Musings on the Aereo Shutdown

Rabbit_Ears)I was traveling last week when the Supreme Court ruled on the Aereo case, and that gave me a chance to read a lot of reactions to the ruling before I wrote about it. The Court said that the Aereo business plan was basically a gimmick and that they had to shut down. I will admit that I always thought the same thing and that it’s hard to build a business based upon a loophole. It’s too easy for your competition to attack the loophole and such arbitrage opportunities are rarely permanent.

But in reading articles about the industry reaction to the ruling I noticed that the executives from the major networks reacted in absolute glee over the shutdown and hailed it as a major victory. And frankly, I think they made some huge mistakes with the way they handled Aereo from the beginning. I think what they failed to realize is that Aereo was serving the niche of the market that gets their entertainment using laptops, tablets and cellphones. You know the industry doesn’t get this because they refer to these devices as the ‘second screen’, failing to recognize that for millions of viewers this is the primary screen.

The industry doesn’t seem to understand the demographics that Aereo was serving. It’s easy to think that this is just the cord cutters, but it’s also most of the kids in the country. Let me talk about the cord cutters first since I am one of them. I don’t think I have watched a network TV show live, other than football games in over a decade. Perhaps that makes me unusual, but my life no longer includes network TV shows, commercials or watching TV at a fixed time. They lost me many years ago. I know that the industry keeps their eyes on cord cutters like me, but we are still a small enough segment of the market and they are not yet truly worried about us.

But the big mistake they are making is with the kids. The majority of kids do not like and will not tolerate the linear nature of broadcast TV. I’ve written many times how kids prefer YouTube, Vine and numerous other sources of entertainment and that they are largely walking away from traditional programming. The various industry surveys may show that kids still watch traditional TV, but only a few of the more detailed surveys show the truth, which is that even while they might be watching the big box TV, they are also watching something else on their ‘second screen’.

TV executives are looking at the Aereo decision as an indicator that they are free to keep on doing business as usual. And that is a huge mistake that is going to bite them hard one of these days. Instead of suing Aereo they should have purchased them a few years back and then embraced this as the way to get to the younger demographic.

Aereo didn’t just bring network TV to the second screens. It also came with a built-in DVR letting people with other screens watch what they want where they want and when they want. Aereo was the industry’s best chance at staying relevant with the kids under 16. True, Aereo wasn’t paying retransmission fees, but it was doing the networks a favor by bringing their content to people who obviously don’t want to watch TV on the big box. I guess the TV executives assume that these people will now flood back to their TVs, but I am going to guess that most of them are going to be more like me and they will decide that if they can’t have Aereo they will just forego network TV. There are enough alternatives to keep us second screen people happy whether we are old cord cutters or teenagers.

I really find it hard to believe that the industry and Aereo couldn’t have worked out a compromise solution. It certainly would have been relatively inexpensive for the networks to buy Aereo, and if that wasn’t possible then they certainly could have worked out some kind of reduced retransmission fees that could have kept the company functioning. Instead, the networks gleefully poked a lot of cord cutters and second screen viewers in the eye and I really don’t think most of them are coming back.

I don’t think that the networks understand how easy it is for them to lose a whole generation of TV viewers. Kids have already decided for the most part that they don’t like the constraints of traditional TV and it would be very easy for this whole generation to just walk away from the networks. To some degree they already have. The average age of network viewers keeps climbing. Surveys show that the networks barely register with this generation in their list of favorite sources of programming.

It’s too late to keep Aereo going, but it’s not too late for the TV networks to find some way to remain relevant. But I don’t see them doing anything that is going to enamor them to the younger generation and I think the clock is ticking on a whole generation of viewers. At some point the advertisers that support TV are going to realize that they aren’t getting to the right demographic, and that could bring about the demise of the networks in a big hurry.

The Young and the Old

Old TVI’ve just seen some recent statistics that talk about TV viewing in different demographics. On the young side, Verizon just released a study it did of the TV viewing habits of Millennials, which it defined as those between the ages of 16 and 34. On the older side, there have been some interesting statistics released talking about who watches network TV.

Verizon’s study quantifies what we have already all suspected – that the viewing habits of young people are a lot different than the rest of us. This is not to say that everybody’s viewing habits aren’t changing, but the young have changed to a greater degree. For example, all age groups watch over-the-top video online, but Millennials spend three times as much of their viewing time on line as everybody else.

Millennials have not yet abandoned cable services and 75% of them still watch cable TV. Only 13% of Millennials have cut the cord compared to 9% of the rest of us. But unlike the rest of us, they are also huge subscribers other services like AmazonPrime, NetFlix and Hulu. They simply have a lower tolerance for linear TV programming and want to watch things on their terms when they are ready to watch it. Millenials also like to browse more than watch specific TV shows at set times. Millennials are more likely (64%) to be using some other viewing device like a tablet, laptop or cell phone than everybody else (49%).

Millennials seem to be very brand-loyal and the brands they like are not the same as everybody else. For example, when naming their top entertainment brands, Millennials don’t put any of the broadcast networks (ABC, NBC, CBS and FOX) into their top ten brands while all four make it into the top brands for non-Millennials. Interestingly the company that makes it as the top name brand for everybody is Amazon.

Contrary to what other surveys have found, Millennials are willing to pay for multiple kinds of TV services and they are more likely to subscribe to both cable and online entertainment sources. But in looking at their viewing habits, they are more likely to engage in binge watching and more attuned to when entire series of shows are released on line.

Millennials also get more of their entertainment from non-traditional sources like YouTube and social sites. Millennials are more likely to game and to play fantasy sports than others. They also frequent a number of social sites like Reddit, Imjur, 4chan and 9gag that nobody else uses.

Very much as a compliment to the Verizon survey, I was looking through statistics about who watches network TV. The demographics of the major networks is aging even faster than the population. The median age of viewer for network TV is now 54 while twenty years ago it was 41. In 1993 the number one show was ‘Home Improvement’ with the age of the median watcher at 34. Today the most popular show is ‘NCIS’ with a median age of viewers of 61.

Interestingly, the networks still get the majority of the advertising dollars, but the increasing age of their viewers is probably going to change this a lot. Back in the Verizon survey, only 32% of Millennials said they would even miss the major networks if they went away. Advertisers want to find better ways to get to Millennial and other younger viewers, but the way they watch programming makes it hard to get to them in the same was as they can get to viewers with network TV.

The Verizon survey should give pause to anybody in the cable TV business. The Millennials and the following generations will be the majority of viewers in a few decades and once has to ask if it is possible to have a set of products that they are willing to pay for. They are not afraid to spend money for entertainment, but a lot of that money goes to online sources instead of to the local cable TV.