Wednesday, March 04, 2009

Technology, Economics, and What We Watch

Television is largely paid for by advertising. Many consumers—I suspect a majority in developed countries—have equipment that lets them record a program when it is broadcast and listen to it later, fast forwarding, if they wish, over the ads. The smaller the number of people who watch the ads, the less advertisers will be willing to pay broadcasters to run them.

Consider, however, a broadcast of a football game. Part of what the viewer is paying for is the excitement of seeing which team wins and how. That does not work very well if he knows the final score before he watches the game. So football fans are likely to have a strong preference for watching the game in real time, as it is played.

If they are watching it in real time, they don't get to fast forward over the ads. It follows that advertisements will get more viewers in that context, hence that advertisers will be willing to pay more for a minute of time in a football game, or anything else that television watchers prefer to watch live rather than recorded. From which it follows that the invention of the Tivo and similar devices can be expected to lead—very likely has already led—to a shift of resources away from made for TV movies and towards broadcasts of sporting events.

There are other implications as well. My wife suggests that the same change should lead to an increased effort to make ads entertaining and an increase in embedded advertising. It should also lead to an increased effort to make television drama more like football games, to create soap operas where the viewer is waiting on the edge of his seat to see whether she does or doesn't date/marry/divorce/sleep with him and wants to see it happen before hearing about it from another viewer.

This is one example of the indirect ways in which technological change changes the world we live in. A second and similar example, one that I have discussed before, is the effect of easy copying of digital intellectual property on what sorts of IP get produced.

A recorded movie is fully revealed in one viewing, so there is no adequate way of technologically protecting it; however good the encryption, the customer has physical possession of the machine it is playing on and so can arrange to record it as it is played. The same applies to any form of IP fully revealed in one use, such as a song or a novel. It does not apply to a database such as Lexis, since what the user gets is not a copy of the database but only the answer to a particular query. Nor does it apply to a massively multiplayer online game. What the user wants is not a video of my adventure in World of Warcraft but an opportunity to have his own—and he will have to pay Blizzard to get it.

Hence we would expect improvements in the technology for making and distributing copies—higher capacity storage, the increased availability of high bandwidth connections to the Internet—to result in a shift of artistic effort out of movies and into online games.

12 Comments:

At 1:10 PM, March 04, 2009, Blogger Eric Goldman said...

I don't watch sports very often, but when I do, I record the games to TiVo, start watching a while after the game has started, and blast through the ads just like other shows. Eric.

 
At 4:44 PM, March 04, 2009, Anonymous Anonymous said...

I second the above.

I routinely tivo NBA games and start watching them 1-2 hrs after tipoff to skip ads. Sometimes I will save them for another day, and if I do this, then I have to make an effort to avoid hearing about the outcome of the game, but it isn't that difficult.

The same goes with television shows. I am a big fan of the show LOST but I haven't yet started watching the current 5th season, despite there being 7 episodes already aired. I avoid 'spoilers' by not watching previews and asking friends to not discuss the show. Again, not very difficult.

On a related subject, given the popularity of TiVO, I would have expected to see advertisers take advantage of the fact that people are fast forwarding through commercial breaks by now. For example, instead of running a regular ad featuring multiple shots and camera movements and actors, they might run a simple static logo of the product for 30 seconds, with no sound. On fast forward, it would be noticed, if only for the 5 secs it takes to skip through the ad.

 
At 7:24 PM, March 04, 2009, Anonymous Francis said...

Mr. Friedman,

That's a very good post, but I would suggest that perhaps the moving of the creative effort away from movies may not be so strong.

Why I suggest that is that a part of the movie revenues(a part whose value and influence I admit I don't know) are rent revenues, i.e., there is a very inelastic supply of popular actors and directors. So, the decrease in revenue to the film industry caused by internet and DVD copying must be real, but this decrease will be experienced first by those extracting a rent from it.

In other words, Angelina Jolie will make less money, but will probably not make fewer movies.

 
At 9:35 PM, March 04, 2009, Anonymous William H Stoddard said...

