Financial Impact of Streaming Video on
Traditional Television

TABLE OF CONTENTS ABSTRACT 3 INTRODUCTION 3 Background 6 Traditional Television 4 Television advertising 7 Sub-heading 2 10 Streaming Video 11 Netflix, Roku 12 Net Neutrality 13 Today’s Consumer 19 Viewers by Age Group 20 No-TV homes CONCLUSION 8 WORKS CITED or Bibliography 9 ABSTRACT The introduction of the internet has changed our lives. It has changed the way we communicate. It has given us the ability to choose the way we consume media. One way the internet has changed our options in this regard is streaming video. Gone are the days of racing home to catch your favorite television show at a certain time. Now we can watch them when we want to and in real time using streaming video. People can now view media via computers, iphones, ipads, etc. The number of people viewing traditional television sets is on the decline. Advertising dollars that historically supported broadcast networks are on the decline. The changes in technology have challenged the traditional television industry in many ways. INTRODUCTION Television has been big business since its inception in the 1950’s. It allowed people to view amazing new technology for the first time. People went from listening to the radio sitting around a fireplace to watching a television set. This huge change affected almost everyone at the time. Television and the way we view it is always changing and continues to affect the way we live our lives. With the invention of the internet, television is available on computers and various other devices. In addition, new technology called streaming video is allowing consumers to watch movies and previously recorded television shows in real time. Companies like Hulu, Amazon, and Netflix, among others, offer-streaming video for a relatively low price. These companies offer video that is free of commercials and can be stopped and started at the consumer’s leisure. Streaming video affects the advertising revenue of broadcast television because it excludes commercials. However, with net neutrality on the horizon, streaming video may run in to problems if it cannot access the extremely fast internet connection that it requires. BODY The research question for this paper is “Has the introduction of streaming video had a financial impact on traditional television?” This paper used the qualitative method. Traditional television earns income from advertisers .The advertisers pay for the commercials that we see on regular television shows. Thirty-minute episodes are licensed to a network for $500,000 to $1,000,000. (Blumenthal) On-air advertising is the main source of revenue for a broadcast network. With the arrival of alternative ways to view media, people are spending less time watching TV. Instead, they are watching video on mobile devices. This has network providers concerned about their advertising revenue. Ratings for both cable and broadcast networks are down. “Nearly 5 million cable TV subscribers have gone elsewhere in the last five years. The number of cable TV-only subscribers remaining could sink below 40 million later this year, according to data from ISI Group, an equity research firm.” (Edwards) The result is an uneven correlation between where advertising money is spent and where people spend their time watching media. To counter this, television has increased the price of ads, even though the number of commercials has decreased. An average television commercial is thirty seconds long and sold to advertisers. For example, an ad for the 2013 Superbowl cost an average of 4 million per spot. (Conrad) The 2014 Superbowl set a viewership record for the second time in five years. Netflix began offering streaming video in 2007. Consumers were able to watch movies and shows on their personal computers. This began the culture shift of how people view media. Since then, the service is available on not only personal computers, but on many electronic devices. These include Iphones, Xboxes, Ipads, Nintendo Wii, and the list keeps growing. New televisions actually offer the built in ability to access Netflix and other streaming video services via internet. The streaming video companies quickly realized that television series were becoming very popular. For example, a customer could watch a show, decide they like it, and then watch the entire season. They could go back to the beginning of the show and watch all seasons consecutively. This is called binge viewing. “Netflix says about 85 percent of the people who stream the first episode of AMC’s “Breaking Bad” get hooked and watch the entire series, very often in marathon sessions.” (Haywood) Rather than pay for full box sets of DVDs, they can watch it through streaming video anywhere they want. (Hayward). Thirty eight percent of U. S. consumers use Netflix to stream video. This is up a little over thirty percent from 2012. Twenty-three percent say they watch on mobile phones. Other devices have been introduced to the marketplace as well. Roku is a streaming video stick that can be installed on a television very inexpensively (around $50). The device (a set-top box) gets data via an internet connection. It can offer certain free channels but it also provides a way to stream purchased services from Netflix, Amazon, or HBO-go, etc. According to Anthony Wood, CEO of Roku, “We’ve shipped more than 8 million boxes in the United States, and last year streaming hours grew 70% from a billion hours to 1.7 billion hours. I often get asked do you think the box business is going away, and I don't think so. I think it's going to keep growing for many many years.” (Solsman) Debate continues as to whether this type of media comes at the expense of watching television or if it has a complementary function. A study of students, staff and faculty at a large Midwestern university showed that among 1488 participants, respondents reported watching an average of 12.04 hours of television per week vs spending an average 20.2 hours online. (Cooper and Tang Tang). One reason that streaming video has taken off is that it allows the end user to view the media on so many different devices. In 2012, 87.5 percent of Americans had access to the internet and 166 million watched at least one video on a computer. Streaming video does have legislative implications. Net neutrality is on the horizon. It would set price controls on Internet bandwidth. Net neutrality would force providers to equalize web traffic. This would mean a much slower internet connection for video streaming. If this takes place then the video streaming experience would suffer or force the providers to increase cost in order to provide the faster connection. Today’s digital consumer is changing. Younger Americans are watching less TV than older people. The latest study from Nielsen’s states that the 18-24 year age group watched 2.5 hours less per week than the year before. Over the last three years, viewing by this age group dropped more than five hours per week. This is because this age group is more tech savvy and uses the latest electronics to view media. Only the group of viewers age 65 and above increased its television viewing. According to Russ Crupnick, NPD industry analysis senior VP, “ Over half the viewers for streaming TV are between the ages of 18 and 34, so the YouTube generation is evolving from short-from and user-generated content to TV shows and .like YouTube, they can watch where and when they want.” (Tarr) An interesting phenomenon is taking place concerning television. Fewer households actually have a television. Even though phones and smaller devices cannot stream exceptionally fast, their usage has skyrocketed. Forty percent of people who access YouTube use a mobile device. Fifty –seven cities in America offer free internet. Many coffee shops, libraries, motels, etc. offer free Wi-Fi. The more businesses that offer free Wi-Fi, the more likely people will be within a Wi-Fi hotspot. (Edwards) In an article written by Larry Magid, he states: My son and daughter, both in their 20s, are part of a growing group of people who have “cut the cord” and no longer watch video via broadcast, cable or satellite TV. The apartments they live in are among the more than five million U.S. homes that, according to a recent Nielsen study, have “zero TV.” That’s up from just over 2 million in 2007. (Magid)
CONCLUSION

