that confront television networks fighting to remain viable and profitable in the digital age. They're losing viewers, and they know it.

In response, some cable channels are introducing shorter episodes to reach multi-tasking kids with shorter attention spans. They're bulking up online content to feed the ravenous appetites of younger users. And they're listening to social media conversations about their shows — in some cases even changing plot lines to suit audience tastes.

"The networks ... are all struggling with younger people," said Neil Howe, an authority on generations and president of the consulting firm LifeCourse Associates. "The big danger is whether [networks] will become gradually less relevant" and disappear from younger viewers' screens altogether.

America's 67 million baby boomers once commanded advertisers' attention because of their spending power and sheer number. But the prized demographic is now the millennial generation: the 98 million people ages 7 to 29. These digital natives represent nearly one-third of the U.S. population, and they're proving an elusive target for networks and advertisers to reach.

Viewers of all ages are recording TV shows and fast-forwarding through commercials. But the practice is almost reflexive for millennials: About 41% watch shows recorded earlier on their DVRs, according to a study from Boston Consulting Group and ad agency Barkley.

Millennials still watch television shows, but not always the old-fashioned way: lounging on a couch, remote control in hand, surfing through the channels. Increasingly, they're streaming episodes on their computers, or fetching shows delivered to the TV set via game consoles or other Internet-connected devices, according to a survey by youth research firm Ypulse. This disrupts the decades-old methods advertisers have relied on to reach consumers.

"One of the biggest reasons that online streaming of TV shows in particular has taken off like crazy is that networks are finally embracing the fact that this is where their audience is," said Melanie Shreffler, Ypulse editor in chief.

Younger viewers are avid fans. But networks are having trouble adapting to their fickle viewing habits.

Television networks such as the CW are at the nexus of the forces reshaping the entertainment industry. Launched six years ago, the CW initially approached its audience like any other television network — expecting viewers to tune in at appointed times to watch its shows.

They didn't. Instead they began watching episodes online, through illicit pirate sites. So the CW began offering such shows as "Gossip Girl" and "The Vampire Diaries" on the Internet within hours of an episode's TV airing. A new mobile application allows viewing on iPhones, iPads and Android and Kindle devices.

"This millennial generation is the 'I know what I want, when I want it and

how I want it,'" said Rick Haskins, the CW's executive vice president of marketing and digital programs. "You need to supply them the product, however they want to consume it."

Digital now accounts for 18% of the network's total viewing — a rate that has doubled within a year, Haskins said. The network's research found that 93% of viewers who streamed episodes had not watched them on TV — expanding the audience for its shows. The CW also worked with Nielsen and Google to provide demographic information about mobile audiences to make this audience more attractive to advertisers.

But meeting viewers on their own terms can be fraught with peril.

Nickelodeon saw its ratings drop this season by about 25% compared with last season. The plunge came after the network made more episodes of "SpongeBob SquarePants," "iCarly" and other shows available through Netflix so young children could watch old episodes through their game consoles and other Internet-connected devices.

Top Viacom executives attributed the decline to several factors, including the difficulty of accurately measuring young viewers' behavior on so many screens. Nickelodeon is responding by rolling out 650 new episodes of programming in the upcoming season to woo back viewers.

Although competitors such as YouTube and Netflix can draw audiences away from television networks, these newcomers also can provide millions of viewers for TV shows — as well as provide fresh material for the networks to exploit. Nickelodeon and rival Cartoon Network have built shows around characters who won their fame online.

A regular series based on Lucas Cruikshank's squeaky-voiced, hyperactive character Fred joined the Nickelodeon lineup in January. Cartoon Network added the Annoying Orange to its programming. That show's debut last week delivered

2.6 million viewers, landing it first in the ratings for its time slot among children 2 to 14.

"It's the first time we're taking something that was already a hit online and bringing it to Cartoon Network," said Stuart Snyder, president of Turner Broadcasting System's animation division, which includes Cartoon Network.

Melissa McQuarter-Robinson, 14, is the kind of viewer the networks are struggling to reach. The Georgia high school student rarely watches TV shows as they air, and she considers her BlackBerry, HTC Evo phone and Sony tablet to be her primary screens. But as the ABC drama "Scandal" approached its season finale last month, Robinson became so enthralled that she had to see it live.

"I couldn't miss it," she said. "I was at home with my mom, watching it and commenting on it on Facebook."

Emily-Anne Rigal, an 18-year-old high school senior from Williamsburg, Va., is a voracious media consumer. A devotee of "The Ellen DeGeneres Show," "The Real Housewives of New York City" and "Celebrity Apprentice," Rigal scours the Internet for behind-the-scenes insights, video highlights and celebrity tweets, then broadcasts her discoveries on Facebook.

Rigal and Robinson illustrate millennials' desire for a 360-degree connection with their favorite shows, said Jess Weiner, a producer and media strategist who founded Parallax.

"Watching is not enough," Weiner said. "She needs a tri-level experience. She wants to be able to find out more details online about that character, go to Facebook to be able to talk with the other fans."

Media executives are embracing new technology to engage young viewers who are splitting their attention among multiple screens — often at the same time.

Microblogging service Twitter was just taking flight when the producers were adapting the popular "Pretty Little Liars" book series for Disney's ABC Family channel, which targets 14- to 34-year-olds.

"The fans started talking to us while we were shooting the show," said executive producer Marlene King. "Early on, we saw Twitter as a useful tool [to learn] what the book fans were expecting."

King and her staff joined the Twitter chatter. With new insight, the show's writers crafted plot lines to satisfy the desires of the show's most ardent fans. One couple who broke up in the books — Aria and Ezra — were so popular among the loyalists that they stayed together on the TV series.

King also found that viewers of the show, which returned June 5 for a third season, enjoy the communal aspect of watching the show live. When an original episode airs, she watches on TV and tweets along with the audience. The premiere episode of the new season became the most-commented-about cable show on social media in history, according to Bluefin Labs. The show sparked 534,000 tweets.

"This audience ... feels hugely empowered by social media," King said. "They are empowered to participate in the process, and they expect it."

That yearning for community represents hope for networks trying to remain relevant amid the rapid pace of technological change. This desire to come together harks to an earlier time, when the family would gather around the home's lone TV set.

"Millennials are returning to the idea that [TV viewing] is a common social experience," Howe said. "That could actually present a real opportunity for the networks."