Henry Blodget is Right: TV is in Trouble

June 15, 2012

Henry BlodgetHenry Blodget is an influential, smart and controversial former Wall Street analyst. After his fall from grace in the wake of the dot-com bubble, Blodget co-founded Business Insider, one of the fastest-growing business and tech news sites in the world, and he now serves as CEO and Editor-In Chief. When he wrote his thoughts about the television industry last week — despite the lack of any "new" information — it got a lot of attention and a lot of people talking.

The headline told Blodget's story: Don't Mean To Be Alarmist, But The TV Business May Be Starting To Collapse.

Strong stuff, especially from a guy like Mr. Blodget, so let's deconstruct this whole issue in depth. His premise is that, like newspapers, television is hosed due to shifting customer behavior.

In our household, as in many households, television consumption has changed massively over the past decade, especially over the past 5 years.

  • We almost never watch television shows when they are broadcast anymore  (with the very notable exception of live sports)

  • We rarely watch shows with ads, even on a DVR

  • We watch a lot of TV and movie content, but always on demand and almost never with ads (We're now so used to watching shows via Netflix or iTunes or HBO that ads now seem like bizarre intrusions)

  • We get our news from the Internet, article by article, clip by clip. The only time we watch TV news live is when there's a crisis or huge event happening somewhere. (You still can't beat TV for that, but soon, news networks will also be streamed).

  • We watch TV and movie content on 4 different screens, depending on which is convenient (TV, laptops, phones, iPad)

If not for live sports, which are consumed by exactly one member of our household (me), there is no way we would be paying for cable TV or any other kind of traditional pay TV anymore. And even as a sports fan, I'm starting to find the fragmented multi-channel coverage of the few sports I watch--like tennis (Grand Slams), baseball (Yankees), and football (Jets/Giants)--so annoying that I may soon investigate just getting those via direct subscriptions.

In other words, in our household, and in many other households like ours, the same thing has happened to the TV business that has happened to the newspaper business:

The user behavior that supported the traditional all-in-one TV "packages"--networks and cable/satellite distributors--has changed.

Cries of "foul" were immediate and came from all quarters. Some attacked the idea that TV is not like newspapers at all (No, Henry, TV is Not Going The Way of Newspapers by Dave Morgan), while others got more personal. One of the most interesting critiques is from Spots-n-Dots, the "Daily News of TV Sales," a house organ for the TV sales industry. Let's be fair here. The objections to what Blodget described are from those trying to protect the fatted calf of Madison Avenue, a street through which flows billions of dollars in our economy. Ad agencies — not necessarily advertisers — will not exist at their current level, if what Blodget describes turns out to be true, so it's understandable that the agencies would defend their model with everything they have.

The intriguing thing about the Spots-n-Dots article (Is TV On A Deathwatch?) is how it attacks Blodget's research methodology (his own family) to refute his entire premise, rather than offer any real insight. This is a common debate technique.

One of the first persons to dispute Blodgetís claim was a fellow Wall Streeter, Brian Wieser, Senior Research Analyst at Pivotal Research Group. He said the experience of the Blodget family was not typical. In fact, only 17% of TV viewing takes place on a DVR in families with that device. When you look at all households, 93% of viewing is live. And people are watching more TV, not less now. The average person watched 29 hours of programming per week in the 1999-00 season and 34 hours during the 2010-11 season.

As for ad skipping, Wieser says, "Notably, the percentage of ads viewed while DVRs are in playback mode has risen over time as the hard-core ad skippers account for a smaller and smaller share of the DVR-owning universe."

There's so much spin here that the hamster just fell off the wheel.

And there's more. The article gives no credence whatsoever to Blodget's thoughts and, in fact, dismisses them entirely by classifying his family as a cultural subgroup — "hard-core ad skippers." This is a serious problem for both Madison Avenue and the TV industry. Weiser's company, Pivotal Research Group, is an equity investment advisor whose clients are inside the industry, and his research analysis is more like dogma than an honest appraisal of reality or trends. The data simply isn't as important as who is skipping ads and why. Moreover, skipping ads with technology is a different — and much smaller — issue than consciously or subconsciously skipping ads via any means.

Who skips ads with a device? Young people. Who's engaged with second screen or social apps? Young people. Who skips ads by disassociation, whether it's going to the bathroom, getting a snack, reading, texting, talking on the phone, or simply bouncing around the various channels with the good old remote? Good question. We need research on this, because long before the DVR came the remote control. And that word — control — is super important in honestly examining what's really happening.

That's because the reason people skip ads isn't nearly as sinister as those with something to lose make it out to be. Time is the new currency, and as a culture, we're all trying to get better control of our time. In my study of the program "Law & Order," I learned that the average program length in 1990 when the show first aired was 48 minutes. by the time it ended its nearly record run, the average program length was under 43 minutes. If we simply look at today's "numbers" regarding time shifting and ignore the underlying causes, we're seriously misleading ourselves when it comes to the question of what, if anything, we should do.

The lifestyles and life habits of people are changing. What Jay Rosen calls "the great horizontal" is taking advantage of the control that technology is giving us.

