What American Idol Viewers Show Us About Rising TV Sports Contracts

The Big 12 lost one of the best national TV draws in college football (Nebraska), the most popular college team in its largest and fastest-growing market outside of the state of Texas (Colorado) and its conference championship… and then signs a contract for a 350% increase for its second tier cable football rights with Fox.  Did Rupert Murdoch suddenly feel the need to go on a shopping free now that he doesn’t have to pay Glenn Beck anymore?  Is Dan Beebe getting a G5 and a pile of money so that Fox can cash in an insurance policy on Iowa State?  What gives?  Well, let’s take a look at some demographic shifts of the overall TV audience, how it has affected Fox’s most important property, American Idol, and how all of this explains why sports TV rights fees are generally going through the roof right now.

There are three massive changes to television over the past 5 years (and such changes are accelerating):

(1) More Old People Watch TV Than Young People – If you know anything about TV advertising, the overall Nielsen rating that a lot of networks like to trump in press releases is completely irrelevant.  The fact that CBS is the #1 watched TV network overall with top overall-rated shows in several categories has little bearing on what they are able to charge in terms of advertising rates.  Instead, the Nielsen number that really matters is what a show draws in the Age 18-49 demographic and, increasingly, the Age 18-34 demographic.  Historically, this emphasis on younger viewers has been justified with notions that older people are less likely to switch brands or purchase high-end products.  However, that really isn’t true anymore, as people over 50 generally have higher incomes and have shown to have more discretionary spending than their younger counterparts.

Now, the reasoning is a bit different: younger viewers are simply scarcer, therefore advertisers pay a premium to reach them.  Even though older viewers actually have more spending power than younger viewers, those older viewers watch more TV overall and can be reached throughout the day by placing ads on less expensive shows.

The difference between what advertisers will pay for a younger audience versus an older audience is massive – more massive than you probably could have ever guessed.  TVbythenumbers recently compared the ad rates for NCIS (which draws the largest overall audience of any scripted show on TV) and Glee.  It found that even though NCIS had 82% more overall viewers, the fact that Glee had 15% more viewers in the Age 18-49 demo and 92% more viewers in the Age 18-34 demo meant that Glee was able to charge 80% more than NCIS for every 30-second commercial spot.  It basically shows that viewers over 50 are effectively worthless from an advertising standpoint (and even viewers over 35 aren’t worth that much).  You can find a lot of shows that draw in the typical viewer of NCIS (even if that particular show brings in the most of them outright), while there are very few shows that bring in the demo that Glee delivers.  (For what it’s worth, I’m the type of person that enjoys dramas with deep and complex themes with subtle acting that doesn’t beat you over the head with blatant messages.  I can’t think of any show that provides less of what I’m looking for than Glee.)

With that type of advertising rate disparity, TV networks (both broadcast and cable) are continuously on the search for programming that attracts those younger viewers.

(2) More Women Watch TV Than Men – Here’s a fairly shocking statistic: out of the 63 prime time shows that were on the 5 major broadcast networks (for the purposes of this discussion, The CW gets counted as a “major network”) during the 2009-10 season, only 6 drew more male viewers than female viewers6 out of 63.  Three of those shows (The Simpsons, Family Guy and The Cleveland Show) are part of the Sunday night Fox comedy bloc that gets a lead-in from NFL games for half of the season.  Another one of those shows (24) is no longer on the air, a different one (Fringe) has been moved to a low-rated Friday night time slot and the last one (Chuck) has been on the cancellation watch list for a couple of years.  If you’ve ever wondered why ABC keeps churning out shrill high-budget prime time soap operas from Shonda Rhimes, there’s your answer.

Simply put, the TV networks are badly in need of a sausage fest and can’t seem to create any.

