MEMORANDUM

TO:                         Steve Burke, CEO NBCUniversal

FROM:                   Susana Benaim, Strategic Planning Committee

SUBJECT:              Strategic Analysis: Second Screen Viewership and Usage

Executive Summary

NBC Universal owns media properties in television, cable, film, and online. Amongst these properties, cable and film are currently the most profitable. However, with the rise of digital media and the Internet, even the most profitable properties have reported some loss of revenue over the last few years.

Frank Rose’s book The Art of Immersion showcases many examples on how to further engage audiences with the content in these media properties. Second-screen viewing is one of these options. There are two types of second-screen usage: simultaneous and sequential usage. A 2013 report from research firm NPD Group shows that 87 % of U.S. entertainment consumers use at least one second-screen device while watching television. Although second-screens are used typically for non-related activities, about 30% of viewers search for actor’s names or other content-related information.

NBC Universal’s Digital.Amplified campaign provides more options for advertising revenue by giving the option of consumer exposure in a variety of distribution windows. The use of apps such as Zeebox is making simultaneous second-screen use attractive to advertisers and profitable for this campaign. Digital.Amplified is a step in the right direction for NBC Universal. However, with the increasing need for immersion with content, simultaneous and sequential usage of second-screens may also be applied to other windows, such as film, to further increase profits.

Current Business Climate

NBC Universal owns and operates a variety of media properties from television networks, to cable channels, to websites, to motion picture and TV production companies. NBC is the nation’s first national broadcast network, which was founded in 1926. The NBC television network gives viewers a combination of NBC’s national programming and the local programming through its 200 affiliated stations. Its Spanish-language broadcast network Telemundo distributes quality content to 94% of U.S. Hispanic viewers around the nation. NBC Universal reaches a wide variety of audiences through its 15 national cable networks, 13 regional sports and news networks, and more than 60 international channels. In the motion picture industry, Universal Pictures and Focus Features create and distribute filmed entertainment for a growing global marketplace. Universal has become known for its diverse slate of hits, including Jaws, E.T: The Extra-Terrestrial, and Jurassic Park. ¹

Core Competencies

Amongst NBC Universal’s core competencies there are a variety of media properties. NBC U’s cable portfolio, which accounted for 50% of NBC Universal’s profits and 80% of NBC U’s overall operating cash flow, includes Oxygen, Bravo, iVillage and Today – that can be sold to advertisers. These properties bought by the conglomerate between 2002-2006 ^{2, 7}

Customer Base and Market Share

NBC Universal has a global customer base between all its media properties ⁴. In Network TV, it owns the most popular of the three network morning news programs, NBC’s Today Show. In 2011, viewership grew 3.2%, or by 169,300 viewers, to 5.4 million. Ratings stayed at 4.0. Share dropped 1.3% to 15. ⁵

The 2012-2013 broadcast television season, the 30 weeks through Sunday, April 21, 2013, shows CBS in first place among adults 18-49, with a 3.0 rating average, down 3 percent from last season.  FOX was second, with a 2.5 rating average, down 22% from last season. NBC was third with a 2.4, down 8% from last season. ABC was fourth with a 2.2, down 8% from last season. The CW finished 5th with a 0.7 adults 18-49 rating average, down 13% from the previous season. ⁶

According to Nielsen, in cable, the total prime-time audience of USA Network, which accounts for around a quarter of NBC U’s profit, shrank around 9% in 2012. Total prime-time viewership at sister networks E! Entertainment and Syfy fell 10% and 4%, respectively. This year, USA’s ratings have been flat, compared to last year, but ratings for Syfy and E! have fallen further. Bravo, on the other hand, has boosted its ratings in both periods. ⁷

Universal Studios took the first place amongst competitors for market share and gross profits in 2013. ⁸

Revenue Streams

Cable channels account for 80% of NBCU’s overall operating cash flow, the rest come from movies and theme parks.⁷ NBC Universal is valued at $30 billion and Comcast’s contributed programming segments are valued at a total of $7.25 billion. ⁹

Competition

NBC Universal’s biggest corporate competitors are the Walt Disney Company, CBS Corporation, and Time Warner Inc. In the film industry, Universal Studios (NBC) competes with Columbia Pictures (Sony), Warner Brothers (Time Warner), Buena Vista (Walt Disney Company), and 20th Century Fox (News Corporation). In TV, NBC’s main include CBS (CBS), FOX (News Corporation), and ABC (the Walt Disney Company). When it comes to online media companies, Fox’s American Idol is the single most popular website for any individual program. According to Quantcast, by 2013, Hulu.com receives about 10 million hits per month. ³ NBC’s major source of Internet traffic is iVillage – which has successfully held the top spot for websites geared towards women in 2009. In regards to websites geared toward women, iVillage has successfully held the top spot, though it has experienced a decline in visitors since 2005.¹⁰

