HOW VIEWERS SEE THE FUTURE OF THE MEDIUM

TV RE-PACKAGED:
October 23, 2013

THE CURRENT TV INDUSTRY CONVERSATION FOCUS...

WHAT is Cord-Cutting?

Is Cord-Cutting REAL? WHO is Winning the Cord-Cutting Battle? When will Cord-Cutting Reach Critical Mass?
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OUR THESIS, ON THE OTHER HAND...
CORD CUTTING IS JUST A FOOTNOTE IN A MUCH LARGER CONVERSATION

TV VIEWERSHIP IS EVOLVING – CORD CUTTING IS HAPPENING BUT JUST AS PART OF LARGER SHIFT IN HOW VIEWERS CONSUME ENTERTAINMENT ‘ONE SIZE FITS ALL’ DOESN’T FIT ANYONE – CHOICE IN FEATURES AND CONTENT WILL CONTINUE TO DRIVE TV VIEWING APPROACHES COST STILL MATTERS BUT PERCEIVED VALUE MATTERS INSTEAD DISRUPTION IS EVERYWHERE AND CONSUMERS ARE OPEN TO CHANGE TECHNOLOGY IS STEERING THE SHIP – MAKING THE UNTHINKABLE A REALITY
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WHAT WE SET OUT TO DO
GOAL #1: IDENTIFY KEY FEATURES OF IDEAL TV SERVICE PACKAGE
WHAT ARE MUST-HAVES AND WHAT DO CONSUMER NOT CARE ABOUT? WHAT ARE THE CORE TV PACKAGES THAT CONSUMERS WANT MOST? WHAT FEATURES DRIVE INTEREST MOST/LEAST?

GOAL #2: SEGMENT CONSUMERS BY WHAT THEY WANT
WHAT IS THE DEMO/PSYCHO PROFILE OF THE CONSUMER BASE FOR EACH OF THE CORE TV VIEWING PACKAGES? WHAT ROLE DO DIFFERENT TV CONSUMER TYPES (CORD CUTTERS, CORD NEVERS, CORD CONSIDERERS, AND CORD KEEPERS) HAVE IN EMBRACING OR DISCARDING SPECIFIC FEATURES? WHAT ARE THE FEATURE-SET PRIORITIES FOR DIFFERENT TV CONSUMER TYPES (CORD CUTTERS, CORD NEVERS, CORD CONSIDERS, CORD KEEPERS)?

GOAL #3: PROFILE THE FUTURE OF TV
WHAT DO DIFFERENT TV VIEWER TYPES BELIEVE ABOUT THE FUTURE OF TV? HOW DO CONSUMERS REACT TO SOME OF THE MOST DISCUSSED AND POTENTIALLY DISRUPTIVE CHANGES TO THE TV LANDSCAPE (E.G. UNBUNDLING, HBO GO, AND AEREO)? 4

WHO WE TALKED TO
We Spoke to Four Groups Who Represent the Continuum of TV Consumer Types.

TV VIEWER TYPES
CORD NEVERS
Have never paid to subscribe to cable, satellite, or fiber optic TV service

CUTTERS
Do not currently subscribe to cable, satellite , or fiber optic TV service but have paid for such a service in the past

CORD

CONSIDERERS
Currently subscribe to a cable, satellite, or fiber optic TV service but say they are extremely/somewhat likely to cancel service

CORD

CORD KEEPERS
Currently subscribe to a cable, satellite, or fiber optic TV service and are unlikely to cancel their TV service

7%*

10%*

40%*

44%*

1,200 U.S. TV Watchers 18-49 Years Old; 300 per TV Viewer Group (Weighted to Study Incidence) ± Census Balanced by Age, Gender, Region, and Race; Online Survey Margin of Error ±3.0% Overall; ± 6.0% Within TV Viewer Groups
*Subgroup incidence in U.S. as determined by this study. Note: Male subgroup characters do not represent a gender skew.

