video content economics

Content is glamorous. Stars, drama, action, romance, suspense. But if you want to understand how Internet video distribution will evolve, you’ve gotta get your nose into dull facts and the dismal science.

Video content has little relevance to aggregate patterns of video consumption. Growth in discretionary (leisure) time is closely correlated with time spent watching television. From 1925 to 1995 in the U.S., discretionary time increased by 15 hours per week. Over the same period, television watching time increased from 0 to 16 hours per week.[1] Television viewing time has expanded to fill growth in leisure time.

Television watching generates common patterns of human behavior irrespective of video content choices. Compare the US to the USSR in the mid-1980s:

In the mid-1980s television programming and broadcasting in the USSR was state-owned, state-controlled, and highly centralized. Households had little opportunity to choose between programs: 68% of households received two or fewer program channels. In contrast, television in the US in the mid-1980s was privately owned and commercially driven, and television offered viewers many programming choices; 88% of households received five or more over-the-air television signals, while cable systems, with median capacity of over 30 channels, passed 76% of households.

Despite these and other sharp contrasts between the US and the USSR, the television set, the way television was watched, and time spent watching television were remarkably similar. In both the US and the USSR the average viewer sat on a couch and watched a rectangular colored screen about two meters away. In the US in 1985 television viewing times for employed men and women were 14.6 and 12.1 hours per week respectively. In Pskov, USSR in 1986, television viewing times for employed men and women were 14.5 and 10.7 hours per week respectively.[2]

The sensory form of video, much more than its content, shapes the physical characteristics of viewing and the amount of viewing time.

Channel repertoire data also indicate common behavior across different content circumstances. In Beijing, China, in 2002, households received on average 37 channels of television. Viewers watched for more than ten minutes per week on average 13.5 channels. Viewers similarly watched per day (among days that included television viewing) on average 4.5 channels.[3] For comparison, in the U.S. in 2005, households received on average 96.4 channels, and watched on average 15.4 channels per week.[4] In Mexico in 2000, viewers watched per day (among days that included television viewing) on average 4.4 channels. Whether in China, the U.S., or Mexico, viewers behave similarly in the extent to which they switch channels on the television.

Video content probably has little relevance to substitution between traditional television viewing time and viewing video available through computer screens. Television sets are ubiquitous and part of the architecture of many homes (the “TV room”). Sitting inertly, killing time in front of the television, is a deeply ingrained habit for many adults. More video choices or better quality video is unlikely to greatly affect video watching. Talk of a schism between content creation and content aggregation and distribution seems to me to miss the main point. Video content creators compete among themselves for viewers with common behavioral routines. Common behavioral routines themselves are out of the scope of persons’ boundedly rational behavioral optimization.

Changing common behavioral routines is more an issue of social change than product design. Joost describes itself thus:

Joost™ is a new way of watching TV on the internet, which uses new and established technologies to provide the best of both the internet and TV worlds. We’re in the process of making it as TV-like as we can, with programmes, channels and adverts. You can also see some things that we think will enhance the TV experience: searching for programmes and channels, for example, as well as social features like chat.

To the extent Joost is like TV, how will it motivate persons to get off the couch in front of the television? Is searching for programs and channels valued experience? Recently the web has been abuzz with Joost’s deal with Viacom. Why will users watch Viacom’s content on Joost rather than on television?

A vague report on recent research findings, which I cannot track to the source, indicates that user-generated content is “more popular” on YouTube than professionally funded content. But what makes YouTube different from television is users generating content, not the user-generated content. What makes YouTube different is users sharing content, not the content that users share. It’s about what people are doing, not what specifically they are watching.

Internet video provides a much better platform than television for creating advertising value through serving dynamic, relevant ads. As Martin Geddes insightfully observed on the value of television content:

So whilst the remote lets you adapt the primary content to your personal tastes, you’re stuck with whatever irrelevant junk they choose to insert in the ad breaks. So there’s a large and growing opportunity to fix the broken ad business. And that’s why TiVo is screwed. They fixed the wrong problem. The issue isn’t getting people to see the right programs. It’s getting them to see the right ads. They screwed up so big, they even gave you a feature to skip the ads. On their epitaph is will say “TiVo. Forgot where the money came from”.

Inferior content with high-value advertising will make superior content with low-value advertising not worth producing.

* * *
[1] See Galbi, Douglas (2001), “Some Economics of Personal Activity and Implications for the Digital Economy,” Section I.

[2] Ibid.

[3] Yuan, Elaine J. and James G. Webster (2006), “Channel Repertoires: Using Peoplemeter Data in Beijing,” Journal of Broadcasting and Electronic Media 50 (3) p. 532.

[4] Report based on Nielsen Media Reporting data.