Waiting for Vodot. Why ‘video on demand’ won’t happen

 Many digital experts predict an imminent transition to non-linear television – video on demand (VOD). Patrick Barwise clarifies the definitions and argues that VOD will not happen on the scale that some people envision and we could be waiting in vain

A MID ALL the excitement about how media are changing, one of the most widespread issues is the supposed imminent transition from ‘linear’ to ‘non-linear’ television. This is not just the idea that people are occasionally watching various types of video on demand (VOD), including some TV programmes – which is true, if often exaggerated. I’m talking about the suggestion that, in the next few years, the main way that people watch television will change to VOD.

The previous UK Government’s Digital Britain report – a centre-piece of its Building Britain’s Future plan – referred to the ‘not-distant point’ when people switch from ‘passive [viewing] through the linear schedule’ to ‘active [consumption] using search and on-demand’.

It predicted that, with universal access to video-quality broadband proposed for 2012, and most households having much greater bandwidth, ‘streamed, downloaded or searched-for content will become the norm’.1 The new coalition Government has said nothing that suggests it disagrees with this view. On the contrary, it has repeatedly said that the Digital Britain proposals for broadband were insufficiently ambitious.

In 2008, the Guardian’s Emily Bell wrote that: ‘Within two years, audience behaviour has completely changed due to the availability of broadband and the penetration of the internet.’2 A senior independent TV producer recently told me that ‘in five years’ time, TV channels may no longer exist’.

I believe that most of this talk is both confused and deluded. It’s confused because the expression ‘non-linear TV’ is hardly ever defined and is used to mean very different things. And it’s deluded because the extent of change in what and how people watch TV has been – and will continue to be – less than the hype suggests.

In this article, I outline the evidence and explain why I liken the VOD situation to Samuel Beckett’s absurdist play Waiting for Godot,3 in which the enigmatic and long-awaited Godot never appears.

What the future might hold When referring to ‘Vodot’, I mean largescale, commercially viable, standalone VOD. A Vodot company would create or acquire TV content; market it; physically distribute it on demand through the internet to consumers’ TVs and other devices; and generate more revenue than its costs, from advertising, subscriptions, and pay per view. There are two important things about this definition.

First, it includes the words large-scale, by which I mean significant in terms of viewing time relative to television. Remember, Digital Britain referred to people switching from passive viewing through the linear schedule to active consumption using search and ondemand, which ‘will become the norm’.

The delusion I’m addressing is the belief that mainstream TV viewing is undergoing revolutionary change. VOD isn’t just a fad. I have no doubt that in 2020 people will still be downloading and exchanging short video clips, probably even more than today. I also expect that the video retail and rental market will switch from physical DVDs to online delivery. But both of these will still be peripheral to people’s mainstream TV viewing. They’re not revolutionary and don’t fall under my definition of Vodot.

The other word I want to stress in that definition is standalone. It may make good commercial sense for Apple, Sony, Sky, Virgin Media, BT, Nintendo, Microsoft, Google, or Facebook to include VOD in their product offering if it helps them increase the revenues and profits of their main business. I have no doubt that this will continue. For these companies, it doesn’t matter if VOD generates less revenue than its costs. But for the revolution that Digital Britain and others envisage, large-scale VOD has to be commercially viable in its own right, paying a fair market price for content, distribution and marketing.

In Waiting for Godot, Godot never appears. In ‘Waiting for Vodot’, we’re still waiting. Will Vodot finally appear? I say no, but many would disagree. Most homes now have broadband; VOD is increasingly getting onto the main TV screen; and people in several countries are testing a wide range of technical and business models. The jury is still out, but we should have a verdict by the end of 2011 or soon after that.

Making the changes happen If, as I believe, the VOD bubble is about to burst, that doesn’t mean VOD will disappear, any more than the internet disappeared after the technology bubble burst in 2000. Big technology and media players will still provide VOD alongside their main products and services to increase customer acquisition, retention, and willingness to pay – but not as a big direct revenue or profit source – and there will also be niche services replacing physical DVD retail and rental.

But what we won’t have any time soon – or maybe ever – is Vodot as I’ve defined it or the death of so-called ‘linear TV’. This is despite the fact that the digerati have been predicting these revolutionary changes for more than 20 years.

The TV Revolution In 1990, George Gilder wrote: ‘Television is a tool of tyrants. Its overthrow is at hand.’4 He also predicted a new golden age for newspapers thanks to online, which should tell you how much to believe his pronouncements. Five years later, Nicholas Negroponte, head of the MIT Media Lab, wrote: ‘What will happen to broadcast television over the next five years is so phenomenal that it’s difficult to comprehend.’5 Nothing much happened.

