Stephanie George-Morgan, 33, barely knew anything about ABC's long-running Grey's Anatomy
when she stumbled upon reruns of the medical drama on Lifetime last
summer. But "before I knew it, I was hooked," says the stay-at-home mom
from Jackson, Miss.
So she briefly signed up for Netflix and
caught up with all eight seasons of the show, and is now a loyal viewer
of new episodes on ABC. Except that she skips all the ads, using a
digital video recorder she got six months ago when she switched cable
providers. "I'm a DVR freak!" she says. "I record all of my favorite
shows to watch later," often in bunches. "That way I'm not left hanging
for another week."
Technology has been kind to viewers. But it
also is hastening the end of the kind of mass-audience,
gather-round-the-tube appointment TV that networks have counted on and
Americans have scheduled their lives around for more than half a
Beyond the cultural upheaval, it's upended the economics
of the $70 billion TV business, which depends heavily on advertising to
pay for Grey's and other shows. It's sent those networks and
advertisers scrambling to find new ways to get a handle on, and profit
from, a viewership that is dispersing at an accelerating rate. And it's
put a premium on sports and reality TV, which are more immune to the
This fall, 38% of young-adult prime-time viewing on the
major networks (and 23% of all viewing) consists of previously recorded
shows, Nielsen says. That's up from nearly zero a decade ago. "This year
has really sort of been the tipping point that we've been expecting,"
says Leslie Moonves, chairman of CBS Corp., which owns CBS, Showtime and
half of CW. Increasingly, "overnight ratings don't mean anything."
not just DVRs, now in 46% of homes, that are upsetting TV's ecosystem.
The dying DVD business has been replaced by a host of new options:
Hulu, the 4-year-old streaming service owned by the parents of Fox, NBC
and ABC, offers viewers recent episodes. Cable's video on demand offers
an increasing array of new TV shows. And networks' own websites are
another reminder that viewers don't need to bother tuning in at their
favorite show's regular time; they can be watched later, anywhere.
Apple's iTunes store sells past season episodes for $3 apiece. For $8 a
month, rival Netflix offers unlimited streaming commercial-free,
encouraging binge viewing of serialized shows on a laptop or
Internet-ready TV. And a paid version of Hulu offers a trove of former
Mobile. All that content can be watched in more
places: not just on laptops but also on tablets, smartphones and other
devices for which viewership isn't currently measured, making it harder
for programmers to profit from them and for advertisers to know whether
they're reaching potential customers.
"Everything is being
disrupted by technology," says Tim Spengler, CEO at New York ad firm
Magna Global. "Television is very effective for advertisers, (but) we
just can't rely on it to do the whole job the way we used to. What
advertisers are forced to do is look at a much more diverse mix" of
media, and "the younger the target audience, the more diverse the mix
needs to be."
TV ratings slump
Nearly two months into
the new TV season, ratings for three of the four big networks are down
10% to 30% from last fall, and off-channel viewership is only one
reason. The crop of new series just hasn't excited viewers, and there's
stronger competition from cable, where shows such as AMC's The Walking Dead and FX's American Horror Story have led many of their big-network rivals among key audiences.
cause for alarm is that overall TV usage by young adults ages 18 to 24
is down 9% since this time last year, more than any other age bracket.
That group is most likely to watch elsewhere, a habit fueled by TV
studios' sales of their content to online destinations.
is a free lunch," says Michael Nathanson, media analyst at Nomura
Securities. "All these guys who sell their content to Netflix" have to
realize that "users paying for subscriptions find it valuable, and
that's sucking time away" from TV watching.
While "top streamers
are watching the least amount of television," counters Dounia Turrill,
senior VP of consumer insights at Nielsen Co., "they're still watching
12 times more television than streaming content."
And some see a
silver lining in the wider array of viewing options, funneling new
viewers back to TV the way George-Morgan, the Mississippi mom, came back
to ABC for Grey's.
A day before The Walking Dead
began its third season earlier this month, the zombie hit's previous
season was released exclusively on Netflix, and a couple hundred
thousand subscribers watched all 13 episodes in one day.
number is tiny by TV standards, it's an extreme sign of fan devotion,
and in a small way it might have helped prime the pump for the show's
new-season opener, which set a cable-drama record the next night with 12
"It's canary-in-the-coalmine behavior," says
Netflix chief content officer Ted Sarandos, and "an indicator of a
massive shift in consumer behavior around television," especially among
the young viewers most in demand by advertisers. "The more you live your
life online, the more you have an on-demand expectation" to watch what
you want when and where you choose.
"The network challenge is, how
do you value and monetize the network (programming) off the network,
which sounds crazy, but it's what everyone's facing," says Mark Ghuneim,
president of Trendrr, a social-media tracker.
And the habits are
spreading: Because of its younger audience, "We were the first ones to
feel it," says CW chief Mark Pedowitz of a shift that helped send its
traditional TV ratings plummeting. But every demographic is behaving
more like millennials, he says.
