Buying and Renting Movies and TV Shows Online—Legally! It’s a Big Business and Getting Bigger. Rentrak Is There to Prove It.

Movie studios and TV networks are realizing there is a way to collect revenue on the Internet for their content directly from consumers. (Rentrak has been collecting this data since 2006 and we are permitted to show some of this data from 2012 onwards.) There are two main methods used. Pardon me while I go into “lingo land” so that you know what I am talking about:

EST = Electronic Sell-Through

  • The purchase of digital content by a consumer who pays a one-time fee for a perpetual license to view the content. EST is essentially the digital equivalent of buying a DVD or Blu-ray Disc (BD).
  • EST content may either be downloaded or streamed through services offering access to a virtual locker.
  • Major data providers include Apple’s iTunes, Amazon, Best Buy, Google Play, Microsoft, Sony PlayStation, and Walmart’s Vudu—to name but a few.

iVOD = Internet Video On Demand

  • The rental of digital content by a consumer where a fee is paid for a pre-determined window of time in which that specific content can be viewed an unlimited number of times. iVOD is the digital equivalent of renting a DVD/BD.
  • iVOD content may either be downloaded or streamed.
  • See above for major data providers.

Let’s first take a look at EST movies. What has been the trend in buying movies on the Internet? (Or from the cloud, which sounds cooler—am I showing my age?)

EST Chart

As the chart above shows, selling movies online is becoming a pretty good business for the studios. (Rentrak captures information from the seven major studios plus a number of independent studios). Since the beginning of January 2012 to April 2014, the number of movies sold online has virtually doubled. In addition, there are peak periods around Christmas—for gift giving—as well as when specific “hot titles” hit, like Disney’s “Frozen” did in March of this year.

However, the rental of movies online has not shown the same growth rate as purchasing—growing only about 25 percent since January 2012 as shown in the chart below. There is a key reason for this. Because EST margins are much bigger for the studios than either digital rentals, or DVD/BD sales/rentals, the studios are providing movies via EST with an early release window—usually 1-2 weeks prior to VOD, iVOD or DVD/BD. Bottom line, studios are hoping to bolster EST with early windowing for tent-pole titles and key independent titles. Consumers have an access-first mentality; if they can get the movie now, why wait? It’s the consumer preference for going to see a movie on the opening weekend expressed in a digital age.

iVOD Chart

In terms of TV shows, we can only show information on EST, because TV shows are not available via iVOD, which existed only as a short experiment by Apple with ABC/Disney as the only studio signing on. In regards to EST, the chart below shows that purchasing TV programs via the cloud has grown at about the same rate as movies—doubling since January 2012.

Web-based Order Volume Chart

And this is not just an online phenomenon. Major “traditional” video content distributors like Comcast and Verizon FiOS now provide an EST option for their customers. In fact, Comcast had a public success of its EST launch with the announcement that it took the number one spot in digital sales of Universal’s “Despicable Me 2″ in early December 2013.

I think that it is very interesting to see how careful (and smart) the video content providers are being in this digital age. Compare the growth in the digital sale of movies and TV shows in the past two years with sales and downloads of music. As reported by Billboard in first quarter 2014, digital music sales were down 13.1 percent and CD sales were down 20 percent. In comparison, video providers have been carefully managing their content, looking to maximize revenue as the consumer shifts from physical ownership of video to virtual consumption. Digital does not have to equal death. Digital can equal dollar$.

In case you don’t know, I am Bruce Goerlich, Chief Research Officer at Rentrak, the global standard in movie measurement and your TV Everywhere measurement and research company. I have been in the research end of the marketing business for more than 30 years primarily on the ad agency side, with my last stint prior to Rentrak in the role of President, Strategic Resources Zenith Optimedia North America. Somewhere along the way I morphed from young Turk to old fogey. Now that I have grey hair and am horizontally-challenged, I can speak with some authority on advertising and research issues—which I will do from time-to-time on this blog.

The Power of Video on Demand

Here’s a quick little blog for the fan base about how Video on Demand (VOD) can be an effective advertising tool.

In this case, I am talking about networks advertising themselves (e.g. using promos to get tune-ins). Rentrak does a fair amount of work on the effectiveness of promos, which is how many people “convert” to viewing a show when they see a promo for it.