Here's a link to a wonderful post by Doc Searls on a matter of deep importance to him, the dehumanizing of customers through the word "consumer." The post includes the below graph, which he generated using Google's Ngram Viewer. It plots the prevalence of the two terms — consumer and customer — in books between 1770 and 2004.

Doc Searls Ngram view of words consumer and customer in books since 1770

What interests me here is that the blue line ("consumers") appears to outline the rise and current relative decline of Madison Avenue's glory years, the Mad Men era of advertising. In this era, the goal was to manipulate "consumers" — with the sheer brilliance or cleverness of the agencies and a host of warfare or athletic competition concepts like "attack," "occupy," or "defend." Nobody would like it if somebody was overt about such things, but the less-than-human implications of the nameless, faceless "consumer" made it all so justifiable. Of course, nobody ever asked us if we wanted to be "carpet-bombed" by unwanted messages, so when technology came along and gave us options to ignore or avoid these tactics, this well-oiled machine didn't work so well anymore.

There's a massive cultural shift taking place today, and it will change things forever. Those being changed don't like it. We get that, but ignoring it by using existing data to justify denial is, well, just stupid.

Let me explain. Broadcasting isn't on trial here; it's the advertising industry, and as they go, so goes broadcasting. A recent article in Adweek, for example, took on the matter of General Motors' bold play to at least temporarily sit out of the annual Madison Avenue circus known as the network upfront. This is where big advertisers buy lots of spots for the coming year based on discounted rates. The growth of the upfront market in recent years continues to baffle observers in the face of strong evidence suggesting it simply should not work. Here's a key graph from the Adweek article:

A former sales exec nearly sputtered with disdain for GM, saying its demands amounted to a betrayal of a decades-old understanding. "For 50 years we've planned our schedules around cars. The entire rationale for the upfront was to line up the new shows with the new cars," he said. "This is a shot in the mouth."

Sellers who are actively participating in this yearís marketplace were a bit more sanguine. "Look, nobodyís thrilled about this," said one exec, clearly warming to the subject. "But no single client can control much of the marketplace. Say you do $30 million in business with your biggest client. They disappear altogether, who knows why. So you're out thirty, and thatís too bad, but say you do $2 billion in overall business. Thatís 2 percent of your total. Thatís not nothing, but it won't send you to the poorhouse either."

The cavalier attitude expressed by the second anonymous source is evidence of a certain belief of invincibility, something we saw often in the months and years leading up to the collapse of newspapers.

Over the last five years, big advertisers have clamored for real time measurement of ads, not programming. This too isn't going away, and it's bad news for Madison Avenue, although they're fighting the idea. GroupM CEO Leo Gotlieb told (via Mediapost) the Advertising Research Foundation measurement conference that he thinks the adaption of "live plus 7 days" (C7) programming numbers is the way to sell ads on TV.

No measurement system will be "absolutely accurate," Gotlieb added. The industry needs to "get over the notion" that exact measurements are worthwhile pursuits. There are too many greater and more realistic issues that need to be dealt with in the measurement space, he said.

Of course he thinks the industry needs to get over it. Agencies want things as obscure as they can be. Meanwhile, the people paying for those ads — the advertisers — want brand-specific ratings. Here's Association of National Advertisers executive vice president Bill Duggan has to say (also via Mediapost):

For advertisers, C7 is just more of what they don't want, he says -- an unclear picture of exactly who and how many viewers are watching which specific ads.

...Duggan said the last poll of its members on the subject, conducted last year, revealed that 82% of advertisers were interested in commercial-specific ratings. He calls the response "a landslide."

These are the people with the money. Who do you think will win?

At AR&D, we have discovered big advertisers more than willing to put down serious dollars to enter, engage and succeed in the burgeoning world of content marketing. This is where businesses behave much more like media companies than advertisers, and it's one of the areas where we predict substantial growth. I'm not a big believer in mobile advertising — as Madison Avenue would have it — but I do think mobile engagement between businesses and customers will be huge. This is where smart businesses are headed today, and our anecdotal evidence strongly supports this premise.

Finally, the advertising and broadcast industries must realistically examine the lure of "potential" from Silicon Valley start-ups that promise to use the content created locally (and nationally) to "help" the industries in a time of change ("Come on in," said the spider to the fly). Both parties benefit when broadcasters, for example, use Facebook to spread word of their content, but who benefits more? Same with Twitter. I don't believe we're far enough along to answer that question with any degree of accuracy, but answer it we must, for this is much more important than questions of the use of DVRs.

Disruptive innovators are delighted when the target of their disruption fights internal battles while ignoring the shell under which their ball hides.

Yes, television is still the best ad buy for the buck, and it probably will be for a long time. But it makes no sense to ignore what young people embrace, for they will get older. Nor does it make any sense to deny the reality that those who do skip ads are exactly the people advertisers want to reach, the early adopters and gadget freaks, for they are the trend-setters.

The future is exactly what Henry Blodget is exploring with his post, not the data of today, and he doesn't deserve the "whac-a-mole" treatment of so-called industry experts. It's a shame that the demand for revenue "right now" so consumes our attention that we aren't able to truly innovate.

Henry Blodget is right, and I assure you that our eyes are wide open.