Fewer quick hits
networks have encouraged this behavior. In marketing stunts, first
episodes of more new shows were available online or on demand, often
weeks before their official premieres, dampening the hoopla surrounding
official premiere week.
CBS polled 2,000 viewers and found just
42% tried a new show in its scheduled broadcast slot in September, down
from 53% just a year ago, while their dependence on DVRs, streaming and
video on demand climbed, sometimes sharply.
viewing, however, makes it harder to generate quick hits in a business
that depends on them, even with social media as a megaphone for fans to
"There are so many things now that collectively upset
the sense of urgency," says Fox entertainment chairman Kevin Reilly,
conceding that while "you can't turn back the clock" on technology,
"some of our efforts in general have probably exacerbated the problem."
(His boss, Rupert Murdoch, tweeted last month that DVRs are "giving
NBC's Revolution is the top new show this
season among young adults and is averaging about 13 million viewers. But
nearly a third of that audience - 4.4 million viewers - time-shifts the
drama to another night, up to a week after its Monday premiere. All
told, 14 network shows add 3 million or more viewers apiece when
seven-day viewing is added, representing a net gain of 20% to 55%.
networks point to so-called DVR "lifts" as evidence that TV remains a
hugely popular source of entertainment. And that extra viewing has
helped extend the lives of marginal ratings performers such as Fox's Fringe and NBC's Community that previously would have been sure-fire bets for cancellation.
is, networks get paid for few of those dallying viewers. That's
because, in a compromise worked out years ago between Madison Avenue and
Hollywood, advertisers pay only for eyeballs that pause to watch the
commercials, and then only for the first three days after they air. (In
an uphill battle, network executives are now angling to base ad rates on
seven-day viewing, citing growth in DVR usage.)
That's why the
cost to televise (and sponsor) major sports is soaring: Unlike most
other programming, they are almost always watched in real time. "There's
more of a reliance on sports, because it is sort of technology-proof,"
Spengler says. Ad rates for sporting events "are going up faster than
for anything else" on TV. Competition-reality shows like The Voice and American Idol also are recorded far less frequently than sitcoms and dramas.
estimates that only half the ads are skipped in recorded shows. Still,
programmers are leaving wads of cash on the table.
Many, in what's
perhaps wishful thinking, view DVRs as a transitional technology that
will eventually give way to video-on-demand services offered through
cable and satellite providers. Like streaming, on-demand viewing doesn't
require viewers to plan ahead and choose shows to record. But it also
prevents them from skipping commercials, beefing up Nielsen ratings.
that reason, Nathanson says, programmers would be better off if
on-demand activity eclipsed DVRs, and if a slow-starting initiative
dubbed TV Everywhere - in which cable systems stream shows to their
customers on other devices - proved more popular than Netflix. "But the
genie is not going back in the bottle."
A customer and competitor
is both friend and foe to commercial networks. It's a big source of
revenue, paying hundreds of millions for the right to stream recent TV
episodes to its 25 million customers. (TV now represents 70% of its
streaming activity.) But it marks yet another destination for viewers no
longer beholden to what's on TV now, and it will further invade their
turf with big-budget original programming.
House of Cards, produced by The Social Network's
David Fincher and starring Kevin Spacey as a scheming congressman, is
being adapted from a British miniseries, and Netflix will release the
first of two 13-episode seasons all at once on Feb. 1. Three more series
will follow, including new episodes of cult comedy Arrested Development, canceled by Fox in 2006.
honestly think we're in some beautiful sweet spot of being both a
competitor and a source of improvement to the business models of the
networks," Sarandos says.
Hulu is also airing original shows and
acquiring titles from overseas broadcasters, and Google is investing
$100 million in YouTube channels featuring original content.
channels such as HBO and Showtime are making shows more widely
available, on demand and on free mobile apps such as HBO Go, which
offers every episode of nearly every series ever aired on the channel.
About 7 million of HBO's 30 million subscribers have signed up for the
free app, which is unavailable to those who don't pay for the channel.
because HBO sells no advertising, the network doesn't care where their
viewers watch. "What we're always trying to do is add value to the
subscription," says HBO chief operating officer Eric Kessler. "We not
only need to have great programming, but we need to deliver it on
devices they choose to want it on, and that's particularly true of the
On average, just 20% of HBO's viewership comes from initial Sunday night episodes of such series as True Blood and Boardwalk Empire. But Girls,
an Emmy-nominated new comedy about twentysomething friends, counts just
14% of its audience that way; 22% watched on DVRs, 6% on HBO Go.
is optimistic that more viewing options will ultimately help, not
hinder, TV networks. For young-skewing CW, "Netflix and Hulu (revenues)
put us into profit," he says. "That's a totally different strategy than
CBS," which until now has been reluctant to sell shows to online
"All this stuff is going to be a big positive," Moonves
says. "But we need accurate measurement, because people are watching
all over the place. I want to get to the point where I'm