Now turning to VOD, one nice thing about the millions of return path TVs Rentrak has is our ability to look in detail at TV viewing across linear (that’s the lingo for plain old programming) TV and VOD. We can look at duplication of viewership. So we can see what happens when a network runs a “teaser” for a new show on VOD, and then see how many tune into the program on linear TV. Guess what? We see that VOD teasers for new programs have a higher conversion rate than traditional promos.

Bruce Blog Chart

Now these aren’t controlled experiments, neither are they the same shows, so fellow research nerds don’t give me a hard time!

But these results give an indication that those people who chose to watch VOD are more involved. It requires positive action to select and view the VOD teaser. And if the teaser is good enough, it does have the power to get people to take subsequent action and watch the full program. Bottom line, VOD involves and gives power to the viewer, which is the new world of marketing. Promos, while effective, exist in the older model of “pushing” at the consumer. VOD is the world of tomorrow’s marketing, today.

In case you don’t know, I am Bruce Goerlich, Chief Research Officer at Rentrak, the global standard in movie measurement and your TV Everywhere measurement and research company. I have been in the research end of the marketing business for more than 30 years primarily on the ad agency side, with my last stint prior to Rentrak in the role of President, Strategic Resources Zenith Optimedia North America. Somewhere along the way I morphed from young Turk to old fogey. Now that I have grey hair and am horizontally-challenged, I can speak with some authority on advertising and research issues – which I will do from time-to-time on this blog.

The Transformation of Video on Demand

Let’s take a break from “engagement” to talk about another interesting aspect of television—how Video on Demand (VOD) is changing. Rentrak has published a “State of VOD: Trend Report” for several years now. (You can order a copy at Rentrak.com/SVOD.) One thing that clearly stands out in this year’s report is that popular TV programs are becoming the mainstay of VOD.

First, a little explanation of the jargon (every industry has to have its own). “Subscription Video on Demand” (SVOD) refers to On Demand content from pay cable services such as HBO, Showtime, Epix, etc. Most operators (or in the true inside lingo: Multichannel Video Programming Distributors or MVPDs) give pay cable channel subscribers the ability to watch their movies and programs On Demand, so a subscriber can catch “True Detective” on HBO On Demand, or “Hunger Games” on Epix On Demand.

“Transactional on Demand” (TOD) refers to movies or events paid for by a household. As an example, a MVPD will make a movie like “Frozen” available On Demand several months after it has been in the theaters. The viewer then has to pay to watch the movie (usually within a window of 24 hours after ordering). TOD content is really what the MVPDs thought VOD was going to be all about— generating income from movies, events… and porn (oops, make that “Adult Content”).

There is also the “TV Entertainment” category. This category consists of the most popular TV shows, across all dayparts, which broadcast and cable networks make available On Demand, including current (and sometimes past) series or seasons.

Finally, there is all other “Free on Demand” (FOD) content, which refers to all other free programs, including some specifically made to air On Demand, Music on Demand, and a variety of other niche programs.

So with the lingo under our belts, let’s go back to the days of yesteryear (2010) and see what VOD looked like then. The chart below shows the share of viewing hours accounted for by each type of VOD described above in 2010.

VOD-2010

In 2010, “Subscription Video on Demand” had the largest share of viewing hours, followed closely by “Other Free VOD.” “TV Entertainment” was a distant third, and Transactional on Demand trailed in fourth place.

Now, let’s shoot forward to last year, to see a drastically changed picture. Again, we are looking at share of viewing hours by type of VOD format, this time in 2013.

VOD-2013

There is a dramatic change. The cable and broadcast network’s “TV Entertainment” category is now number one, at 35% share of hours. “Other Free VOD” edges out “Subscription Video on Demand” by a hair, and “Transactional on Demand” remains in fourth place, slipping to only 10% of hours.

Share is one thing, but one also needs to consider the absolute growth in VOD. The total number of VOD hours watched was 3.6 billion in 2010 growing to 4.5 billion in 2013, an overall growth rate of 25%. But that growth rate was by no means even as indicated in the chart below, which lays out the percentage growth in hours by type of VOD format.