(3) More People Are Using DVRs – Nielsen recently reported that DVRs are in 38% of all U.S. households as of September 2010, exhibiting extremely rapid growth as that number stood at less than 5% in 2006.  Those users of DVRs are also younger and more affluent than the average television viewer.  While Nielsen argues that DVR users still watch commercials in decent numbers, the reality of it is that the attraction of the DVR is to be able to skip those ads (cutting down an hour-long show with commercials into around a 40-minute show without them).  As DVR penetration continues to grow (and frankly, I thought that current 38% number seemed fairly low), more and more people are going to be avoiding commercials like the plague.

These changes in who watches TV and how they watch it has had some fairly interesting implications in pop culture.  For instance, a couple of weeks ago, the American Idol audience shockingly voted off (or more accurately, did not vote enough for) widely-perceived front-runner Pia Toscano, meaning that she placed ninth and had a shorter run on Fox than The Heights.  It was enough to make J-Lo start crying uncontrollably while Steven Tyler rose from his crypt and started bashing America’s passion.  Now, seeing that Pia was clearly the top pure singer while also being the best-looking of the competitors, that typically indicates a Charlie Sheen bi-winning combination.  However, when looking at the demographics for American Idol, it reflects general TV viewing trends: its audience is getting older and skewing much more to the female side.  My impression is that these older women prefer the John Mayer soulful acoustic guitar-types as opposed to the hot young divas, which is the main reason why (1) soulful acoustic guitar-types have won American Idol for the past two seasons, (2)  5 out of the last 6 American Idol winners were male and (3) only 2 American Idol contestants left on this year’s show out of 8 are female (rose jacket Rod Stewart copy Paul McDonald became the first male eliminated since the initial public vote cutdown to the top 13).

What American Idol has going for it, though, is that people still generally watch it live.  In the latest week where figures are available, only 9% of American Idol Wednesday viewers watched it on DVR compared to 29% of the viewers of Modern Family and 28% of the viewers of Grey’s Anatomy.  Add in that it still draws a fairly good percentage of the younger demographics compared to most shows on television and it is a complete ratings cash cow for Fox.  Last year, American Idol was able to charge over three times as much per 30-second ad spot compared to Dancing with the Stars, the latter of which actually draws a higher number of total viewers but a lower number in the Age 18-49 demo.

So, when looking at how the TV audience has shifted, it has become clear what type of program obtains a premium greater than any other: the program that draws the age 18-34 male that watches it live.

Let’s take me as an example of the target demo.  I’m a professional 33-year old male that’s about a loyal to TV shows as Antonio Cromartie, can count on one hand the number of scripted TV shows that I watch regularly, and will purposely watch all of such shows on my DVR in order to avoid a single moment of watching any commercials.  I don’t know about you, but I put my DVR right next to food and water on Maslow’s hierarchy of needs.  The catch, though, is that I watch a lot of sports.  Even better, I actually watch them live with commercials.  There is no better vehicle to draw me, a member of the most valuable demographic of all (the male under 35), than sports… and there are tons of people like me in that respect.

Dennis Dodds, who has his own excellent write-up on theories on why sports TV rights are rising, stated the following:

Sports have become one of the safest and highest-grossing buys for media companies. There are no coked-up, petulant stars to deal with. Well, at least not a lot of them. The only “winning” is done on the field. Sports are somewhat cheap to produce.  Sports are true reality television, almost immune to being DVRed. Advertisers love that. There is a built-in following whose interest doesn’t wane with time. Even the strongest TV series are canceled. Try taking Alabama-Auburn off the air.

The success rate of new scripted TV shows has become abysmal – ABC may end up not renewing any of its new shows from this season.  In contrast, sports programs are considered to have “high floors” – ratings may not necessarily go through the roof for every single game, but there’s always a good base of viewers , that base includes a lot of members of the most valuable demo, and those viewers watch it live.  The Nielsen DVR report linked above stated that sports and news programs are watched on DVRs the least of any TV categories.

