Veteran programmer Rob Barnett recently attended a breakfast meeting of television executives where the talk turned, as it almost always does these days, to “disruption,” the industry buzzword for the way new technology is upsetting the TV applecart. From somewhere down the table, he heard a question: “Has anybody here cut the cord?” — that is, dropped cable service in favor of just watching TV through the Internet? Barnett shrugged and raised his hand. “Mine was the only one,” he recalls. “But when it went up, I saw beads of sweat break out on the foreheads of some of the guys across the table.”
When Barnett and 5,000 or so others gather Monday for the National Association of Television Program Executives (NATPE) convention at the Fontainebleau Hotel on Miami Beach, there will be plenty of sweaty foreheads, some acquisitive smiles and — perhaps most numerous — blank looks of confusion. Not since cable turned the old three-channel TV universe on its head in the late 1970s has the industry been in such a state of disoriented befuddlement.
New technologies that give viewers more say in what they watch, where they watch and how much they pay for it are great for consumers. But they’re inducing a collective nervous breakdown among industry executives, who have to figure out new ways to make money in a business facing serious threats to its traditional sources of revenue — advertising and cable-TV subscriptions.
“Technology this year has really disrupted the industry, even upended it,” says Chris Sloane, president of Miami’s 2C Media production company. “We’ve talked about this coming, but the future is now and not always for the good.”
The industry last year was blindsided by everything from a leap in the use of TiVo and other digital video-recording devices that pushed Nielsen ratings down as much as 50 percent to a new device called the Hopper that allows viewers to instantly zap by commercials.
But the biggest tremors came from the Internet, which is threatening to remake television as thoroughly as it already has the newspaper and music industries, by letting viewers bypass cable to watch shows online.
• There was explosive growth in what the industry calls over-the-top or OTT, little boxes that sell for as little as $50 or so and allow viewers access to hundreds of streaming-video Internet television channels from their TVs. Apple and Roku, who make the most popular OTT players, have sold about five million apiece. But other companies like Amazon, Google and Western Electric are pushing into the market, and industry analysts say Intel, the world’s largest semi-conductor chip manufacturer, is also poised to leap into the OTT business.
Another major OTT force: video-game consoles like Xbox and PlayStation, which can also be used to watch streaming Internet video. “They may be doing more business than anybody,” says Andy Tarzon, founding partner of the media research company TDG. “Xbox is the leading viewer for Netflix content.” It will, soon enough, have its own content; parent company Microsoft late last year hired senior CBS programming executive Nancy Tellem, who helped develop Friends and ER, to direct an on-line TV operation.
• The use of programming services that deliver television program via the Internet is mushrooming, with Netflix, YouTube, Amazon and other big names — even Walmart — setting up or expanding operations. “More than anything, that’s gotten everybody’s attention,” says Terence Gray, a longtime network producer who now runs the New York Television Festival. “When you see YouTube’s $100 million investment in programming, or what Amazon’s studios did last year, or Microsoft hiring Nancy Tellem, this is no longer a conversation. This is being done.”
Hulu, a website that offers shows from NBC, ABC and Fox, doubled its subscribers last year while increasing its revenue 65 percent. Meanwhile, many of the online services are starting to make their own shows: Hulu debuted 10 of its own programs last year and Netflix has five in production, including House of Cards, a political thriller starring Kevin Spacey that debuts next week.
• Attacking cable from a different direction, Aero TV uses tiny but powerful antennas to capture broadcast signals from the air, records them, then reroutes them into a viewer’s computer or OTT player to be watched whenever he wants. Because Aero pays nothing to the broadcasters (a practice being challenged in court) it can offer its service for as little as $8 a month. Last year’s start-up in New York City was so successful that Aero is expanding to 22 more cities — including Miami — this year.
Senior television executives caution against any expectation that their industry is about to embark on an instant makeover, and the numbers bear them out. Hulu’s three million subscribers are about one-seventh the number of viewers who watch NCIS each week on CBS, and its $700 million in annual revenues is tip money compared the $3.4 billion CBS generated in a single fiscal quarter last year. “This is going to be an evolution, not a revolution,” says Bruce David Klein, president of the independent production company Atlas Media.
But the technological advances in Internet television come at a time when customer grumbling over escalating cable prices has grown to a roar and a younger generation of viewers more comfortable with computers than TVs is starting to set up its own households. The new alignment of attitudes is already taking a toll.
Subscriptions to cable and satellite television peaked in 2010 and have fallen five percentage points since then, the research company TDG reported late last year. Meanwhile, consumer satisfaction with cable service, which had held steady for years between 65 and 70 percent, dropped 10 percentage points.
“The most interesting part of that report, to me, was that it said a lot of the people without cable are not ‘cord-cutters’ but cord-never-havers,” says Jim Flynn, president of Massachusetts-based Overlook TV. “We employ some of those people at my company. They’re in their early 20s, just out of college, and for them, paying $100 or $200 a month for cable TV is just not an option. And they don’t feel bad about it. They’re part of this millennial generation who are perfectly happy getting all their video over the Internet.”
Flynn’s company helps people to do just that, working to assist companies that want to set up Internet-based TV channels. He knew the business would work, he said, when Overlook created a jokey test channel called Creepster that aired cultish old horror films. (“The kind where you can see the guy running dangling the flying saucer from a fishing line.”) It wasn’t just a technical success but a financial one, with thousands of ardent subscribers at $5 a month.
“It’s a niche channel, but you can make money off a niche channel,” Flynn says. “You can set up one of these channels for as little as $9,000. Even the high end is $50,000. And at that price, if you can get 1,000 people to pay $5 a month, you can make money. It’s a lot easier and cheaper than trying to create a channel that will get onto cable or satellite.”
That realization is dawning on a lot of people in the industry. When Flynn announced his company would set up a booth at NATPE, “we were completely booked in 48 hours, three days of half-hour meetings.”
Still, the terrain of the new off-cable world poses some inscrutable challenges, especially for channels creating original entertainment. Everything from budgeting shows to measuring their success is up for grabs. “We know what’s a success for CBS,” says the New York Television Festival’s Gray, a veteran network producer who now runs the New York TV Festival. “What’s a success for Netflix or Amazon? I don’t know that there’s a measurement yet on what is a hit on a digital platform.”
Others say the hits already exist, they just don’t have the public buzz yet. My Damn Channel, a 7-year-old website run by Rob Barnett that last year linked up with YouTube, has a show called Daily Grace in which beauty-queen-gone-wrong Grace Helbig delivers her thoughts on such subjects as flatulence during sex.
“She’s adding 3,500 subscribers every 24 hours,” says Barnett. “On a daily basis, she has hundreds of thousand of views, and when you combine her audience on YouTube and My Damn Channel, she’s gotten 100 million views. That’s a hit. There are others. There are significant hit shows that are attracting dramatic viewership.”
Even the structure of shows might change as they move to the Internet, where they’ll start when viewers click on them rather on the orderly schedule of television programmers. And in that case, why do they have to be constructed with television’s rigid 30-minute building blocks. Why can’t a drama run 75 minutes instead of 60, a sitcom 27 instead of 30?
“It may go even deeper into the structure than that,” says Atlas Media’s Klein, noting that Internet audiences seem more prone to a practice the industry calls “binge viewing” — watching several episodes in a single session. “If you’re writing an episode and you know the viewer is not going to see the next one until the following week, that’s a very different calculation than if you think he’s going to watch 10 in a row.
“TV now does a lot of what’s known as recapping or resets, reminding everybody of what’s happened so far and what the characters are up. Is that necessary if people just watched the last episode 10 minutes ago?”