With data on their side, Booth alumni are navigating the entertainment industry as it evolves beyond the TV screen.
- May 01, 2016
- Media Entertainment and Sports
“Technology gave consumers the view into a world where they could buy exactly what they wanted.”
Today’s viewers defy the Norman Rockwell image of a family gathered around the television set. Their attention is now split across smartphones, tablets, PCs, and laptops—those personal devices that collectively outnumber television sets three to one, according to market research from Strategy Analytics. Today, while dad watches the game on television, mom might slip out of the living room to stream her favorite show on a laptop. The kids watch YouTube personalities on a tablet or a smartphone. Audience preferences for any given screen have changed drastically from year to year. Some 53 percent of the viewing public prefers to watch television or movies on a TV, but that figure dropped by 13 percent in a single year, according to Accenture’s annual consumer survey. This fractured viewing experience has come to be known within the industry as the “multiscreen environment,” and it has spawned an increasingly choosy generation of customers.
“You’ve got to supply media in a way that people want to consume it,” said Jay Rasulo, ’84, “not the way that’s most convenient or even more profitable for you as a media distributor.” Rasulo, a technology start-up advisor and investor and former Walt Disney Company CFO, points to the music industry as a cautionary tale for the larger media sector. Entertainment shoppers already expect to purchase music by the song rather than the album. Consumers are beginning to consider whether to buy a cable package of 189 channels, on average, even if Nielsen data show that they tend to ignore all but 17 of those channels. Media companies are revising distribution plans to address the evolving consumer demand. “We used to be forced to buy things in a packaged fashion,” Rasulo said. “Technology gave consumers the view into a world where they didn’t have to do that. They could just reach out and buy exactly what they wanted, so media companies have to be more strategic about how they distribute their product to meet this variety of viewing preferences.”
The essential question is when the swell of “cord cutters” and “cord nevers” will reach critical mass. The pay-TV industry has hardly gone over a cliff. The 13 largest providers, accounting for roughly 95 percent of the market, have shed a few hundred thousand subscribers each year since 2012, according to the latest figures from Leichtman Research Group. That’s a rounding error for an industry that boasted more than 94 million paying customers in 2015. Reports of pay TV’s imminent demise, it seems, have been greatly exaggerated.
If anything, the industry is facing a slow and tricky transition. “Whenever you see a new technology come out, the player with the traditional technology has to decide the right time to make the switch,” said Pradeep K. Chintagunta, Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing. “You want to hang on to as much revenue as you can with the old model and you have to make sure that you don’t miss out on the new model.”
In an ideal world, media companies could predict exactly how much revenue they could gain from digital audiences to offset the losses from broadcast audiences. Good luck finding the data to make that prediction. Digital viewers are a nomadic bunch, testing out new services at new price points. They’re perpetually scanning the horizon for better services. “Bundled cable has been a good deal for the consumer for a long time,” said Netflix’s Wells. “But consumers are increasingly not convinced these days because of the annual price increases driven by content that they only partially consume and the expanding environment of customized choice. We continue to be a complement to cable, but the pressure on choice requires the cable companies to respond with more options. They are all on the evolutionary path to internet TV. Many see us, I think rightfully, as a partner.”
But what is the precise value, in dollars and cents, consumers will get from this on-demand experience? Absent a price history, media companies have to make a few educated guesses—and messes—to find out.
“We’re largely going through a phase of experimentation,” said Chintagunta. “Put some content out there, see what happens, and then test and learn.” The shrewdest players are following viewers along their digital migration paths, collecting data every step of the way. While the data can be frustratingly incomplete, Booth alumni and researchers across the entertainment industry say they’re gaining unprecedented insights into what their customers want.
“We weren’t sure how [Disney’s deal with Netflix] was going to play out, if it was going to take 5 million views away from traditional TV.”
The lesson that media companies learned from the history of the reported music industry is that you've got to think consumer first, and increasingly you've got to think mobile first. The notion that a band could create a couple of hits and then the record industry could package that with 10 other not very popular songs and force consumers to buy that package. By the way, pretty pervasive in our society in terms of how we used to be forced to buy things in a package fashion. But consumers pushed ... Technology allowed consumers or gave consumers the view into a world where they didn't have to do that. They could just reach out and buy exactly what they wanted and not what they didn't want. Well, once that happened, it basically spread across the rest of our lives, but also certainly across our media lives.
In the placement of product, the timing of placement and other aspects around the distribution of media, data has become incredibly useful. Knowing your audience, knowing how to target your audience and knowing how to monetize media in the most effective way. The use of pervasive data and linking that to other aspects of people's lives has become incredibly powerful. With internet connected data, a whole new world opens up.
That Nielsen's data really suited a fundamental broadcast type of mentality, where you put media in front of as many eyes as humanly possible and hope that a lot of people tuned in and stayed with the show, and of course watched the advertising that went with it. Today content and particularly advertising is addressable through the internet. So you know exactly who you're targeting your media at, you know exactly who you're targeting the messages that go with that media, and you know where they've been.
