Tom Morgan and Tim Hanlon showed iMedia Summit attendees how the Net is affecting television and vice versa.
At December's iMedia Summit in Arizona, two of the brightest minds in all things digital provided insight into the look of media in a consumer-controlled world. Rebecca Weeks, iMedia's Summit Content Director, started the session off. Here's the first third of the transcript:
Editor's Note: Tim and Tom both spoke throughout, and from time to time our audio had trouble distinguishing their voices. Once we have the video (to be hosted on AOL) we'll go back and insert the markers. In the meantime we want to bring you the content.
Rebecca Weeks: Continuing our discussion about the redesign of old media (see Doug McCormick's keynote address on Lessons from Cable), we will now have a presentation entitled “All Things Video -- Key Lessons Learned From TV’s Battles," led by Tom Morgan, co-founder and CEO of DiMA Group (Digital Media & Advertising Group), and Tim Hanlon, Senior Vice President Director Emerging Contact at Starcom Media Vest Group.
Tim and Tom will discuss how new technologies such as PVRs, interactive guide navigation, and video-on-demand are providing consumer-controlled environments that go beyond the traditional boundaries of impression-oriented mass media. They will also provide us with an update on the state and promise of enhanced video, an example of their research lab’s findings as well as an overview of how their practices are shaping the modern advertising market place. Throughout these examples, they will prove to us that TV and the Internet are not simply converging; they are rather colliding into one medium.
Tom Morgan is a 20-year veteran of the world of interactive services with a focus on early stage business development and economic issues. In 2002 he organized an emerging digital media forum called Digital Spectrum where advertisers asked the pivotal questions that were addressed in the DiMA Group’s groundbreaking report. He served as the first vice president of Business Development and West Coast General Manager for America Online and led the initial launch and partnership with Apple Computer. He is a Founding Officer of Broad Vision where he worked on the ITB Initiative and in 1995 was recruited to serve as President of IDG Interactive Services, where he conducted early development work in the areas of innovative advertising and ecommerce.
Our second presenter, Tim Hanlon, is responsible for all U.S. client activity and agency initiatives in the field of Emerging Media Technologies. Not only has Hanlon had a decade of traditional and interactive agency media experience, he has also had a substantial journalism experience, having written for CBS News, Sports Illustrated and The Voice of America. Tim currently serves as Chairman of the Four A’s Advanced Television Committee; as a member of the Steering Committee of the Innovation and Digital Advertising Consortium; and as a Member of the National Academy of Television Arts and Sciences Advanced Media Committee. Let's give Tom and Tim a warm welcome.
Tom Morgan: Hey we are going to do all of that in a half an hour. Let me ask you a quick question? How many people in this room have any advertising or media experience on the television side? So, maybe 25, maybe 30 percent of the room. The interesting thing that we, you know, I come out of the interactive side. It’s been 24 years. Two years ago, two and a half years ago, I moved over to the TV side and started looking at the issues of DVRs, media centers, VOD -- a lot of the work you are going to see here today focuses on the changing ad models as television starts looking interactive. When we show you these slides, keep in mind that you are going to have to start applying some of the same principles as you move into video because ad skipping and fast forwarding and things of that nature, as broadband goes video, are going to face the same issues that television faces as it goes through interactive. So in the interest of being efficient … unless you want to add some things here?
Tim Hanlon: Yeah I was going to say that, I was just telling Rebecca on the side that the segue here from the comments we just heard are actually perfect because I think you are going to see -- and we say this at the office -- that the Internet experiences, the people who are working in our IP Unit, really are sowing the seeds for how the television business and frankly other forms of media are going to look in the years to come. And it’s not going to happen in many years, it’s going to happen in a very short period of time. So, the skill sets that the majority of the audience here are getting really good at are really going to transfer into the realm of television. I don’t know if your TV buyers and planners back at the home offices -- if you are part of bigger conglomerates --understand that yet. But you should and that’s only going to help you going forward.
Morgan/Hanlon: Okay, let me jump into this -- we are going to walk through some of the work we have been doing for the last two years. It’s a consortium of executives looking at these issues, especially on the TV side. Let’s walk through this real quickly so that we can get to some questions and the rest. Let’s go ahead and jump into the slides. Basically, if you look at the new technologies that are impacting, what you see is, basically what you are seeing is digital video recorders and video-on-demand services really kicking in and scaling in a large way. You are seeing a reduction in the cable companies, and satellite companies are putting DVRs out there, primarily because they reduce churn. DirecTV, without a TiVo has a 1.8 percent monthly churn rate. With a TiVo, it’s 0.59. That's a reduction of monthly churn by two-thirds. So you are going to see digital video recorders in a phenomenal pace. What it evolves to is something we call on-demand television. Basically, the narcotic for the consumer is they are now in control. What they want to watch, when they want to watch it applies to any interactive on-demand medium.
