Is The TV Industry In For A Major Change?

By Tim Parker | December 07, 2012 AAA

Even the youngest among us remember "the old days," when TVs of larger size took at least two people to move them because of that heavy giant hump that stuck out of the back. Those TVs kept chiropractors busy. Fortunately, times have changed and the look of the modern television is much different from what it was barely a decade ago. Unfortunately, things have not changed all that much on the content delivery side of the equation.

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Consumer Viewing Habits Are Evolving, but Media Companies Are Not
A new survey from Accenture (NYSE:ACN) found that the way consumers view and manipulate content has rapidly evolved. Forty-nine percent of those surveyed said that they were viewing over-the-top video on their TVs through a broadband connection (over-the-top, or OTT, is an industry term for content that is not controlled by a media company).

In fact, 82% of consumers aged 18 to 24 view over-the-top content, with 60% of those consumers watching a quarter or more of their content using nontraditional means. Thirty-five percent of the same demographic watched video content recommended on their social media news feed compared to only 11% of those 45 and older.

Forty-nine percent of customers subscribe to one or more content delivery systems, including Netflix (Nasdaq:NFLX), Hulu and YouTube. This is up from just 8% in 2011. The survey noted a "seismic shift" in viewing habits, observing that the new normal includes viewing material on mobile devices, creating video playlists and learning about new content through social media.

The DVR
Kevin Reilly, chairperson of entertainment at Fox Broadcasting Company (Nasdaq:NWSA), said at a recent media conference that the industry has not yet come to grips with the impact of the DVR (digital video recorder). He added that the people who produce content for television do not watch it in the same way that consumers do, and as a result, these content producers are out of touch.

Reilly states that because of the DVR, consumers view programming outside of peak hours. As a result, traditional advertising models that include commercials will change, and even the age-old practice of launching new shows all at the same time is now antiquated. Consumers now have so many choices that they cannot possibly take in every new pilot when it premieres. He notes that if Glee had premiered in the fall among the many other new series, it would have failed.

According to Reilly, even the idea that consumers do not watch a lot of programming in the summer months is no longer true. Yet industry insiders are failing to embrace these new trends and produce and market content in a way that takes advantage of new devices and customer habits.

That Big TV on the Wall
The Apple (Nasdaq:AAPL) rumor mill is abuzz with hints of an all-in-one Apple television (different from the already available Apple TV) that will solve all of these problems. The new TV might include everything consumers have come to love about Apple.

Apple's television would allow viewers to play content from all of their Apple devices, use SIRI to find programming, purchase and store shows in much the same way as a DVR, and organize all of their OTT content in one place. Some of the more interesting rumors include the ability for two people to watch different programs based on the angle at which they view the TV.

However, this hypothetical device (which would apparently swoop in and solve all of the industry's woes) does have some issues. First, Fox News reports that the TV console business faces serious financial headwinds. TVs produce little to no profit for manufacturers. It is so bad that Japanese set-maker Panasonic (NYSE:PC) is exiting the TV business altogether.

Second, as evidenced by the bitter battles between broadcasting companies and cable and satellite providers, the revenue model now employed by content creators charges companies that deliver the content instead of relying on ad revenue. This makes it more difficult for Apple to break up the content bundle just as it broke up albums into separate songs in the music business.

Industry experts believe that the more likely Apple TV innovation will be a set-top box that replaces the traditional cable box and provides customers with the Apple experience without getting into the content licensing business.

The Bottom Line
The way we view television is changing faster than many believed it would. Younger consumers are abandoning the viewing practices of their parents in favor of DVR and OTC content. Executives are just now starting to realize that the way they do business will have to change, because the consumer is not going back. Keep these trends in mind before investing in television (and while you're shopping for digital gifts this holiday).

At the time of writing, Tim Parker did not own any shares in any company mentioned in this article.

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