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THE IDEAL TV PACKAGE: WHAT VIEWERS WANT

18 TV PACKAGE FEATURES TESTED
FEATURES THAT LEAN TO STATUS QUO
DVR FUNCTIONALITY ABILITY TO WATCH ON MY BIG TV A GOOD ON-SCREEN NAVIGATION SYSTEM HAS A HARD-WIRED TELEVISION CONNECTION

FEATURES THAT LEAN TO THE FUTURE
TIME-SHIFTING PLACE SHIFTING CLOUD-BASED DVR NO WIRES/BOXES/HARDWARE INTERNET-BASED (WIRELESS)

ECONOMIC CONSIDERATIONS
LOW MONTHLY SUBSCRIPTION COST A LA CARTE CHANNEL SELECTION NO MULTIPLE SUBSCRIPTIONS GOOD CUSTOMER SERVICE BUNDLED WITH MY OTHER SERVICES

CONTENT OPTIONS
FULL CONTENT LIBRARY BIG-FOUR NETWORK ACCESS PREMIUM CHANNEL CONTENT LIVE SPORTS

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WHAT TV VIEWERS WANT FROM A TV PACKAGE*

*Scores Represent Averaged MAXDIFF Values Across All Items in Category. Size of Box Represents Size of Consumer Preference Relative to Overall.

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WHAT TV VIEWERS WANT FROM A TV PACKAGE*
40%

TWO-THIRDS OF CONSUMER PREFERENCE IS DRIVEN BY ECONOMIC AND CONTENT CONSIDERATIONS

24%
9

*Scores Represent Averaged MAXDIFF Values Across All Items in Category. Size of Box Represents Size of Consumer Preference Relative to Overall.

WHAT TV VIEWERS WANT FROM A TV PACKAGE*
40%

REMAINING ONE-THIRD DRIVEN EQUALLY BY TRADITIONAL VALUE PROPOSITIONS AND FUTURE LEANING SERVICES (EG. TIME/PLACE SHIFTING)

18%

24%

18%

*Scores Represent Averaged MAXDIFF Values Across All Items in Category. Size of Box Represents Size of Consumer Preference Relative to Overall.

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WHAT TV VIEWERS WANT FROM A TV PACKAGE

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ECONOMIC CONSIDERATIONS ARE THE STARTING POINT
DOMINATES THE CONVERSATION WITH LOW MONTHLY SERVICE COST AS THE MAIN DESIRE ECONOMICS

BUNDLED SERVICE STANDS APART AND REFLECTS MORE OF A SPECIFIC SUBGROUP DESIRE THAN A BROADER CONSUMER WANT.

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SHIFTING: RIGHT TIME, WRONG PLACE

TV ANYTIME IS NEARLY TWICE AS IMPORTANT AS TV ANYWHERE.

.
MAKING TV MORE MOBILE WORKS BETTER WHEN CONSUMERS SEE IT AS ANYTIME RATHER THAN ANYWHERE.

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CONTENT OPTIONS OVER SPECIFICITY
BREADTH MATTERS MORE THAN SPECIFICS…EXCEPT FOR THE PEOPLE FOR WHOM THE SPECIFICS ARE EVERYTHING.

FULL CONTENT LIBRARIES AND ACCESS TO THE BIG FOUR NETWORKS ARE HYGIENE ISSUES (LIKE CLEAN TOWELS IN A HOTEL) WHILE PREMIUM CONTENT/SPORTS ARE IMPORTANT FOR PAMPERING SPECIFIC CONSUMERS.

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LEANING TOWARD THE STATUS QUO

TRADITIONAL CABLE COMPANIES SPEND A LOT OF THEIR TIME SELLING AND PERFECTING “STATUS QUO” FEATURES LIKE DVR FUNCTIONALITY AND ON-SCREEN NAVIGATION…

…BUT THESE PACKAGE PIECES ARE MOSTLY HYGIENE ISSUES TOO – AREAS THAT DON’T MOVE THE NEEDLE MUCH ON CONSUMER TV PACKAGE PREFERENCE.