Sports programming also skews toward the younger demographic than the average show on TV.  During the week that ended April 10th, the only shows in the top 10 of the overall ratings that had more than 30% of their audiences under the age of 50 were the two editions of American Idol (approximately 40%) and the NCAA Tournament National Championship Game (47%).  This is consistent with the demographics for other major postseason sporting events, where the World Series, NBA Finals, BCS bowls and NFL postseason last year all had more than 40% of their respective audiences in the Age 18-49 demo.  (Note that if you were able to buy stock in a league, you ought to bet on the NBA.  It’s the only major sports property that draws over 50% of its audience from the 18-49 demo as well as being the most popular in the growing minority populations just using last year’s figures.  With the NBA now having legit contending teams in New York, Chicago, Boston and Los Angeles along with the Miami superteam, the viewership numbers have been record-setting this season across all of its platforms of ABC, ESPN and TNT.)

Does this necessarily mean that all sports rights fees will necessarily rise at such dramatic rates?  The Pac-12 is looking for even a better deal than the Big 12 (you can count me in as someone that’s more skeptical that they’ll hit those numbers) and the Big East is looking at a possible tripling of its current rights fees.  One ongoing negotiation that may be a better indicator of where rights fees might go for those two conferences is for the NHL, which is a league whose current deal was signed when it was at rock bottom in terms of popularity, has had a resurgence in a couple of key markets (Chicago and Boston), but still largely has a regional as opposed to a national fan base.  The NHL is looking for a substantial increase of around 2.5 times the current deal with Comcast/NBC most likely being retained as the broadcasting partner.

A rising tide lifts all ships in an outright manner, but where the conferences sit relatively each other will likely remain the same: the SEC and Big Ten at the top, the ACC, Big 12 and Pac-12 in the next tier, the Big East at the next level, and then everyone else.  Similarly at the pro level, the NFL stands alone at the top, NBA and Major League Baseball are in the next tier, and the NHL will be behind them.  Still, the circumstances are good for all sports entities.  While the rise of Internet streaming and mobile devices are going to complicate matters for sports leagues to continue cashing in on cable dollars over the next decade, they’re all getting the benefit of a revenue boom today.

(Follow Frank the Tank’s Slant on Twitter @frankthetank111 and Facebook)

(Image from Huffington Post)

The New Facebook, Twitter, and Streaming Status Updates: The Internet’s Newest Marketing Fool’s Gold

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Normally, I’m the type of person that makes fun of people that can’t seem to handle technological changes.  My knee-jerk response to a complainer is to say, “Get over it.  Change is inevitable.  You’ll get used to it.”  Last summer, when Facebook went through the first major overhaul of its website, I not only ignored all of the group invites to the “1,000,000 STRONG TO BRING BACK THE OLD FACEBOOK”-type groups, but thoroughly praised the changes as a check on the preponderance of applications in order to ensure the site didn’t become bombarded with trashy graphics like MySpace.  It made for a cleaner website that focused upon what I believed to be Facebook’s true drawing power: it’s a place to easily connect with people that you actually know in real life (as opposed to trying to meet people online a la MySpace or other forums).  Eventually, the Facebook users stopped complaining and actually embraced the new functionality in general, while the addition of new users vaulted the site past MySpace in terms of number of members.

As the World Wide Web turned, though, Facebook underwent another significant overhaul in March, with the changes geared toward providing a stream of information on each user’s home page.  However, while Mark Zuckerberg tried to sell me and hundreds of millions of other users that the “New Facebook” would be an improved experience, it has been a complete boondoggle on numerous fronts.  I could understand why Facebook had previously wanted to differentiate itself from its main competitor of MySpace, but I was at a complete loss as to why it believed that it would be good idea to copy (at face value) its new competitor on the block of Twitter.  Pretty soon, I would feel my blood pressure boil whenever I saw a comment from that tiny fraction of users that for some reason liked the new changes with the same retort that I used to throw out myself to others: “Get over it.  Change is inevitable.  You’ll get used to it.”