VOD-GrowthDecline

You can see that the popular shows in “TV Entertainment” grew by over 120%. “Other Free VOD” grew by 10% while time spent viewing “TOD” and “SVOD” fell in the 3% range. However, Rentrak’s Digital Download Industry Service reports that revenue for OTT movies (purchased) has grown by 124% since 2010. So demand to watch movies at home has not fallen, rather the supply has grown with OTT options.

Why has viewing of “TV Entertainment” grown so much? Again, supply is a big factor. In the fall of 2013, the networks and MVPDs worked together to make available more than the traditional four most recent episodes of popular series to each household. When more programming options are available, the audience will come. Or as Willie Sutton, the famous bank robber, said in response to the question, “Why do you rob banks?”: “Because that is where the money is.”

And advertisers are starting to go where the audience is. Rentrak estimates that there is a potential multi-billion dollar business in VOD advertising, just with digitally inserted pre-roll ads. Those and other details can be found in the full “State of VOD: Trend Report 2013,” which you can learn more about by clicking here.

In case you don’t know, I am Bruce Goerlich, Chief Research Officer at Rentrak, the global standard in movie measurement and your TV Everywhere measurement and research company. I have been in the research end of the marketing business for more than 30 years primarily on the ad agency side, with my last stint prior to Rentrak in the role of President, Strategic Resources Zenith Optimedia North America. Somewhere along the way I morphed from young Turk to old fogey. Now that I have grey hair and am horizontally-challenged, I can speak with some authority on advertising and research issues – which I will do from time-to-time on this blog.

Video On Demand: How to Create an Advertising Marketplace

Video On Demand (VOD), viewed via one’s cable or satellite box, is a rapidly growing medium, particularly for programming from broadcast and cable networks called Free On Demand or FOD for short. Rentrak is the industry’s source for FOD information. For YTD 2013, there were more than 9 billion total VOD viewing occasions (e.g. clicking the button to watch VOD) and 78 percent of those were for FOD. While VOD in total grew 30 percent between 2009 and 2013, FOD grew by 70 percent. Rentrak performed research indicating that a pre-roll ad in FOD has about a 120 index to the program rating. FOD viewers are also engaged since they are making a very specific and deliberate action to select and watch a show.

The largest part of FOD now consists of programs from the major broadcast and cable networks. Some of these content providers are now porting over the same ads that ran when the shows aired on regular or “linear” TV. Some are switching the ads out after four days to fit the traditional “C3” model. The content providers realize that over 78 percent of viewing to major broadcast and cable network shows happens after three days, so there is value in that ad inventory after four days, whether or not the ad copy is the same.

So why isn’t FOD programming chock full of ads?

Some of the reason has been technical. There was not an easy way to insert specific ads into FOD programs; it was akin to the old fashioned magazine business where the copy had to be ready two months prior to print. With digital ad insertion, and other technological fixes that problem has been significantly (but not completely) overcome.

But there is a deeper reason for the failure for advertising to take off. It goes back to the start of VOD reporting over eight years ago. Rentrak, with its history of managing and integrating massive amounts of data through its movie and DVD reporting services, with user-friendly systems that generate insights, became the operators’ choice to provide measurement. Rentrak’s measurement is a complete census. Every transaction/order from every provider of VOD in the United States is captured.

At the time of the creation of VOD, the cable operators thought that the bulk of VOD would be consumers ordering and paying for movies (both major studio releases as well as adult films). They also thought that consumers would like to be able to see regular TV programs when they wanted to, akin to what DVRs can do.

And at that time, the satellite companies could not deliver VOD, so the cable operators also thought that offering VOD would be a way to help hold on to customers. So the operators asked the broadcast and cable networks if program content could be loaded up to create FOD. The content providers agreed, but they had concerns about cannibalization of the audience from the main linear TV platform, as well as not having full strategies in place on how to generate revenue via advertising. The agreements became that a cable network could see its own shows (e.g. A&E can see A&E across all operators), or an individual cable operator could see how shows did within its own footprint (e.g. Time Warner can see how NBC and CBS perform within Time Warner’s footprint), but that was the extent of the transparency. Each “side” could see its own numbers, but the complete picture could not be revealed. In short, Rentrak’s census-level measurement was put into a straightjacket; only limited slices of the data could be shared with limited parties.