Part of this 1990s vision was that TV viewing would itself involve a lot of interaction. You’d be able to watch the match from any seat in the stadium, click on the screen to buy Jennifer Aniston’s T-shirt during Friends, or call up a potted history of Estonia when its prime minister was on the news. The distinction between TV and other video content would disappear. Most viewing would be non-live – what the technologists call asynchronous. Most content choice would use search and recommendation agents. All of this was supposed to be commonplace by the early 2000s.

After the bubble burst in 2000, most people accepted that the interactive bit of this vision – Jennifer Aniston’s T-shirt and all that – was nonsense. But as recently as 2006, Janus Friis, the co-founder of Kazaa and Skype, and then about to launch the ill-fated VOD site Joost, said: ‘People love TV, but they also hate TV. They love the … amazing storytelling, the richness, the quality itself. But they hate the linearness, the lack of choice, the lack of basic things like being able to search. And wholly missing is everything that we are now accustomed to from the internet: tagging, recommendations, choice, and so on.’

The idea that we’re going through revolutionary change in TV viewing is remarkably persistent. The Digital Britain report refers to it repeatedly and VOD features in the new coalition Government’s enthusiasm for superfast broadband and local TV and its apparent lack of interest in universal basic broadband and digital inclusion.

 Defining non-linear In the new TV environment, we can distinguish between four broad types of viewing. Given the amount of confusion and the loose way in which people talk about linear and non-linear TV, these distinctions matter.

There’s live viewing of regular TV. There’s time-shifted viewing off the personal video recorder (PVR) or something similar. There’s catch-up TV such as the BBC iPlayer, which is also time-shifted but doesn’t require you to preset the recording. All three of these are evolutionary. They’re all about watching regular linear TV from the regular linear schedule, either live or time-shifted. Far from heralding the death of linear TV channels, they all depend on those channels for content.

Only the fourth type of viewing – true video on demand – breaks away from the linear schedule. The content here is a mixture of long-form movies and TV programmes (competing against DVD retail and rental and some pay TV channels) and short-form video clips on websites such as YouTube.

 Five reasons for scepticism  1If you look at proper data about typical viewers, a consistent picture emerges. If people have lots of channels, a PVR, and VOD, the first thing most of them do if they want to watch TV is still to see what’s on live on their favourite channels. Live TV still accounts for 80% of viewing in these ‘converged’ homes and that percentage is falling slowly, if at all.6

What about the other 20%? In the past, if there was nothing they liked on any of their favourite channels, viewers had four options: watch the ‘least bad’ programme on one of those channels; search the other channels for something better; watch a video cassette or DVD; or switch off the TV. They usually took the first option – partly because it required the least effort. Now, they no longer have to do this.

There’s always something good, which they themselves have chosen, easily available on the PVR. For most viewers in ‘converged’ homes, the PVR is the main backup to live TV, accounting for more than half of the 20% non-live viewing in these well-equipped homes.

PVR penetration is still much lower than broadband penetration. As that gap decreases, and as PVRs get bigger and smarter, more homes will have their own, increasingly large, self-selected archives, reducing the value of both catch-up and on-demand TV. Note that the PVR relies entirely on regular TV programmes from the linear schedule and doesn’t even need a broadband connection.

There’s also catch-up TV for when you forgot to set the PVR or heard about the programme the next day. Catch-up TV is another tough, free competitor to VOD. It does need broadband, but it’s still about regular linear TV content and channels. It’s not VOD.

VOD is still tiny as a proportion of total viewing time, maybe 1% among the whole UK population and 2% of 15- to 34-year-olds. It will increase over time, but much more slowly than the hype suggests, and viewers’ willingness to pay for it is very limited, even assuming there’s little or no piracy – a necessary assumption. Having VOD on the main TV instead of a laptop or PC will help.

But the initial evidence – including Virgin Media’s continuing coyness about the percentage of true on-demand viewing in Virgin homes with PVRs as well as catch-up and VOD – suggests that the benefit isn’t that dramatic.