Business Models and Current Threats

The majority of a broadcast network’s revenue comes from advertisers. Recently, broadcast networks and their local affiliate stations have begun following the cable model: charging cable and/or satellite providers a monthly fee per subscriber. The FCC has legally allowed them to charge cable and satellite a fee per subscriber since the 1990s, but broadcast networks have traditionally not sought such retransmission fees. That’s changing with the rise of other media windows that is cutting into broadcast revenue. If they rid themselves of the affiliate structure and went to the cable model, networks could get paid for the entire cable and satellite audience, rather than a third of that audience. For now, broadcasters simply want to be paid more for their shows, making the dual revenue stream of retransmission fees and advertising an attractive option.

Cable television, on the other hand, is available only by subscription through a cable or satellite provider. Basic cable includes ads in its programming, such as NBC Universal’s Bravo, E!, and USA Network. The majority of a cable network’s revenue comes from fees paid by cable and satellite providers – these, pay cable networks a monthly fee for each subscriber. In addition to these fees, cable networks also air ads during their programs so they get revenue from advertisers. By 2008, cable networks were getting 39% of all advertising dollars, an estimated $21.6 billion.¹² As seen in the last year, however, cable viewership is falling. This may be a product of online viewership, piracy, or viewers’ lacking interest in the content provided.

The motion picture business model depends on the nature of the release of the individual movie. In a standard release, the film goes through a variety of “release windows” to take advantage of different markets at different times. Release usually first occurs in movie theaters, then to DVD after a few months, then VOD, and then to free-to-air TV. Recently, there has been a surge of “simultaneous releases” – where the movie is made available of many media (such as theaters and iTunes) at the same time or very slight difference in timing. This is advantageous to consumers, who are able to choose the most convenient viewing medium. However, theater owners, whose profits depend on attendance of movies, and concession stand sales, benefit from having the movie in theaters for longer periods of time and not going to other distribution windows.¹³ The theatrical window has been reduced to a little over four months (originally six months). Because of the substantial losses in the DVD market after the 2004 peak, movie studios are attempting to shrink the theatrical window. Being that each big studio movie costs around $100m to produce, studios are making less gambles on films and studios are cutting back on the number of movies they produce. ¹⁴ From 415 titles released on DVD in 2010, the wholesale revenue dropped 43.9% from $7.97 billion in 2009 to $4.47 billion in 2010. Over the five years before that, average wholesale revenue posted a negative 13.7% CAGR. Because of the falling revenue from DVD sales, in 2011, Warner Brothers, Sony, Universal and Fox joined together to offer customers a chance to see movies two months after cinema release, a month shorter than normal.¹⁵

Online streaming business models are still in their experimental phase. Networks get paid in two ways – by selling their shows for a per episode fee on websites such as iTunes or by streaming them with embedded ads on Hulu and their own network sites. 2009 online revenue is estimated at between $350 million and $400 million. Eventually, a show like The Office won’t be measured so much by how it performs at 9 p.m. on the network, but by how often it’s viewed on NBC.com or the online video site Hulu, or the number of times it’s downloaded on Apple’s iTunes Store. ¹⁶ The variety of options for consumers will be aggregated at the end to measure the success of a show. However, with the increasing media clutter online, keeping viewers’ attention on the content or the online presence of the show will become more and more of a challenge.

Collaboration

Collaborators include Microsoft – with which MSNBC was developed – and Admira (a software that collects data from multiple systems and marries that to purchase and geo-demographic data – to pinpoint audiences for ads).¹⁷ As part of NBC Universal’s 2013 Digital.Amplified campaign, which was unveiled in upfront sales to advertisers for the fall lineup, a variety of digital companies have teamed up with NBC Universal to provide content across a variety of windows. Amongst them, Zeebox helped develop “The Million Second Quiz” to deliver digital 360 opportunities for the fall lineup of TV. Google is also collaborating with Syfy to provide fans with Google+ Hangout Chats with the cast of Fandemonium. Facebook is collaborating with Syfy by providing an app so fans can Skype with contestants of their unscripted competition Unbreakable. USA Network recently unveiled an expanded version of “USA Sync,” which syndicates content across the web, mobile, and social channels, extending the experience for more than 95 million users by giving them access to custom content across popular mobile apps, including Zeebox, NextGuide, Shazam, and Viggle. Also, Tumblr will work directly with Oxygen to feature top GIF artists’ work in on-air segments to complement programming. ¹⁸

Second Screen Today

There are two modes of multi-screening: sequential usage (moving from one device to another at different times to accomplish a task) and simultaneous usage (using more than one device at the same time for either a related or unrelated activity). ²¹