As anyone who has taken Economics 101 knows, for a marketplace to exist there has to be transparency. Right now, advertisers who want to see how programs might perform on VOD have to go ask each network for their numbers. In a world of shrinking advertising staffs, and the push to programmatic buying, there is not much willingness to enact business by making tons of phone calls and cobbling together numbers in Excel spreadsheets.

Therefore, transparency is needed. There has to be the full reporting of VOD programs by title in detail for C3 and up to 28-day levels. Only Rentrak with its census-based measurement can provide these numbers in a granular and stable manner. We are moving in this direction. Over 60 cable networks now allow us to produce a report showing monthly average transactions. (For insight into what that report can provide, check out my last blog. To order the report, contact Gordon Jones at Gordon.Jones@rentrak.com). And now we have a monthly series-level report for eight participating cable networks. These series-level FOD metrics now feed into our Total TV Audience report.

So, if a true ad marketplace in FOD is going to be created, full transparency must happen. I urge all the readers of this article who want to use the huge potential of VOD for advertising to contact their sales reps—no, go higher, and contact the sales heads of the networks you do business with and demand, “I want my FOD! Set Rentrak free!”

Exciting News on VOD Performance by Network

Video on Demand (VOD) is a rapidly growing form of television. The excitement comes from its double-digit growth, particularly in the “TV Entertainment” category, which consists of free programming put up by the traditional broadcast and cable networks, as well as VOD-only networks. Viewers are finding out that their favorite programs don’t have to be DVR’d, and that when a friend mentions a new show, more often than not, it can be found On Demand.

The VOD industry is also moving in an exciting direction to start sharing data. Rentrak has been producing a “Transparency Report” since January 2012. Forty-eight cable networks first agreed to allow monthly data to be shown. That number has grown to more than 60 cable networks. (As I write this, there are no broadcast networks participating.) I thought my loyal fan base (including the guy with the court order to stay back 500 feet) would be interested in a top line peek.

I first took all the 2012 reporting VOD networks and averaged their results over the first half of 2012. I then graphed them out by what is important to media planners and buyers—reach and frequency. Reach is important because it determines the breadth of the target audience. Frequency is important because it reflects how often ads can be delivered.

In the graph below, the horizontal axis is the average monthly reach, or unique set-top boxes that watched a program on a network. The vertical axis is the average number of times a network was watched per month. The intersection of the two axes is at their respective averages, creating a quadrant map. I’ve labeled the networks that have both high reach and high frequency; they are the ones in the upper right-hand quadrant.

Average Reach & Frequency for VOD by Network

Clearly, Music Choice is a strong outlier, with an average frequency more than four times higher than other networks. The video music format obviously is a big draw for repeat viewing. Also interesting to note is the presence of kid’s networks like Nick Jr., Cartoon Network, and Nickelodeon. Children are “early adopters,” and are masters of the push button (and screen swipe). A&E, TruTV, TBS and Comedy Central round out the quadrant.

However, the picture changes a bit if we look at another key metric—time. The quadrant map below looks at the same networks but has the number of minutes a network was watched on the vertical axis. While the three children’s networks stay in the upper right quadrant, Music Choice slips to the edge. Music Choice, because it is a short form genre, obviously could have many viewers and a lot of frequency yet less dominance in time spent. More networks with longer formatted programs join the quadrant: AMC, History Channel, Impact, Lifetime, MTV, TLC, TNT and VH1. Comedy Central stays on the edge of the quadrant.

Average Reach & Time Spent Viewing for VOD by Network

I’d be a bad researcher if I said this is a definitive look at VOD. Not all networks have agreed to be transparent, and I haven’t even shared with you all the networks we do have data on.

Finally, when you think about those millions of VOD viewers, just waiting for someone to put in a super impactful pre-roll ad as they settle into watch the program they have deliberately decided to engage with, doesn’t the ad man (person) in you salivate? I know I do! And these Rentrak transparency reports will help build the marketplace to make it happen.

More information on VOD can be found in Rentrak’s State of VOD: Trend Report and monthly transparency reports. Please contact Gordon Jones, Rentrak’s VP, OnDemand Everywhere, at gordon.jones@rentrak.com if you are interested in either of these reports.