Learn the lesson also, as you go broadband you go into video. Basically, if you look at the growth rate, there's a curve. The point of inflection was December last year. And whereas TiVo sort of struggled for a while, you are now seeing embedded DVRs and cable and satellite growing. All of those colors. TiVo by itself is only the light blue. The rest are either Comcast, Cablevision, Time Warner Cable, EcoStar, or DirecTV. I think Ecostar has two million DVRs out there. DirecTV is doing a major new push next year with its box. Time Warner is a phenomenon. And finally Comcast is putting out 40,000 boxes a month now. And consumer addiction is very much kicking in. Basically, it’s not going away. What’s happening is cost structures. The digital video recorder, ten years ago, five years ago, three years ago, cost as much as a car. What’s evolving to in five years from now, it will be as much as a cup of coffee. The storage capabilities on these devices are phenomenal. They lead to some interesting advertising potential as the consumer can see things, pause the show and click down. Yes there’s fast forward, but there’s also pause. There’s a lot of other advertiser-friendly inherent functionality in DVRs and VOD that you have to start looking at.
How do you interrupt a video stream? If you can engage the consumer and go down the buyer curve. What we are learning is that the consumers are in control. They like being in control, but they are also willing to engage, like you are starting to engage in the Net. The interesting news, especially given Doug’s comments, is TV is starting to move into a world where they can move down that learning curve. You are going to start adding video; they are going to start adding interactivity.
Basically let’s talk through the selling seasons. You talk about the up fronts and the rest. Let’s do some place setting vis-a-vis what’s really going to happen here. Basically, for the up fronts for the '04 season, you are seeing about 7 Million DVRs in place right now. You are seeing 12 to 22 Million VOD households. VOD systems are just starting to add advertising and in the world of DVR, the only place you can do DVR-based advertising is on TiVo. None of the other DVRs out there right now have an advertising avail that you could take advantage of. That’s of this year. Basically in the '05 up fronts, you will see 12 to 20 percent of American households by the up front of next year, or at least 10 percent will have a DVR. That starts kicking in critical mass. And how do you start engaging that? And how do you start putting ad units that are DVR friendly out there is the interesting challenge we are looking at.
Also, 85 percent of digital households will have VOD servers. That also allows for interactivity and on-demand advertising. So what you will see next year is the satellite and cable companies starting to work with their programming partners to offer DVR-based advertising. You will also see large amounts of VOD-based advertising. And you also see Nielsen starting to include in the overnights TiVo ratings and some break out of the usage of advertising and programming in the context of a DVR. By the '06 up fronts you will see DVRs probably scaling to the 30 percent range and the number of households that have both VOD and DVRs will be in excess of 40 percent of American households. That’s when it gets really interesting. And the '07 up fronts, basically means it’s a full-fledged media business and by then it’s a very interesting kind of world. But I don’t argue that it’s either/or because you are going to see these kinds of things combined with broadband in some very interesting ways.
Your products are going to be able to go on to those environments and vice versa. You are going to start seeing video programming coming across. We do a lot of work with a lot of the big television programmers who are headed over to broadband to learn the craft because they can do it there. And to the consumer, whether they view that kind of programming, these ad units, on broadband, or they view them on extensions of television, for the consumer it’s what do I want to watch, when I want to watch it, and in what context I want to watch it. And that’s the world we are going to. So it is a colliding kind of thing. And you need to learn how to handle and work inside a video, just like the television industry is learning how to work with interactive.
From a marketer’s standpoint, this is what everybody’s talking about. Fear, fear of the DVR. Fear of fast-forwarding, the ad-skipping phenomena. But it really changes it. Because what you are really looking at is new ad units and messages that engage the consumer. I would argue that even on a Web page, that right scroll bar is the effective equivalent of ad skipping. I can scroll down past every ad and think fairly quickly. It’s consumer choice. You are starting to learn how to engage the consumer. Also in video you have to learn, start learning how to engage the consumer. Places like MSN Broadband right now. They have moved to shorter format interstitial -- fifteen second. What’s interesting is that over there you can’t fast forward past the fifteen second on broadband, but you can on television. It’s almost oxymoronic. It’s almost backwards. It’s kind of intriguing. But basically, what you are looking at are new tools to monitor, measure and better manage these messages as you start engaging the consumer when it’s in the context of video-based messaging. So all things video means whether it’s on the Internet, whether it’s on television; they will all have on-demand, interactive, consumer choice based units. How do you link to them?; how do you develop them?; what are the units?; what are the standard units of measure? Those are the kinds of thing. Like the early days of the IAB, we are now trying to tackle this in the industry overall.
Tomorrow: Research on consumer preferences.