2Surveys of why people watch online TV show that the main reasons are: to watch recent TV programmes that they missed; to watch a TV programme or movie a second time; and to view something for free rather than paying. All of these are still about traditional linear content. Less important reasons are: to see content that’s not available on TV; to keep informed during a breaking news story; and to see additional content about a programme. Even these are often driven by or derived from linear TV.7

3Compared with broadcasting, the internet is still an unreliable, low-quality, expensive video distribution channel. To replace broadcasting – that’s about five hours per home per day of, increasingly, HD-quality video – the technology will need to mature, and either viewers or advertisers will have to pay the internet service providers the significant extra bandwidth costs. Neither seems keen to do so, which is presumably why so many technology and media players want the taxpayer, or BBC licence payer, to subsidise fast broadband.

4 Many people still don’t use the internet at all. These are mostly elderly and/or low-income heavy TV viewers living in areas with broadband access. By 2020, I expect them to be only a small minority, but many of those who use the internet for simple apps, such as email and search, still won’t be using it for watching TV, even if they have an internet-enabled set.

5 The final reason for my scepticism about Vodot is that live and time-shifted linear TV are so compelling, and becoming more so. For more than 40 years, viewers have watched an average of three and a half hours of TV a day – a mixture of drama, comedy, news, sport, documentaries, and general entertainment – mostly to relax, in the evening, in the living room, with other family members. How much, what, when, where, with whom, and even how, people watch TV has changed surprisingly little since the 1960s.8 The only real change is that viewing is now spread over hundreds of channels, although the top five still capture just 50% of viewing.

Oddly enough, we don’t really know why people watch so much. Maybe the neuroscientists can explain it. My hunch is that watching TV takes up enough mental capacity to take one’s mind off other things, but not enough to demand serious effort. We watch TV to take our minds off what we’re not doing – work and chores.9 In contrast, we mostly listen to the radio to take our minds off what we are doing – driving, cooking, ironing, and so on.

Another reason for the average of almost six hours a day that people spend watching and listening is that broadcasting is such good value for money. Despite Moore’s Law and all that, telecoms and the internet cost UK consumers more than a pound per consumer hour. Television costs about 11p, radio a bit over 1p.10

and finally… Whatever the reasons why we watch so much TV, it seems to work. Further, despite the growth of new media, TV viewing has actually increased in the past few years. Some of that is due to people spending less on out-of-home entertainment during the recession and a growing proportion is combined with other activities. But, interestingly, all the growth has been on main sets in living rooms: watching the main set is more compelling than ever because of bigger and better screens, PVRs, and so on.

Put simply, this is a well-served market. I simply don’t see large-scale, standalone VOD services adding enough value to enough consumers (and, therefore, advertisers) to generate enough revenue to cover the substantial costs of content, marketing and distribution any time soon, except at the margin as a replacement for DVDs.

We’ve waited a long time for Vodot. I don’t think he’s about to appear. n Patrick Barwise is emeritus professor of management and marketing at London Business School. [email protected]

Notes:

1. Digital Britain Final Report, June 2009, pp109, 135–6. www.official-documents.gov.uk/ document/cm76/7650/7650.pdf 2. ‘Happy fifth birthday BBC3, but will there be many happy returns?’, Emily Bell, the The Guardian, 11 February 2008. www.guardian. co.uk/media/2008/feb/11/bbc 3. Pronounced ‘Goddo’. It was originally written in French and Godot may have been named after a low-ranking veteran racing cyclist called Godeau. 4. Life After Television: The Coming Transformation of Media and American Life, George Gilder, Norton, 1990, p49. 5. Being Digital, Nicholas Negroponte, Knopf, 1995, p54. 6. BARB. Note, this is for homes with access to a PVR and VOD. Among all UK homes, live TV still accounts for about 93% of total viewing. 7. Deloitte presentation at 2010 Edinburgh International Television Festival. 8. ‘Television: Back to the Future’, Byron Sharp, Virginia Beal and Martin Collins, Journal of Advertising Research. 49, 2, June 2009. 9. See ‘The Limited Capacity Model of Motivated Mediated Message Processing’ by Annie Lang, in Robin L Nabi and Mary Beth Oliver, eds, SAGE Handbook of Media Processes and Effects, SAGE, 2009, pp193–204. Professor Annie Lang of Indiana University, an expert on the psychology and physiology of media consumption, says that TV ‘strongly influences our automatic processing (defined as you can’t stop it happening) system, which is why it is so hard to stop watching’. Lang’s model helps explain why TV so successfully takes our minds of other things but we then recall little of what we have seen. 10. Based on Ofcom, Communications Market 2010.

The delusion is the belief that mainstream TV viewing is undergoing revolutionary change

In the new TV environment, we can distinguish between four types of viewing. Given the amount of confusion and the loose way in which people talk about linear and non-linear TV, these distinctions matter