In case you don’t know, I am Bruce Goerlich, Chief Research Officer at Rentrak, the global standard in movie measurement and your TV Everywhere measurement and research company. I have been in the research end of the marketing business for more than 30 years primarily on the ad agency side, with my last stint prior to Rentrak in the role of President, Strategic Resources Zenith Optimedia North America. Somewhere along the way I morphed from young Turk to old fogey. Now that I have grey hair and am horizontally-challenged, I can speak with some authority on advertising and research issues – which I will do from time-to-time on this blog.

Video On Demand – The Power of Pre-Roll

On Wednesday, March 20th, I gave a talk at ARF Re:think 2013 on video on demand. The following is an excerpt from my talk. Contact me at bruce.goerlich@rentrak.com if you would like the full presentation.

Television as medium has moved beyond fragmentation into granularity as programs are being carried on new platforms such as mobile, the Internet, and video on demand. Video on demand viewership has been growing at double-digit rates, with the largest portion of growth coming from “traditional” TV programs being placed by TV networks. However, there has been little understanding of how commercials perform in video on demand.

The value of advertising time in video on demand is immense, given that viewers have to be actively engaged to select the programs. Video on demand advertising is often structured with the first position, “the pre-roll,” starting before the program content. Rentrak, through its analysis, demonstrates that the “pre-roll” has a very high value. Rentrak’s original research shows much higher indices for ad viewership in the pre-roll position. The metric employed was the Ad Retention Index (ARI), which is the average audience during commercial minutes on video on demand divided by the entire program’s average audience (including ad minutes). The ARI is a concept similar to “C3” on linear TV. The pre-roll ARI for regular duration programs was a 122, and the average pre-roll short duration program was a 129. This high value of audience for pre-roll gives advertisers a unique opportunity to connect with engaged viewers. Rentrak is now also producing a monthly video on demand transparency report on ratings networks have on video on demand. (Details upon request!)

BACKGROUND ON VIDEO ON DEMAND

Currently, there are more than 53 million video on demand-enabled households with an average of two set-top boxes per household. More than 43 million set-top boxes access video on demand content each month.

Consumers who use this medium spend around 8.5 hours per month with video on demand content.

Free video on demand content represented 78 percent of all transactions in 2012. Free video on demand (which includes ad-supported content) is the fastest growing part of video on demand. From 2009 to 2012, free video on demand’s growth rate outpaced that of all video on demand by increasingly wider margins.

Growth Rates in Video On Demand Playtime 2009-2012
We are pleased to see free content coming to video on demand soon after live airings. Content owners are increasingly including linear ad loads in the first three days. Additionally, our research shows the majority of video on demand viewership of TV shows occurs 4+ days after air, presenting additional valuable advertising opportunities. Free on demand offers advertisers an opportunity since much of this content is now (or could be) advertising-supported. However, advertising results are not traditionally broken out. A group of networks approached Rentrak in the fall of 2011 asking for a study of advertising levels using set-top boxes where second-by-second ad detail could be identified.

We used a mathematical technique to identify where ads were located — essentially when there was a huge drop and return in audience. This is shown in the chart below.

Index of HH Audience at :30 Second IntervalsAll the video on demand long form programs had a downward-trending slope of viewership. This can be explained in large part by the fact that there is no subsequent program that follows, so there can be no audience flow “in” once the program starts. Also, therefore, the maximum size of the audience is at the start of program. That large “starting point” means that commercials in the pre-roll position will have the advantage of exposure to all of the program’s viewers. So even with trick play, the ARI for the pre-roll is a 103, while for entire program, the ARI was a 55.

For short-form programs (less than six minutes), we looked at the first 60 seconds to estimate ad position.

The bottom line for the analysis is below.

ARI Video On Demand ResultsWhen one considers that normal DVR playback ratings for commercials are in the 60 percent range, not only is the average video on demand ARI of 71 quite strong, but the pre-roll first position playback of more than 120 is fantastic. Video on demand is a medium that can and will work well for advertisers.

In case you don’t know, I am Bruce Goerlich, Chief Research Officer at Rentrak, the global standard in movie measurement and your TV Everywhere measurement and research company. I have been in the research end of the marketing business for more than 30 years primarily on the ad agency side, with my last stint prior to Rentrak in the role of President, Strategic Resources Zenith Optimedia North America. Somewhere along the way I morphed from young Turk to old fogey. Now that I have grey hair and am horizontally-challenged, I can speak with some authority on advertising and research issues – which I will do from time-to-time on this blog.