After over a month of using the New Facebook, I’m still not over it or used to it.  The entire crux of the problem is NOT about how the site looks (which is what most of the “get over it” contingent seems to believe people are complaining about).  While the home page appeared to be designed by someone that got smoke some potent peyote, opened up his Twitter account, blew chunks on his computer screen, and then figured that it would be a nice new user interface for Facebook, I can get over the fact that I personally don’t find the site as aesthetically pleasing anymore.  However, it’s the taking away of extremely useful functionality that has been abhorrent to a large portion of the site’s users (including me).  I’ll refer to some other well-written and coherent posts (not from the “1,000,000 STRONG TO SAY THE NEW FACEBOOK SUCKS DONKEY DUNG” crowd) here, here, and here that explain fully just how many useful tools were stripped away.  These writers are far from people that can’t handle change.  Instead, these are Facebook users that are in the tech and marketing industries that know full well constant change is vital to survive on the Internet, but don’t understand why particular changes were made that were completely unnecessary and removed options from users.  (Note that Facebook engaged in a half-assed attempt to “respond to feedback” from users, but pretty much missed the point on all fronts.)

While Facebook’s changes and the removal of useful functional tools have been well-documented from a technological user standpoint, what I’m trying to get to the bottom of is how exactly Zuckerberg and Co. thought such changes would improve the site’s chances for profitability.  Obviously, the powers that be thought that these changes would result in a better advertising model for the company – that’s the real reason why any website makes a change to its format.  As a person that is about as far from a commie pinko rabble rouser as you can get (I majored in finance in college and have spent most of my legal career representing high tech companies), I’m perfectly fine with Facebook examining ways to maximize its revenue since I know Microsoft didn’t pay $240 million for a piece of a charitable institution that it valued at $15 billiong.

At this time, there appears to be a monolithic group think forming among a lot of business and technical people that online streaming a la Twitter is the going to be the advertising model of the future on the web.   The theory is that in an increasingly mobile world, streaming will allow marketers to instantly connect with potential customers via cell phone or regular computer Internet use in a highly targeted fashion.  Of course, Twitter itself acknowledges that it essentially doesn’t really know how it’s going to make money yet.  At the same time, the problem I have with the supposed efficacy of online streaming as a business model is that virtually every supposed category killer in terms of web advertising has failed to come anywhere close to expectations (if not downright failed) since Internet usage became ubiquitous in the late 1990s.  In the beginning, click-on ads on websites were supposed to be a treasure trove for marketers, yet the click-through rates have turned out to be so abysmal that newspapers, for example, are dying en masse due to the loss of ad revenue online compared to physical papers despite the fact that their articles are actually being read by literally millions of more people than in the pre-Internet age.

For an almost identical comparison to the current tulip bulb craze over online streaming, look to your own email account.  Substantively, receiving alerts on Twitter is no different than receiving email alerts, where choosing to “follow” a person on Twitter is just like signing up for an email alert (whether it pertains to news links, coupons, products, etc.).  For most people, and certainly in my own personal case, there was a tipping point where my email inbox became filled up with more email alerts than emails from actual people and I simply started ignoring around 99.9% of such email alerts.  I’m not even talking about spam in its true form: these are email alerts that I pro-actively signed up for at one point but the sheer volume of them over time made it all into white noise that I don’t look at anymore.  When anyone has an email account that gets to that point, an email alert becomes an almost completely ineffective marketing tool.

As of now, Twitter is in its relative infancy, so the media has been regaled with anecdotal stories of businesses that have expanded rapidly because of a presence on the service.  Of course, the simple fact that Twitter allows for accounts to be created that are not for real life people mean that it will be sooner rather than later that the average Twitter user is going to be inundated with more follower requests from businesses and products than friends and family.  This was the fate of MySpace, where I had to delete my page on that site because my inbox was completely filled with friend requests from random musicians and porn stars.  As a result, MySpace, which was widely proclaimed to be the future of the Internet as the social networking giant back in the ancient days of 2005 (spurring Rupert Murdoch and News Corp. to shell out a whole lot of coin on the company), is now losing members and just pushed out its founders a couple of weeks ago.  (Tom, I hardly knew you!)  Any business success on Twitter is going to be short-lived once marketers populate the website en masse.  For the average person that isn’t constantly looking at his or her Twitter account, there are only so many Tweets that one can read through before it all becomes white noise just like email alerts and MySpace before it.

