• ABC.com is Now Achieving "DVR Economics" for Its Programs

    Last week while I was in LA I had a chance to sit down for an extended chat with Albert Cheng, EVP of Digital Media for Disney-ABC Television. Aside from general catch-up, I wanted to dig into a comment I'd heard Albert make at the recent NATPE conference - that full-length programs on ABC.com are now achieving "DVR economics."

    The comment caught my attention because, as I've written a number of times, I've been concerned that the broadcast networks' streaming initiatives (and Hulu specifically) could be undermining their traditional business models. The main reason for this is that the ad load in streaming programs is a small fraction vs. what it is in on-air. If all online viewing is incremental to on-air that wouldn't matter. But despite certain research that suggests online doesn't cannibalize on-air, for some viewers who have long since transitioned to time-shifted consumption, it surely does. More importantly, as convergence devices that link broadband to TVs gain penetration, the choice for viewers of how to watch a particular program - via online or via on-air - gets even more pronounced, putting further pressure on on-air.

    Albert explained that ABC has been closely following the economics of programs' different viewing methods and recently concluded that it was more appropriate to compare online's economics to DVR's economics than to on-air's. Their reasoning is that because online is a "catch-up" medium it should be weighed against other comparable opportunities, not against on-air. Importantly, ABC "windows" the online release of its programs by 4-6 hours, so that hard-core fans who have to watch immediately will skew to on-air, rather than waiting. (Of course the question arises - in our increasingly on-demand, time-shifted world, how sizable is the "must-see" audience for all but the most popular programs like "Lost?" But that's a question for another day.)

    When looked at this way, ABC believes online delivery compares favorably to DVR. No surprise, Albert would not disclose ABC's revenues or research, but he did give me a wink-and-a-nod when I shared my estimate that the on-air revenue per program per viewer is in the $.50-$.75 range (of course specific programs and specific episodes are above and below this range). To be clear, this only means the revenue generated is in this range. Because of bathroom breaks, channel flipping, viewers chit-chatting, etc. obviously not all of the ads are actually viewed.

    Estimating the revenue per program per viewer range for DVR playback, given its attendant ad-skipping, is more complicated. Ad-skipping is surely high, but it's unclear exactly how high. For example, last Nov, the NY Times reported Nielsen research that somewhat remarkably showed that 46% of viewers age 18-49 still watched a program's commercials when in DVR playback mode. A different story is told by TiVo, which released data last Sept saying that for the programs that won the top Emmy awards, somewhere between 55-83% of the audience viewing these programs in DVR mode skipped the ads.

    Just to round off, if we say that 60% of the ads in DVR playback are skipped, then DVR economics - and therefore ABC.com's economics - are in the $.20-$.30 range on a per program per viewer basis (i.e. 40% of $.50-$.75). Even on the low side of that range, that's better than my previous estimate of $.15 per program per viewer for Hulu in particular (which in reality was probably a little high anyway).

    Further, Albert said that there's plenty of room for improving online's economics. One key focus is increasing the ad load, possibly to as much as double the current 5 ads per program. ABC.com has experimented with this and its research shows that neither the viewer nor the advertiser experience is diminished. As a result, ABC is inclined to increase the ad load to continue improving online economics further, but is somewhat constrained by advertisers' desire to minimize clutter and their own desire to remain consistent with non-ABC sites' ad loads.

    Online distribution of full-length programs is still in its relative infancy. Yet as consumers hunger for it, broadcast networks have little choice but to provide it. The key is how to make this new delivery method profitable and also not harmful to the traditional network P&L. The use of windows for example, seems like an effective tactic insofar as there exists an audience intent on watching a program the moment it's shown on-air. Based on last week's conversation with Albert, along with prior ones, it seems like ABC is balancing things well - taking steps to pursue online, but doing so in a well-researched and analytically sound manner.

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