Streaming video has certainly changed how viewers view media. It has definitely affected traditional television in many ways. It has mixed up the playing field.
While older people tend to continue to increase their television viewing, younger people are moving away. In some cases, American households do not even have a television any more. The television networks have had to reconsider the way they operate in order to stay profitable.

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WORKS CITED

Blumenthal, Howard J., and Oliver R. Goodenough. This Business of Television. Rev. and Updated 3rd ed. New York: BillBoard, 2006. Print.

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. Conrad, Alex. "Even With Record Prices, Expect A $10 Million Super Bowl Ad Soon."Forbes. Forbes Magazine, 2 Feb. 2013. Web. 26 Nov. 2014. <http://www.forbes.com/sites/alexkonrad/2013/02/02/even-with-record-prices-10-million-spot/>.

.Cooper, Roger, and Tang Tang. "Predicting Audience Exposure To Television In Today's Media Environment: An Empirical Integration Of Active-Audience And Structural Theories." Journal Of Broadcasting & Electronic Media 53.3 (2009): 400-418. Academic Search Complete. Web. 23 Nov. 2014.

Edwards, Jim. "TV Is Dying, And Here Are The Stats That Prove It." Business Insider. Business Insider, Inc, 24 Nov. 2013. Web. 30 Nov. 2014. <http://www.businessinsider.com/cord-cutters-and-the-death-of-tv-2013-11>. Hayward, John. "Internet Streaming Of TV Shows Shakes Cable TV, Satellite Industries." Human Events 68.28 (2012): 12. Academic Search Complete. Web. 23 Nov. 2014. Magid, Larry. "Households Abandoning Cable and Satellite for Streaming." Forbes. Forbes Magazine, 19 Mar. 2013. Web. 30 Nov. 2014. <http://www.forbes.com/sites/larrymagid/2013/03/19/households-abandoning-cable-and-satellite-for-streaming/>. Staff. "Are Young People Watching Less TV? (Updated #8211; Q2 2014 Data)."MarketingCharts. 15 Sept. 2014. Web. 23 Nov. 2014. <http://www.marketingcharts.com/television/are-young-people-watching-less-tv-24817/>. Nielson ." The U.S. Digital Consumer Report. 10 Feb. 2014. Web. 30 Nov. 2014. <http://www.nielsen.com/content/corporate/us/en/insights/reports/2014/the-us-digital-consumer-report.html/>. Solsman, Joan. "CEO: Roku's Future Is TV's Future (Q&A) - CNET." CNET. N.p., 2 Apr. 2014. Web. 28 Nov. 2014. <http://www.cnet.com/news/ceo-roku-future-is-tvs-future-ahead-of-amazon-device/>. Tarr, Greg. "NPD: Streaming TV Continues To Grow." TWICE: This Week In Consumer Electronics 28.4 (2013): 12. Academic Search Complete. Web. 23 Nov. 2014.