Please note that this is not meant to be a bashing of Twitter.  I have a Twitter account and find many Tweets very useful, such as updates on Metra delays so that I can plan for my commute or following the intense ramblings of Ron Zook.  Frankly, the only way that I can figure out where my sister is traveling at any point in time is to follow her daily litany of Twitter messages.  However, following lots of people and/or entities can quickly become a blur even if someone that has a fairly high tolerance to changes on the web.  Imagine how it is for people over, say, 50 years old that have a lot less web exposure.

I think the lesson of the web is that people really don’t like being overtly marketed to for random products.  When web advertising has been successful and profitable, it’s been tied to environments where people are searching for a particular product, with Google’s paid ads coming up in searches as the prime example – that is, the consumer is driving the process as opposed to the marketer.

At the same time, like almost any business whether it’s on the web or in the bricks-and-mortar world, Facebook needs to remember what it’s actually good at.  As I noted before, its hook is that it’s the simplest and most efficient way to find and reconnect with people that you know in the real world.  For some reason, there are business people and techies out there that believe that this is a liability for Facebook, where they look at the ineffectiveness of Facebook to meet and search for people that you don’t actually know in the real world as a constraint on its growth.  Of course, I consider this to be about as solid business thinking as (a) granting large shares of ownership in GM and Chrysler to the UAW members that did everything in its power to disallow those companies to make the necessary changes to make them competitive in a new global economy or (b) Kanye West foregoing being one of the best rappers on the planet in order to sing ballads with a vocoder.  (Why, Kanye?  Why?)  Almost every single website, blog, forum, and chat room on the Internet is designed for people to meet virtually – that market is completely loaded with millions upon millions of Internet sites.  The last thing that most people need is a place where they can meet virtual friends.  The difference with Facebook is that it’s one of the few mass market places on the web where people can actually feel safe and secure enough to use their real names, post real pictures, and submit real information.  (Whether this is a completely false sense of security is another topic for another day.)  That is the Facebook’s unique advantage and it made me believe that it would become one of the few social networking websites that could legitimately have some long-term viability.

I understand that Facebook needs to make money somehow in order to stay in business.  In my opinion, the best way for Facebook to become profitable is in small and relatively non-intrusive micro-targeted ads based on each user’s individual interests, where the aim is more informative on its face (in the same manner as, say, a magazine or newspaper ad) rather than interactive or click-through in nature (i.e. if someone notes on his profile that he’s a basketball fan, then a small ad on his Facebook home page appears with the match-up and time of the NBA playoff game that evening on TNT) .  This may not be a grandiose game changer that turns Facebook into the new marketing power of this generation, but it’s a reasonable aim to make money without making the same misguided mistakes of so many other websites, where they incorrectly believed that their user bases were so loyal that they could blatantly turn them into ad farms.  The greatest asset that Facebook has is the treasure trove of personal information of its users, but it must strike a delicate balance in using that information for marketing purposes.  Unfortunately, history says that any website can’t help itself when it has such information and ends up killing its long-term prospects for short-term ad gains.  If Facebook crosses that imaginary fine line where it becomes more of a marketing site as opposed to a social networking site, then it will end up not even having a market for those simple ads since people will either leave or stop using the site in droves.  With the new Facebook emphasis on trying to connect its users with marketers in a less-than-subtle manner (for instance, products and celebrity fan pages are now showing up in the “People You May Know” box), the website is putting itself at great risk of being another one of those white hot Internet brands (i.e. AOL, Friendster, LiveJournal, MySpace, etc.) that flames out after a few years.  I don’t want to see that happen since Facebook has reconnected me with multitudes of long lost friends, but I’m not nearly as bullish on the website’s long-term viability as I was a year ago.

(Image from Laurel Papworth)