The Battle for the Living Room Begins

I’m sure most of the folks reading ClickZ are early adopters and have been using technologies like Netflix or Hulu for many years, and they are not surprised by the tectonic shift happening in the living room. However, the majority of Americans have yet to change their behaviors when it comes to television – until now.

In a recent report by Nielsen, Americans are now consuming less “traditional” TV and making a dramatic shift to digital video – 5.6 hours a day are spent on digital devices versus 4.3 hours spent with TV. Connected TV video viewing is growing at an astonishing rate of 380 percent year-on-year.

The march of the consumer is real and will be like a tidal wave by 2016. Cable companies are feeling the pain of the cord cutter (or cord nevers) and are actively repositioning for this shift by consolidating; just consider the Charter/TimeWarnerCable merger, the AT&T/Dish merger, the Verizon/AOL acquisition and the Comcast/NBC merger.

This consolidation is happening among these companies for two reasons:

• Scale – create meaningful counterweight to the giant Comcast with 22million subscribers
• Content/Services – build out a suite of services that improve value for customers (I would include advertisers as B2B customers of these new platforms)

This shift in consumer behavior and the new access points for content across mobile devices, connected TVs and digital TV are creating new opportunities for companies like Amazon, Google, Netflix and Apple to disrupt the TV model and threaten the status quo, forcing unbundling. This was considered heresy only five years ago. Now HBO GO is the first to offer an unbundled option. More premium content providers will follow suit.

What does all this mean? There is a multi-front war being waged for control of the living room. This war in many ways will be great for the consumer; TV will be a better experience in the next two to three years than ever before.

For the marketer and service companies, however, there will be bodies everywhere. Many will be legacy linear support businesses (what happens to the satellite truck company when video is 100 percent in the cloud?) unable to pivot or invest to build for the future that is nearly here. It also means a number of hard years for advertisers looking to find their core audiences, determine new measures of engagement and efficacy and evolve targeting practices from desktop to these new devices.

The scariest thing about the shift for marketers is that very few companies will be have the scale, data and capability to accurately deliver audiences to marketers consistently. Companies like Google, Amazon, Facebook, Comcast and Verizon have the direct opt-in connection with consumers to deliver messages across devices.

What is concerning is that Google, Facebook and Amazon operate walled gardens, forcing advertisers to abide by their rules and use their internal measures of success. This is like grading your own homework; buying on viewability with Google when they measure it based on their technology seems risky. Today both Comcast and Verizon are relatively open platforms, but that could change quickly, forcing marketers to operate much like they did in the 1980’s -working with just four broadcast networks and a few cable networks. I don’t think anyone wants to go back to ‘80s!

Lastly, much of the video consumption is happening with providers that are not ad supported or offer limited advertising opportunities, creating a major constriction in availability which will likely result in a dramatic price increase. There could be a silver lining where the new advertising opportunity is more targeted and efficient than buying demos 18-54 on TV. So, as we migrate to the new digital TV model, one could argue that this is a market correction and not really a price increase.

What do you think? Is the digital TV of tomorrow going to drive more consolidation putting marketers on their heels? Or will it deliver massive fragmentation like the Internet, creating more opportunity and choice?