TELEVISION’S SHIFT TO THE INTERNET:

HOW ONLINE VIDEO WEB SITES ARE GAINING MOMENTUM

BETWEEN VIEWERS AND ADVERTISERS ALIKE

Alex Baker.Taylor Hass.Andrew Kay

INTRODUCTION

Due to the popularity of new and interactive media on the rise, more and

more television content is becoming easily accessible to viewers through the web.

With networks putting popular content on their web sites, as well as additional sites

and programs such as Hulu, iTunes, and AppleTV, people are turning to their

computer screens in addition to their television sets to enjoy their favorite shows.

While this new business model is certainly a step in the right direction that adapts to

the fast-paced lifestyle of the 21st century, there are a few glitches that still need

adjustment. There is a huge concern over whether or not networks are making

nearly enough money off of advertisements shown on shows accessible through

the web. With the total number of videos watched online up 41% from a year ago,

according to reports from the internet measurement firm ComScore, networks need

to make sure they are not allowing viewers to completely alienate their television

sets. Overall, however, this new platform is taking technology to another level. While

some of the networks are major contributors to this online shift, cable companies

should be careful not to make all of their content available on the web, or they will

have to start charging subscription fees to stay in business, as customers might

start to cancel their monthly cable subscriptions. (Fritz)

HULU

Hulu is an online video service co-owned by NBC Universal, News Corp. and

Providence Equity Partners. The website offers TV shows, movies, and video clips

at Hulu.com. The company is all for free for anyone in the United States. Founded

in 2007, Hulu made it their mission to assist people in finding and enjoying premium

video content whenever and wherever they wanted it. (Hulu)

Beyond their own website, Hulu videos are accessible through AOL,

Comcast, MSN, MySpace, Yahoo!, as well as personal blogs, and fan sites. The

content

brings

together a

wide selection

of videos from

over 130

content

providers. (Hulu) FOX, NBC Universal, MGM, and Warner Bros, are just a few that

provide the site with more than 1,000 current primetime TV hits.!Hulu’s user

experience is focused on providing the browser with quality and convenience. The

system is easy to use and simple to share. The website does not require the viewer

to download any software. All that is needed to view the high quality videos is Flash

9.0 and an Internet connection. (Hulu) From here the user is able to share full-length

episodes or short video clips via e-mail, posting to a Web site, or on their social

networking page.

Due to these commitments Hulu has done well since their public access

debut March 12, 2008. Hulu has grown from a small video streaming company to

Photo from Hulu.com

now streaming around 308 million videos a month. (Fritz) Another reason why the

site is successful is because it is free and videos on the site contain fewer ads than

on cable TV. With the acceleration of Hulu’s popularity it could cause the shift of

advertising dollars to online formatting from broadcast and cable TV. In 2007,

Forrester Research estimated that marketers would spend $471 million on online

video advertising, with about that amount transferred directly from broadcast and

TV ad budgets. (Learmonth)

While cable television might be

dwindling in viewership, advertisers are

shifting their medium to a more focused

internet-based version rather than losing

money on cable ads. Advertisements on

Hulu run for two minutes per every half-

hour of content and are unskippable.

With broadcast TV there is no guarantee

that advertisments are being watched, on

the Internet there is no doubt that the

viewer has to watch them. (Learmonth)

Todd Dagres, principal of Boston-based Spark Capital is invested in a

competitor of Hulu and believes that television is dying out. “Eyeballs are shifting

away from TV not because people want to watch TV on their computers, but

because they don’t want to watch TV.” (Learmonth)

2.3millionHuluplayers

onover82,000websites

with1,000+prime‐timehits!!!

To confirm these statements, The Council for Research Excellence, has

executed a $3.5 million dollar project titled “Video Consumer Mapping Study.” The

project does just as it says, the initiative is described as, the largest and most

significant observational study of media activity ever undertaken. (Atkinson)

The goal of this research funded in part by Nielsen Media Research, is to

find out what really is going on in the consumption of video and television. The

research includes what age groups do the most media multi-tasking and if younger

viewers are in fact shifting away from traditional TV. (Atkinson)

Steve Sternberg, the executive Vice President of Magna, stated that, “multi-

tasking is not a young person’s phenomena.” The results from this information will

help marketers ask the right questions about their fears of the rise of DVR and

online television. (Atkinson)

NETWORK VIDEO SITES

Perhaps the most well known way to enjoy television content through the

Internet is simply by visiting the Web sites of major television networks. While only a

percentage of viewers may be informed of sites such as Hulu, almost everyone who

watches TV is aware that the stations they tune in to have their own web sites with

a surplus of video content, including full episodes of

popular shows.

Major TV networks such as ABC and NBC

began putting episodes of popular shows such as

“Lost”, “Desperate Housewives”, and “The Office”

online for free around April of 2006. What started off as a two-month trial has now

turned into a major model for the television industry that has contributed greatly to

the online shift. “It’s really an opportunity for us to learn about a different model,”

Disney-ABC television group

president Anne Sweeney shares.

