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The Young Are Watching, But They’re Not Watching Pay TV
Young people have vastly different video viewing habits than older people, and those habits will continue for their whole lives. So why doesn't the pay TV industry respond?

Want to know how to talk to young people? Ask them about their favorite YouTube channels.

I recently met two distant relatives for the first time -- brothers, one in high school, one in middle school. They politely answered my questions about their interests and schoolwork, but the conversation didn’t come alive until I asked about their favorite YouTube channels. Then they rattled off a dozen, including CrazyRussianHacker, Film Riot, and VintageBeef (which I discuss in my article on rising YouTube stars).

I’ve heard many times that young people don’t watch video the same way people my age do, but seeing it in person was an eye-opener. There are a few YouTube channels I like, but I typically go months without looking at them. Young people, on the other hand, watch a lot less broadcast TV, but they love their YouTube. In October 2013, The New York Times presented research showing that 34 percent of Millennials watch video mostly online and don’t watch broadcast TV.

There’s a constant discussion taking place about the future of pay TV. One side says that TV as we know it is dead; the other says that’s an overreaction, and that pay TV is as healthy as ever. According to an SNL Kagan report released in March, pay TV ended 2013 with around 100 million subscribers, down only a quarter million. Sounds pretty healthy, right?

Before you decide, talk to some teenagers about their favorite YouTube channels.

Viewing habits become engrained. People older than I am watch mostly live broadcast TV. People my age (40s) get most of their video from a DVR. Younger people go online. Pay TV executives think they can keep online viewers pacified with TV Everywhere. They’re wrong.

To better understand how the young get their video and what it means for the future of pay TV, I spoke to Bettina Hein, founder and CEO of video marketing software company Pixability.

“To me, it’s inevitable,” Hein says. “I don’t think that anybody is disputing that linear television is not something that will play a role; 15 years from now, people will think, ‘Why did we ever dispute that television was going through a transition?’”

As the transition occurs -- as ad revenues and subscription fees shrink -- Hein predicts that some cable channels will go out of business. To reach a younger demographic, brands will advertise on YouTube and Hulu. They’ll have to, she says, since Netflix doesn’t run ads.

“If you see that kind of behavior in that generation, they’re not suddenly going to go to college and then start watching cable TV, right?” Hein says. “They’re learning their behaviors now, and they’re not going to change them.”

With the writing on the wall for pay TV, why aren’t the big players doing more to innovate, to target young adults with smaller, modular packages that offer full online streaming? It seems obvious that $20 per month personal subscriptions grouped around interests would take off, especially if they include authentication for big events such as the Olympics. Dish is the only player that seems to be actively working on such an option, and HBO -- which offers HBO Go -- is the only content creator that seems to understand online.

To answer that, Hein refers to the story of the radio industry, as told in Clayton M. Christensen’s The Innovator’s Dilemma. Companies that made big, beautiful home radios didn’t see low-cost transistor radios as a threat. After all, transistor radios didn’t offer anywhere near the same quality. The manufacturers of high-end home radios kept telling themselves that -- right until they all went out of business.

Pay TV companies might be too large and inflexible to innovate, but younger, hungrier companies are already stealing the youth market. They’ll keep taking more and more until the old guard has no audience left.

“The now-dominant players may just kind of vanish,” Hein says.

So should pay TV executives be worried? They should be terrified.

This article was originally published in the July/August 2014 issue of Streaming Media as "The Young Are Watching, But They’re Not Watching Pay TV."