I watch a modicum of broadcast television (I was up to six one-hour shows, until the frequency reshuffle left me unable to receive ABC and CBS). I habitually mute the commercials. However, I make a point of unmuting for the "I'm a Mac"/"I'm a PC" series, which I find entertaining in their own right. That seems compatible with one of your predictions.

 
At 7:19 AM, March 05, 2009, Anonymous Anonymous said...

It won't be long before products and services are important to the plot of a movie rather than simple product placement.

 
At 8:13 AM, March 05, 2009, Anonymous js290 said...

The parties involved are denying paid product placement...

 
At 3:15 PM, March 05, 2009, Blogger Jonathan said...

I have a television only because my wife and son watch it; I don't watch it myself, except briefly in passing. I mention this only because I think there are others like me.

You make an interesting point about more interactive and less passive entertainment in future. Could be.

 
At 9:22 PM, March 06, 2009, Blogger look said...

This comment has been removed by a blog administrator.

 
At 8:40 AM, March 08, 2009, Anonymous Paul Birch said...

First, although some shift towards more embedded advertising is indeed occurring, I doubt that it can go too far without alienating viewers or triggering a switch to subscription or pay-per-second programming (which is probably the long-term future of broadcasting).

Second, except perhaps for dedicated sports channels, most sports programs are not live. It is only major events (cup finals, grand nationals, etc.) where that is the rule. Clearly sports viewers are not that fussed about live coverage - it's live enough for them if they don't yet know the outcome. Furthermore, even when it is live, they can (and do) skip the ads by muting or going out to the kitchen make a drink, etc..

Third, I don't see online games as competing for the same audiences. They are, and seem likely to remain, a minority interest. They require active concentration - quite different from watching television. So I would not expect any large shift of resources away from conventional "passive" entertainment.

Fourth, although it is always possible to pirate broadcast material, very few people bother to do so. They store it for their own use, but will seldom pass it on. I don't believe the entertainment industry genuinely loses much revenue this way (except perhaps in high-priced specialities of particular interest to pirate types). For example, I have personally lent out only a tiny fraction of the books I own, so a ban on such lending, even if enforceable, would never have made much difference to the publishers (except perhaps to reduce overall demand for their books).

 
At 4:15 PM, March 10, 2009, Blogger Hernan Coronel said...

It is well known by avid game players that servers can be reverse engineered (which in fact are) and clients hacked to create and use your own World of Warcraft server. This is also popular in other parts of the world that are not well served by the Blizzard servers of WoW and probably even more for FPS (First person shooters) games were network latency (or lag) can get you killed in a split second. So it is not so simple. The fact is also related to economics: a pricing scheme reasonable for a US player on a US Server on a US economy may not be as reasonable or even payable for other parts of the world so this kind of alternatives crop up providing an alternative where the player pays only for the use of the alternative server and zero for the, possibly pirated, client (the game itself).

 
At 4:57 PM, March 14, 2009, Blogger Andrew said...

DVR market penetration is about 30% in the US:

http://blog.nielsen.com/nielsenwire/tag/dvr-penetration/

 
At 12:46 PM, March 15, 2009, Blogger John_David_Galt said...

I do as Eric Goldman said, and then some. If I'm home with the TV on when Jeopardy is on, I'm watching an earlier show while it records, just so I can skip the ads.

Ever since the first newspaper ads, there has been a sort of "arms race" between advertisers who want us all to view every repetition of their ads, and end users who want to use our time more constructively by skipping over them. TiVo didn't create this practice by any means, but it made it much easier to do.

I think we're fortunate that the courts have not upheld assertions by some content owners that their copyright entitles them to require you to watch the ads. (Ted Turner is supposed to have said that if you go to the bathroom during a commercial on one of his channels, you're violating his copyright.) The defendants (including MPAA) in the Eldred case stipulated in their brief that copyright does not include this right to restrict how a customer spends his time; I hope (but don't expect) that this will effectively prevent them from asserting the same claim in any later case.

 

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