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“THE SIGNAL” IS JUST NOISE

CORD CUTTING ISN’T ABOUT CUTTING A CORD PER SE BUT RATHER ABOUT CONSUMERS MIGRATING TOWARD A PRODUCT THAT BETTER SATISFIES THEIR CORE DESIRES/NEEDS.

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CONSUMERS WANT TO HAVE THEIR CAKE & EAT IT TOO
ALL TV VIEWERS

A LA CARTE PACKAGE MODEL IS IN HIGH DEMAND – TV CONSUMERS WANT TO PAY ONLY FOR WHAT THEY WATCH…
OF CORD CUTTERS/NEVERS SAY “YOU END UP PAYING FOR CHANNELS YOU DON’T WATCH” AS A TOP REASON FOR WHY THEY DON’T SUBSCRIBE TO A TRADITIONAL TV SERVICE…

…BUT THEY DON'T WANT TO DISAGGREGATE IN ORDER TO GET THERE.
THE DISCONNECT OPENS THE DOOR FOR DISRUPTION. 17

…BUT ACCESS TO CONTENT IS THE BIGGEST FRUSTRATION FOR UNPLUGGED TV CONSUMERS AND THE BIGGEST HOLDBACK FOR WHY CONNECTED CONSUMERS DON’T CANCEL THEIR SERVICE

LOW COST MOST IMPORTANT, BUT FOUR DISTINCT GROUPS*
THE BUNDLERS (29%) CHANNEL AVAILABILITY/VARIETY MATTERS MOST** MOST COST CONSCIOUS LEAN MUCH MORE TOWARD STATUS QUO FEATURES THAN TOWARD THE FUTURE NETWORK SHIFTERS (24%) DVR FEATURES MATTER MOST TIME SHIFTING AND LOW COST ARE EQUALLY IMPORTANT BIG FOUR NETWORK ACCESS IS PARAMOUNT ON-DEMANDERS (29%) TIME/PLACE SHIFTING MATTERS MOST MORE LIKELY TO LEAN TO THE FUTURE THAN LEAN TO THE STATUS QUO CONTENT OPTIONS ARE LESS IMPORTANT THAN MOBILITY SPORTS FANS (18%) LIVE SPORTS MATTER MOST ONLY GROUP WHERE CONTENT (READ: SPORTS) TRUMPS ECONOMICS

FOR NO GROUP DID SIGNAL CONSIDERATIONS (HARDWIRED CONNECTION VS. INTERNETBASED/NO WIRES/BOXES) MAKE IT INTO THE TOP-10, LET ALONE THE TOP-5.
*Big Four Packages Developed By Running Cluster Analysis on MAXDIFF results and Segmenting Respondents into 4 Unique Groups **Top Non-Low Cost Responses OPEN END: What is the single most important thing that you must have when it comes to your television watching?

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THREE STAGES OF CORD WITHERING
CORD WITHERING PROGRESSION

TOTAL CORD ALLEGIANCE

BUNDLERS

THE

NETWORK SHIFTERS

DEMANDERS

ON-

TOTAL CORD FREEDOM

MODUS OPERANDI CORD TETHER

APPOINTMENT TV BUNDLED SERVICE

NETWORK TV, BUT ON MY SCHEDULE BIG FOUR NETWORKS

FREEDOM OF PLACE AND TIME HATE MULTIPLE SUBSCRIPTIONS (EVEN THOUGH THEY LOVE THE IDEA OF A LA CARTE)

WHERE DO SPORTS FANS FIT?
SPORTS FANS’ NEED FOR LIVE SPORTS CONTENT MAKES THEM MORE DEPENDENT ON THE CORD AND THEY ARE AN ANOMALY IN THE PROGRESSION. SPORTS GUYS WILL FOLLOW WHEREVER LIVE SPORTS PROGRAMMING GOES – SPORTS IS BOTH THEIR MODUS OPERANDI AND THEIR TETHER TO TRADITIONAL CABLE SERVICES

