As the Internet drains viewers and ad cash away, TV managers have a fiduciary duty to invest in the biggest change their industry has seen since the switch to color, says the chairman of Fox Sports TV Group.
High-definition TV offers a “major lifeline” to an industry facing a serious profitability challenge over the next few years, said David Hill, president of DirecTV Entertainment and chairman of Fox Sports TV Group. The problem is that “most TV managers don’t recognize HD’s vital importance to the profitable continuation of the business.”
Delivering the keynote address at the first annual HD World convention in New York, Hill spelled out the challenge TV faces in no uncertain terms: “Broadband distribution of the Internet and the development of entertainment sites that people want to watch—like YouTube, Friendster, MySpace and others—is cutting into a revenue stream that up until 12 to 18 months ago was exclusively TV’s.”
Cable channels are proving very vulnerable to the growing popularity of such Web sites, Hill said. “Cable ad revenue had been growing 25% a year, but fell to a 0% increase this year,” he said, noting that the Wall Street Journal had recently found that the popularity of Web sites “has tarnished cable’s main allure for advertisers.”
General Motors spent 20% of its advertising budget online this year, Hill said, while Pontiac launched its G5 coupe entirely with online advertising, and Foster’s lager has halted all TV advertising in the United States in favor of the Internet.
“Online advertising is expected to grow 50% a year every year between now and 2010,” Hill said. “For the CFO of a TV channel, this is alarming news indeed.”
TV managers have a fiduciary duty to address the financial threat they face from the Internet, Hill said, and “the way to fight back, the way to engage in a battle for survival,” is through HDTV.
Fortunately, the other statistics Hill cited indicate that the timing for such a fight is right: “2006 is the first year that HD sets outsold SD sets,” he said, and 50% of U.S. consumers say they plan to buy HD as their next set purchase. “By 2010, HD set penetration in the U.S. will reach 83%, up from 31% today.”
Hill, who outlined how his roots as a producer at Australia’s Nine Network and his later work at Fox Sports had made him a huge fan of HD, said the format “changes the viewing and entertainment experience completely,” and cited News Corp. research demonstrating that many viewers seem to agree with him. “These surveys have found that 70% of viewers with access to HD have increased their weekly TV viewing as a result of HD and that 69% look for HD programming when they turn on the set. Perhaps most surprisingly, 14% of these viewers would rather watch a commercial in HD than regular programming in standard definition,” he reported.
“The figures tell the story of what’s going to happen,” Hill said. “The switch to HD is just as important to the TV industry as was the switch from black and white to color.”
And despite the growing threat of the Internet, America’s love affair with TV is growing, Hill said, noting that in 1976, the average household had the set on for six hours and 18 minutes per day, while in 2005-06, the set was on for eight hours and 12 minutes per day. “If viewers love TV, they love HD even more,” he said.
ABC was the last network to switch from black and white to color and it spent the next decade trying to catch up with CBS and NBC in viewership, Hill said. “Do you want to be the last channel broadcasting in SD while everyone else is going HD?”
“By and large, we travel between 11 and 15 channels when we watch TV,” Hill said. “I now live in an HD world in my [electronic program guide,] and I suspect that’s what’s happening with a lot of viewers. The lesson here is to go HD or become lost in the mix.”
The first HD World conference is part of the 2006 Satcon Satellite and Content Delivery Conference & Expo, being held today and tomorrow at New York’s Javits Convention Center.