According to a 2013 report from research firm NPD Group, 87 % of U.S. entertainment consumers say they use at least one second-screen device while watching television. The two-screen viewers are generally multitasking, but a minority are complementing their viewing experience with “play-along games, check-in rewards, live voting and other interactive features” that are “highly effective for the minority of … viewers, but do not resound with most.” Around 10% of second-screen users said they use it to vote for something on a show, while 9% have followed a stream of comments about a show. The majority is using their second-screens for non-guided purposes, and is most often learning about actors or actresses (30%) or about the show or movie they’re watching (23%). 19 % stop to shop for a product in an ad. ¹⁹

According to Nielsen’s recent survey of approximately 12,000 connected device owners:

• 70% of tablet owners and 68% of smartphone owners said they use their devices while watching television, compared to only 35% of eReader owners.

In how they spent time with their device:

• Tablet owners said 30% of their time spent with their device was while watching TV.
• Smartphone owners say that 20% of the time they use their smartphones is while watching TV.
• eReader owners only spent 15% of their eReader time watching TV. ²⁰

In film, there has been little to no use of second screen technology. There have been instances, such as the app-enhanced film “App” – a Dutch thriller that incorporates a synchronized second-screen application into the story line, where it is being used.²² Interactive films, have been tried before, where audiences are able to decide how the story develops at specific turning points, however, these experiments more often than not fail. ²³

Where the Second Screen Trend May Lead

According to Frank Rose, people want to be immersed. They want to be involved in a story and make it their own. NBC Universal can accommodate this desire for immersion through its second screen applications. A good example of immersion activities has been Dunder Mifflin Infinity – the paper company’s website from the show The Office that was created by the obnoxious character of Ryan Howard in his attempt to reinvigorate the company. The website was a huge hit because of its use of social networking both between show and fans, it was activity driven with weekly tasks, and provided extra content that was not shown on the network. The fan base for The Office kept wanting more content and wanted to continue being immersed in the story. ²³ This was a successful use of sequential usage of second-screens.

NBC Universal is already adapting to this need to immerse with its new Digital.Amplified campaign. NBC Universal’s portfolio reaches 93% of all adults who spend 8.8 billion minutes per month with the company’s vast multi-platform digital offerings. Digital.Amplified. highlighted the company’s offerings across a variety of platforms: mobile, social, original digital video, second screen, and transmedia, all of which seamlessly connect to on-air programming. Its second screen activities include giving custom content access to users with Zeebox, NextGuide, Shazam, and Viggle for USA Network’s “USA Sync” expansion. Using Zeebox to synchronize ads with those of the app and have special show pages for The Voice, America’s Got Talent, and the Miss USA telecast. Style Network will have a weekly live series, Style Pop, which will showcase trends in fashion, beauty and pop culture. This show will use second-screens on StyleNetwork.com and Zeebox so viewers can engage in real time with polls, play along with debates, etc. These are all simultaneous uses of second-screens. ¹⁸

Second Screen Strategy

NBC Universal has been adapting well to current technology developments. Its use of Digital.Amplified for 360 content available to consumers is a move in the right direction. However, as the demand for immersion with content rises, so do the opportunities for engaging audiences. Every TV show could continue immersing audiences with sequential use of second-screens via projects similar to Dunder Mifflin Infinity. Cable and TV network content should have simultaneous second-screen opportunities (such as voting in live shows or providing fun facts about the actors or the characters in a show) as well as sequential second-screen use (with bonus content and more opportunities to immerse consumers with the program). A good way to achieve this is by partnering up not only with second-screen applications like Zeebox, but also with social networking sites like Facebook, Twitter or Google to further drive conversation about the content on the first screen.

In terms of film, viewers are usually suspended in disbelief, and consequently, it is difficult to provide a simultaneous second-screen experience in the theaters. However, sequential usage of second-screens has enormous opportunities to engage the viewers. Social networking, extra footage, the making of, speaking to the actors, games, etc. can be all part of this immersive experience before or after watching the movie. Marketing campaigns with specific clues within the movie to be used in the second-screen experience can further this immersion for the super-fans. Also, for later windows of distribution, such as DVD, VOD, etc., simultaneous second-screen activities may also be of use. Similar to that of TV and cable, later distribution windows for films can benefit from simultaneous activities and social applications used in sync with the film. There are many opportunities to immerse audiences with the content created and distributed for NBC Universal. In a business landscape where audiences want content whenever and wherever that is customized for their individual tastes, the opportunities to engage through second-screens are endless. NBC Universal should continue its campaign for content 360 and further its efforts in each of the distribution windows for content from television, to cable, to web, to film, to apps. This will, then, become a truly immersive audience experience that can increase advertising opportunities that, in aggregate, provide profit for the entire company.

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