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SPORTS PROGRAMMING COST DISPROPORTIONATELY SHARED
LIVE SPORTS PREFERENCE SCORE COMPARISON
241

ACCOUNTS FOR 82% OF TV VIEWERS

BUT SPORTS FANS MAY BE SUBSIDIZING TOO…
NON SPORTS FANS SUBSIDIZE SPORTS PROGRAMMING EVERY BIT AS MUCH AS SPORTS FANS ARE SUBSIDIZING OTHER PEOPLES’ VIEWING HABITS TV IS A “SOCIALIST” ECOSYSTEM BUT CONSUMERS DON’T REALLY SEE THE BENEFITS OF THE CURRENT MODEL DISAGGREGATING MIGHT HURT SOME CHANNELS BUT CONSUMERS DON’T REALLY MAKE THAT CONNECTION

39 Sport Fans Network Shifters

16 On-Demanders

24 The Bundlers

AS A STANDALONE FEATURE, LIVE SPORTS ACCESS IS A MAJOR CONSIDERATION FOR ONLY 20% OF TV VIEWERS WHEN THEY THINK ABOUT THEIR IDEAL TV PACKAGE BUT THE COST OF SPORTS PROGRAMMING IS BEING DISPROPORTIONATELY SHARED BY ALL TV VIEWERS OPPOSITE OF THE AIRLINE INDUSTRY WHERE BUSINESS CLASS/FIRST CLASS TICKETS SUBSIDIZE COACH TRAVEL

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THE FUTURE OF THE CORD

CORD CUTTERS ARE A VANGUARD GROUP, NOT CHEAP
Cord Nevers 30+ Have Much Higher Consumption than Cord Nevers <30

132 104 100

102 86

*Total Consumption Score = Sum of the Mean of All Consumption Types **Past 6 Months Activity Annualized

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FUTURE OF THE CORD: INTERNET-POWERED TV
FOR LESS THAN $100 PER YEAR, YOU ARE ALLOWED TO RENT A SMALL ANTENNA FROM A NEW COMPANY THAT ALLOWS YOU TO USE YOUR OWN HOME INTERNET SERVICE TO ACCESS THE PUBLIC AIRWAVES IN ORDER TO STREAM BROADCAST TV OVER THE INTERNET. THERE ARE NO CORDS, CABLE BOXES, OR EQUIPMENT OF ANY KIND. ALL YOU NEED IS AN INTERNET-ENABLED TELEVISION. THIS SERVICE ALLOWS YOU TO LEGALLY WATCH BROADCAST TV IN HD QUALITY ON ANY DEVICE YOU OWN AND EVEN ALLOWS YOU TO RECORD PROGRAMMING THROUGH AN INTERNETBASED DVR THAT IS STORED IN THE CLOUD.

LIKELIHOOD TO SUBSCRIBE TO NEW SERVICE
Definitely would subscribe Probably would subscribe

61% 32%
19% 13%
Cord Keepers

37%

45%
29%

40%
21% 19%
Cord Nevers

41%
25% 16%
The Bundlers

48%
29% 19%
Sports Fans

41%
26% 15%

51%
29% 22%

24%
Cord Considerers

15%
Cord Cutters

Network Shifters On-Demanders

HAVING THIS KIND OF ACCESS COULD SWAY CONSIDERERS BUT ONLY ADDRESSES PROGRAMMING ACCESS HOLDBACK; STILL ONLY 1 IN 4 SAY THEY WOULD CANCEL THEIR EXISTING SERVICE TO SUBSCRIBE TO THIS SERVICE INSTEAD

NETWORK SHIFTERS HAVE LOW INTENT DESPITE THE NEW SERVICE MEETING MOST OF THEIR MUST-HAVES

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PREMIUM AS STAND-ALONE SERVICE
LIKELIHOOD TO CANCEL CABLE AND SUBSCRIBE TO A STAND-ALONE SERVICE INSTEAD (AMONG HBO OR SHOWTIME SUBSCRIBERS)
Definitely would subscribe Probably would subscribe

