BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Majority of TV Watchers Prefer Phone Or Laptop To The Big Screen - Cord Nevers

This article is more than 9 years old.

Who would have ever thought that viewers would prefer to watch movies on their teeny-tiny mobile phones rather than the big TV in the living room? Small screens have zoomed up in popularity and are now the dominant medium for watching TV. Tech-savvy Millennials led the march to Internet  and others have joined, wreaking havoc on cable, satellite and broadcast companies.

Young adults may prefer their laptops and smartphones, but advertisers are still stuck in the dark ages with traditional TV. Despite a slide in ratings for traditional shows, advertisers cling to program networks on pay TV, in part because advertisers haven’t figured out how to transition their messages to the Web.

What Do They Watch And How Do They Watch It

In June of this year, media researchers at Frank N. Magid Associates conducted a survey of consumers to quantify cord cutting and examine preferences for entertainment. They asked 2400 consumers about viewing habits and discovered the Internet has already become the most important source for content. And, the volume of Web content is growing exponentially, whether produced by professionals or amateurs, offering more choices by the day.

Users rank “access to content” above “price” as a reason to cut the cord or bypass cable altogether, according to the study’s leader, Michael Vorhaus, President of Magid Advisors, who spoke at the Goldman Sachs Communacopia last week, an investment conference for media and technology companies. Up until a couple of years ago, prices drove the cord cutting.

Another finding from the Magid study was the vast majority of young adults, ages 18-34, prefer to watch entertainment on a laptop, smartphone or tablet, rather than a TV. They watch full length movies on tablets in bed and more movies on their phones on the go. The broader population is catching up to the stampede to the net. About 60% of of Americans who are 8-64 years old say they prefer to watch TV on a computer or smartphone, so only 40% of consumers prefer cable, satellite or broadcast TV.

Traditional TV Breaking Down

It’s no surprise that cable TV is steadily losing subscribers, though losses are offset by broadband gains. Fortunately, cable operators stand to benefit from cord cutters in their broadband business, so they don't feel the full brunt of pay TV disconnects.

Half the US regularly plugs their TV into a broadband link using game consoles, PCs or set top boxes that pull content from the Internet. Set top boxes like  Apple TV, Roku and Amazon Fire let users rent or buy movies and programs a la carte. With these smart boxes, users can also access Netflix , Amazon Prime and Hulu Plus subscription services. The subscriptions run about $8-10 per month, a fraction of basic cable and have become the new cable channels.

Next -gen Smart TVs are gaining acceptance quickly, according to the Magid study. They connect to broadband and have operating software to support apps. While cable TV may not go the way of the Dodo bird, its preeminence will decline as Web usage ramps up.

The definition of entertainment has come to mean many things for consumers: streamed music, games and social media. Today’s audiences actively search for content in novel ways, using recommendations served up by subscription algorithms or reading posts on social media.

Locating Advertising Targets

Internet users may be an elusive group, but advertisers need to figure out how to find them. Facebook has come under fire for tracking users across the Internet, collecting traffic data to build detailed user profiles from browsing history.  And even with their advanced data mining, its tough to prove the effectiveness of Facebook ads compared with mass media. Big data analytics may solve some of the mysteries of mobile audiences. Ad tech platforms using non relational databases, like MongoDB, can target users, serve ads and track purchases online and even offline in the stores.

On traditional TV, advertisers can access millions at one time.  Advertisers spend about $80 billion annually  on traditional TV (cable, satellite, telco and broadcast) reaching millions simultaneously. It's a lot easier than hunting down targets on individual Web sites.

Despite the exodus of audiences from traditional TV, ad revenues have held their own and are flat year-to-date. If revenues follow ratings down, producers  of original content will have to cut costs. Reversing the slide would be tough.  Audiences that roll off of cable today won't come back and can't be replaced in the future. Young adults have resisted cable so far may never buy into the big bundle concept. And the few young adults watching traditional TV today may be accessing their parents' subscription. “Young adults who prefer traditional TV today won’t prefer it in 30 years,” according to Vorhaus.

“Advertisers rely on a few TV hit shows and major sporting events to draw huge crowds. Hit series and NFL games draw millions or sometimes tens of millions,  all at once. It’s hard to beat for brands that want broad exposure,” Vorhaus continued.

When traditional TV was an oligopoly, it could support high production costs and still generate high margins. But the Internet has well-funded players, like Google and Netflix, willing to sustain losses to amass audiences. They’re producing content on the cheap.

“Production costs have to come down for traditional TV. A $100 million TV series will be the exception rather than the rule -- the audience is too narrow and risks are too high. The competition is spending $100 thousand a show and producing enormous volume," he said.

At night, they’re fighting the devil,” laughs Vorhaus.

Producers have developed shows with super low budgets, like the Horders. It's  not great quality, but it costs $25-100 thousand a show, so it’s profitable and fits the bill,” says Vorhaus. The days of the $4 million TV episode may be coming to an end.

Over-the-top players could generate $8-10 billion in advertising this year, with YouTube generating gross revenues of $4 billion ($2 billion net after the partner split) and 30 percent margins. A startling three quarters of the consumers in the Magid survey say they watch videos on YouTube. Vorhaus believes YouTube could be a $10 billion business soon.

HBO is anxious to unshackle from cable too. Today, AT&T announced an “HBO Lite” service that packages broadband with Time Warner's HBO to appeal to the 10 million Millennials who don't have cable. Already, Netflix has passed HBO in US subscribers and has Emmy's under its belt with hit series like "The House of Cards" and "Orange is the New Black".

Soon, all the good stuff will be on the net.