You know that they've been on car sites looking for new cars, you know that they have been on beauty sites looking for beauty tips, and that allows you to combine the ubiquitous data that is trailing us in our lives online, and match that up with both media and more importantly, match it up with the monetization models around the distribution of media.
“You have to be wherever the consumer is,” said Rajeshree Shah, ’08, former senior manager of Disney’s global distribution strategy. Shah left Disney in September 2015 to take a managerial position at health-care company Abbott, but she looks back on her tenure at Disney as a time of extraordinary opportunities. “Times have changed so quickly in the last six years,” she said. Shah was tasked with surveying the digital landscape for potential distribution partners. “There’s Netflix, Hulu, Amazon, YouTube—and we wanted to be on every single platform.” In truth, Shah could easily spot the market’s strongest entrants. They would often approach Disney first. Apple TV’s service, for instance, hardly caught Disney’s negotiators by surprise. “We were in discussions for months before they hit the press,” Shah said. Her real challenge, however, was figuring out how to parcel out Disney’s content across so many rivals.
When she joined the strategy team in 2010, Disney signed its first major contract with Netflix, releasing 1,000 hours of streaming content, including episodes of Lost and Desperate Housewives. The deal would expire in one year, and with good reason. “We weren’t sure how it was going to play out,” Shah said. “If it was going to take 5 million views away from traditional TV, for instance.” Then again, Shah could envision a happier scenario, where Netflix viewers might binge watch old episodes online and eagerly tune into the newest episodes on television. Either scenario seemed plausible. What her team needed was hard data.
One year later the ratings were in, and much to Shah’s relief, the deal was a success. Disney signed a new, three-year contract, but by then, the negotiations had grown more complicated. Netflix and other streaming services began requesting exclusive deals, in an attempt to muscle out their rivals. Shah’s team, in turn, had to think about how to share their content without giving away the store. “Everybody wants to partner with Netflix,” she said. “They bring new audiences to shows, allow viewers to catch up on something they missed. But there are a lot of disadvantages that come with making them the superior product. We lose the brand that we have. We lose negotiating power. Consumers go looking for shows—Good Luck Charlie or Scandal—and we lose the ABC and the Disney Channel brands, which are a big part of our business.”
As Shah’s team attempted to assign hard values to fluid deals, Rasulo, Disney’s CFO at the time, kept a watchful eye on an even more unsettling batch of data. Audiences were no longer watching television one episode at a time. “The spectrum of media viewing has expanded dramatically,” Rasulo said. “At one end of the spectrum, there’s the binge form of viewing, where people will literally watch media for five or six hours at a time. At the other end of the spectrum is extreme short-form.” Viewers can lap up a YouTube video, for instance, in fewer than five minutes. A Vine clip would play in 6.5 seconds flat. And demand for these short-form videos was booming. One billion–plus YouTube users have increased their viewing time by 50 percent, year over year. While Disney had a strategy in place for the binge watchers, it had to make a drastic move toward the short-form end of the viewing spectrum.
In March 2014, Disney acquired Maker Studios, a collection of 55,000 YouTube channels, for $500 million. In an instant, Disney could access the viewing habits of 380 million YouTube subscribers and study the strange alchemy of what makes a video go viral. “The amount of data that was being collected by Maker for the use in business analytics around monetization and virality, and how to take things into the viral space, is enormous,” Rasulo said.
Disney, in turn, could tell Maker’s 55,000 contributors about ideal video run times and topics—or when, for instance, a video of a cat playing a piano had the highest likelihood of taking off. Such as, “Friday nights at midnight,” Rasulo said. “And there were many, many examples—by subject matter, by length, by the personality that created the piece of video.”
Of course, there are limits to what the data can reveal. “You can’t take a bunch of data and have a machine create a TV show,” said Wells. The old Hollywood studio system churns out hits more reliably than any algorithm. Netflix has a competitive edge, however, in steering content to the right users. “We’re trying to market that content to as narrow [an audience] as we think can be effective, in terms of the propensity for that person to actually watch something.”
Forget 18- to 49-year-old males. “Age is a really rough cluster,” Wells said. Instead, Netflix studies how viewers cluster within genres and subgenres. “Look at our microgenres on the Netflix site. We’ve broken a drama down to a ‘dark noir period piece with Johnny Depp.’ These are very specific categorizations that will help you find that cluster.” And the taste clusters could get even more refined as Netflix deploys machine-learning algorithms to sift through 600 billion daily events.
The metrics Netflix can monitor are incredibly detailed and available almost in real time. “We have an instant feedback mechanism in knowing what a member is watching and what they’re not watching, as well as what they bail out of halfway through and end up never completing,” Wells said. “There are a lot of signals that we have on the quality of our content that are quick and comprehensive.”
“It’s a matter of finding a way to create more personal experiences for our consumers, to ‘superserve’ them.”
Not every enterprising network executive must search for audiences beyond the cable box, however. “There are many big markets in the world where there is a low penetration of pay TV, and that penetration is continuing to rise,” said Michael D. Armstrong, ’02, Viacom’s executive vice president of international brand development. Armstrong points to his global launch of the Paramount Channel in 2012. “We’ve gone from nothing four years ago to more than 90 million households in 10 markets around the world, and we’ve just announced our 11th channel [slated for] Thailand in May.”