62% 42%
24% 18%
All Cord Connected Premium Channel Subscribers

57% 40% 27%
13% 14%
The Bundlers

35%

43%
29% 14%

28% 29%

20%
13% 7% 27%

28% 12%
Sports Fans

Cord Keepers Cord Considerers

Network Shifters On-Demanders

A STAND-ALONE PREMIUM CONTENT SERVICE COULD ENTICE CORD CONSIDERERS AND ON-DEMANDERS WHO STILL SUBSCRIBE TO DROP THEIR EXISTING CABLE SERVICE BUT OTHER GROUPS REMAIN MORE RESERVED. A NEW STAND-ALONE SUBSCRIPTION SERVICE UNLIKELY TO HAVE MUCH IMPACT IN ADDING DISCONNECTED TV CONSUMERS – ONLY 1 IN 10 CUTTERS & NEVERS SAY THEY WOULD SUBSCRIBE.

Probably would subscribe Definitely would subscribe

30%
19% 11%
Cord Nevers

35%
23% 12%
Cord Cutters

*Among Cord Keepers, Cord Considerers, Bundlers, Sports Fans, Network Shifters, and On-Demanders, percentages reflect likelihood to cancel existing cable TV service AND subscribe to a premium stand-alone service. Among Cord Cutters and Cord Nevers, percentages reflect likelihood to subscribe to service.

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WHAT THIS ALL MEANS…
CONSUMERS DO SEE AN END IN SIGHT FOR THE TRADITIONAL MULTICHANNEL SUBSCRIPTION MODEL
CONSUMERS ARE OPEN TO CHANGE, TECHNOLOGY IS HERALDING THAT CHANGE, AND THERE ARE A LOT MORE PLAYERS CONSUMERS SEE AN INEVITABILITY TO CORD CUTTING THAT IS DRIVEN BY TECHNOLOGY – SMALLER, THINNER, LESS OBTRUSIVE TRADITIONAL CABLE/SATELLITE COMPANIES NEED TO ADAPT AND EXPERIMENT AGGRESSIVELY TO FULLY LEVERAGE THEIR INCUMBENT ADVANTAGE

SOLVING THE DISCONNECT BETWEEN A DESIRE FOR A LA CARTE AND ONE-STOP SHOPPING WILL BE KEY
CONTENT SCAVENGER HUNTS FRUSTRATE CONSUMERS AND LIMIT APPEAL OF ONLINE TV SERVICES – CONSUMERS WANT THE MAGICAL UNIVERSAL REMOTE AND THEY WANT IT SOONER RATHER THAN LATER CONSUMERS DON’T SEE THE BENEFITS TO A “SOCIALIST” TELEVISION ECOSYSTEM AND THINK A LA CARTE SHOULD BE JUST AS SIMPLE AS (JUST CHEAPER THAN) THE CURRENT ONE-STOP SHOP THEY PAY FOR NOW

THE CORD—CONNECTED OR DISCONNECTED—IS IRRELEVANT
WINNERS WILL BE DECIDED NOT BY THE RATIO OF CORD CUTTERS TO KEEPERS BUT BY WHO PROVIDES THE MOST COST-EFFECTIVE, STREAMLINED ACCESS TO THE MOST CONTENT AND NEWEST TECHNOLOGY FEATURES FROM WHICH CONSUMERS CAN PICK AND CHOOSE

…BUT CORD CUTTERS/NEVERS WORTH THE CHASE FOR BIG MEDIA
THESE AUDIENCES ARE WILLING TO SPEND, ESPECIALLY ON TV, AND THEY ARE WILLING TO SACRIFICE CONVENIENCE – MOBILITY AND A LA CARTE ARE WORTH MORE TO THEM THAN ONE-STOP SHOPPING

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