“We should not allow the industry

to have only one business model,

and the trend of declining television viewers must be remedied.” (Reuters)

Similar to the idea of Hulu, iTunes, and other technologies such as DVR and

TiVo, online content allows viewers to chose when they view their content. They no

longer have to stop what they are doing and set aside a time to watch new

episodes of their favorite programs. They too run short ads 2 to 3 times during a

show, forcing the advertisements upon the viewer but for a much more tolerable

period than basic television. Like Hulu, advertisers should be much more confident

that their ads are being viewed, since they are not able to be skipped, and therefore

will hopefully be more inclined to buy slots from the networks, allowing the business

model to be successful despite little to no subscription fees.

While advertisers should be fighting to get slots on the internet-based airings

of shows, some are questioning the networks ability to make nearly as much

through advertising as they do through traditional television methods. Part of the

problem comes from the fact that when ABC first launched their program, they

allowed consumers to get used to the low-volume ad model. It is a model that goes

hand in hand with the fast-paced lifestyle of the 21st century, as people who are

sitting in front of their computers are less likely to be patient when it comes to load

time or in this case, advertisements. Although advertising rates per viewer are

higher on the Internet than on broadcast TV, the lower volume of ads makes it

nearly impossible for online ad revenues to catch up to that of standard television.

Since viewership through traditional TV has not yet dwindled, this has not yet posed

a serious issue. But with more and more people becoming familiarized with the

internet revolution of television, the number of ads shows every thirty minutes may

have to change in order to keep the networks from losing too much money and

going out of business. While this could pose a serious threat to the loyalty of the

viewers, it is something that people may just have to get used to if they went to

enjoy premium television content on the web. (Fritz)

iTUNES

Apple’s iTunes, one of the most popular digital media player applications,

has brought a challenge to cable television and DVD sales. iTunes library provides

hundreds of movies and television shows. Viewers are able to download these

programs directly on their laptops and iPods quickly and at a reasonable cost.

iTunes offers programs that aren’t easily found on cable or in video rental stores.

With the click of a button one can download anything from vintage films to movies

made by independent filmmakers to TV shows and documentaries from all over the

world. Not only has iTunes increased variety in television and movie viewing, but it

has made watching these programs more portable then ever.

Many people believe that Apple will lead to the demise of cable television.

They predict that people will no longer be inclined to pay a cable company when

they can get what the company offers and more straight from their laptops. Blogger

Bill St. Arnaud comments, “the speed of cable TV’s demise will depend on how fast

Apple can get films and TV shows from all over the world on iTunes.” (Macenstein)

The recent launch of the product’s second version has already led to a 17% slump

in Blockbuster's share price. (Walmsley) iTunes users can rent movies for a similar

price that they could at a video rental store.

Some may wonder why you would pay $1.99 to watch a television show on

iTunes when they could watch it for free when it airs on broadcast TV. Many

people, especially college students and busy 20-somethings find that this “on-

demand” style viewing fits their lifestyle perfectly. They don’t have the kind of

regular schedules conducive to watching their favorite show at the same time every

week.

Recently, the introduction of AppleTV has revolutionized “on-demand”

viewing and even further contributed to the downfall of cable. AppleTV, which

began shipping in March of 2007, is essentially a tiny white box that wirelessly

transmits the shows and movies you've downloaded from your computer to your

TV screen. You can also access your entire iTunes library including your music,

movies, podcasts and photos. AppleTV also allows direct access to YouTube. "This

is the biggest realignment of the distribution of entertainment in history," says Colin

Dixon. "I don't think that traditional broadcast – cable and satellite – are going away

tomorrow, but they must change to maintain market share." (Gerson) Many analysts

believe that consumers eventually will shy away from DVD’s and turn to the Web

and their computers for movies much like they have for music. Online music

services have had a major impact on falling CD sales, which may be an indication of

things to come in movie and television industry. (TECHWEB)

The shift of focus from the television sets to computer screens is certainly

one that could potentially change the industry. Despite the potentially advertising

issues, which can easily be combated despite upsetting consumers, the

convenience as well as low cost makes it the optimum choice for television viewing

for the majority of viewers. While many are used to the comfort that comes from

sitting on the couch in front of the television set, others are becoming more and

more reliant on the many possibilities that are available for free on the internet. In

addition to the many legal options discussed throughout this paper, many other

underground and illegal sites provide full-length episodes available to those who

missed out on the broadcast debut of their favorite shows. The legal websites we

have discussed are aware of these other possibilities, and are doing everything they

can to stay on top of their game and provide the best quality video for the best

price. Networks and cable companies need to account for the obvious shift that

stands before them. The shift to online video is one that is inevitable, and cable

companies as well as the networks need to do everything they can to

accommodate for these changes and provide content on the web that is high

quality and easily accessible to viewers.

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