Armstrong keeps an eye out for brands that have crossborder appeal, watching for consistent ratings or listening for that distinct buzz on social media. “Obviously we have social media followings in the millions across our brands around the world,” Armstrong said. “Viewers are clear to tell you what they want.”
English-speaking audiences, for instance, may remember MTV’s hit reality series Jersey Shore, but they might have missed the splash made by its international spin-offs, Gandía Shore in Spain and Acapulco Shore in Mexico. To Viacom, the demand for more “Shores,” as they say, was unmistakable.
“The success of how the talent resonated with our audiences, and how the audiences responded in kind both on social media and in the ratings, really led to the creation of Super Shore,” Armstrong said. Super Shore combined cast members from the two Spanish-language “shores” and threw in Italian car heiress Elettra Lamborghini for good measure. The show was a smash success in Mexico and Spain, fueled by a simultaneous release of the episode on Viacom’s stand-alone MTV app for Latin America. “We had millions of people who downloaded that app to watch the episode,” Armstrong said. “It converted that viewership to our linear channel where we had millions of people who started watching the episode on linear as well.”
The success of Super Shore, online and off, suggests to Armstrong that streaming and broadcast audiences can not only coexist but possibly grow together. After all, Viacom’s MTV app doesn’t just stream content; it suggests related content based on the viewer’s history. Enjoy Jersey Shore? The algorithm might present an episode of Real World. Tired of reality shows? It may serve up scripted comedies. As Armstrong refines the services on BET Play, he can glean lessons from his colleagues at MTV, Nickelodeon, and Comedy Central. They too can learn from his successes.
“It’s a matter of finding a way to create more personal experiences for our consumers, to ‘superserve’ them,” Armstrong said. “Because that’s really what it’s all about. We have fans of our brands, and our job is to work with our partners to superserve content to consumers to make sure that we grow how much they’re a fan of the brand.” Even as viewers migrate from device to device and service to service, a network can stop them cold with the right content.
“Look at our microgenres on the Netflix site. We’ve broken a drama down to a 'dark noir period piece with Johnny Depp.'”
There’s a vague notion across the industry that at some point, someone will offer the right blend of content at the right price to lure customers away from their multichannel bundles. Dana McLeod, ’12, a finance manager at DISH Network, simply laughs when pressed to make a prediction. “That’s the million-dollar question,” McLeod said. “If I knew when that would happen, I would be set.”
For now, consumers will have to contend with a bewildering selection of new services, from the cable and satellite providers’ “skinny bundles,” to the hodgepodge of borrowed and original content on Netflix, Amazon, and Hulu, to the standalone offerings from HBO, Showtime, CBS, and even the WWE. And the list of à la carte options keeps expanding. Of the 100-plus online video services now available in the United States, 40 percent have launched in the past two years, according to Parks Associates. “Now you have to ensure the consumers are willing to explicitly search for your content,” Chintagunta said. “Unless you focus on really good content, you’re not going to be able to hang on to these consumers. It’s increasingly a pull model as opposed to a push model.”
In this less pushy, more seductive market, ratings are no longer the defining measure of success. Instead, the emphasis has shifted to customer loyalty. Just when subscribers are about to move on, an irresistible new piece of content pulls them back in.
That’s a big reason why streaming services are spending record sums at film festivals these days. Documentary producer and current student McInnis got a first-hand glimpse of the bidding wars at Sundance. “People think it’s a carefree, celebrity-studded party that happens in the mountains,” she said, “but I think there’s a lot of anxiety there.” A young filmmaker with absolutely no Hollywood connections premieres a film to rave reviews and is inundated with spontaneous offers. They can happen over a coffee or lunch. “I saw them happening in bathrooms,” McInnis said. Then a strange dance begins. “You have a feeling that the power dynamic is skewed, but it keeps going back and forth. The filmmaker realizes that this person really wants their content. The content distributor realizes that this person has options.”
And that sense of options, the multiplying paths to the consumer, makes McInnis eager to return to the entertainment industry after graduation. “I’m excited about the ambiguity of that industry,” she said. “I can’t wait to stay on that path into the entertainment industry and see where things are in 10 or 15 years.”
But first she wants to steep herself in Booth’s data-rich curriculum. She, like so many of her future peers in the industry, sees data analysis not just as a skill to burnish her resume but as a practice that will define her career. “The industry is definitely going to have an emphasis on data, and if I don’t know how to meaningfully interpret it or work with it, I’m not going to do well with an entertainment career,” she said. “I just don’t think that’s possible anymore.”
In fact, Wells suspects the voluminous data collected these days will eventually be an industry-wide commodity. The most-acquisitive data collectors may have a competitive advantage. “Television in general is moving to a direct-distribution model, online, with lots of devices that know what a consumer is watching,” Wells said. “Apple TV, Roku: they can view that data as well.” In the end, however, the benefits of data only go so far. “It’s helpful to know what those audience members have already watched and try to tailor content to them,” Wells said. “But there’s no substitute for great content creation and execution of that creation.”