Referencing Chairman of Dish Network, Charlie Ergen’s interview with the Wall Street Journal. Read it here.
Dish Network has come under severe pressure since it launched the Auto Hop feature in May this year. But is Charlie Ergen right when he says,
“The new ad-skipping feature that has infuriated major broadcast TV networks is a “competitively necessary” response to the explosion of cheap Internet video”
Is online video a threat to traditional pay TV?
If you’d asked me that a month ago I’d have argued that unless web video aggregators invest in professional long form content, traditional broadcasters will retain the bulk of TV viewing because that’s what consumers want to watch.
But at a ConnectedUK event last week, Ben McOwen Wilson, Director of Content Partnerships at YouTube presented a slide suggesting that in the US the top 5 YouTube channels now outperform the top 5 cable TV channels by video views (Ben was referring to data gathered in October 2011). The numbers are massive – YouTube itself reached nearly 160m unique US viewers in October 2011, while the number 3 ranked channel, Machinima reached 17m unique US viewers each consuming over 70 minutes of content. Maybe online video delivered to a connected TV does have sufficient consumer interest to challenge even the largest linear broadcasters? What’s more, YouTube, Amazon and Netflix have all announced plans to begin investing in originated content, closing the gap between the UGC and short form clips we associate with web video and long form professional content we know and love on TV.
So if online video is a threat to traditional broadcasters, how will this impact their business model?
Well, let’s look again at YouTube. Not only do they sell their advertising on an auction model, driving efficiencies and hence price discounts over traditional TV ad sales, but they’ve also implemented their own skippable ad solution, Trueview.
Trueview allows viewers to skip an ad after the first 5 seconds. Great for the consumer – we do it already on our PVRs – but it also means we can be more selective about the ads we choose to watch, requiring the advertiser to work harder for our attention (in other words, making better content). In return, the advertiser only pays for the ad if the user doesn’t skip. Yes, you might lose the mass market reach that a 30 second TV spot offers, but in return you know you’re only paying for viewers who value the ad. It’s also great for YouTube, because these “qualified views” command a price premium in the auction, driving greater value from the available inventory.
So coming back to Dish Network’s Auto Hop feature, I can’t agree more with Mr Ergen’s comment that traditional TV needs to innovate. When YouTube’s Trueview model reaches scale across multiple connected TV devices and is able to compete effectively against pay TV channels for audience share, the traditional ad model of the broadcasters will have no choice but to change.
Mr Ergen has been brave to lead the market with Auto Hop and yes, there will be a painful process of realignment as broadcasters and advertisers rewrite a business model that has delivered many decades of profitability. But the change is inevitable, whether driven by the pay TV operators themselves or the online video aggregators muscling their way in to the market. And as the saying goes, better the devil you know than the devil you don’t!