Couch Potatoes Prop Up Viacom, ProSieben in TV Market Battle

Apple Inc., Google Inc. and Hulu LLC are working on technologies they say will transform how people watch television. Nobody told the couch potatoes.

Traditional TV watching has retained its popularity even as the options for online and on-demand content delivery multiply. While broadcasters themselves are experimenting with new delivery models, their core business -- beaming scheduled programs into viewers’ living rooms -- has proved resilient.

“TV viewing is at an all-time high,” Philippe Dauman, chief executive officer of Viacom Inc., the owner of MTV Networks and Comedy Central, said in interview in Avignon, France this month. “The sector that we’re in is, in some ways, leading the economy.”

In the U.S., the world’s biggest television market, the amount of time spent watching TV has risen, according to ratings company Nielsen Co. The average American viewer watched two more hours of TV per month in the first quarter of 2010 compared with the same period last year. In the second quarter, the year-on- year figure held steady.

“There’s inertia in terms of where people spend their time that’s stronger than we expected,” said Charlie Kim, the head of the Americas media practice at consulting firm Bain & Co.

Photographer: Andrew Harrer/Bloomberg

Philippe Dauman, president and chief executive officer of Viacom Inc. Close

Philippe Dauman, president and chief executive officer of Viacom Inc.

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Photographer: Andrew Harrer/Bloomberg

Philippe Dauman, president and chief executive officer of Viacom Inc.

Still, new video options may push the TV market toward a tipping point, requiring an overhaul of business models, he said. The Nielsen numbers capture the trend. While watching TV at home rose 0.6 percent in the first quarter, so-called timeshifting, which includes digital video recorders and video- on-demand, advanced 18 percent and viewing on mobile phones climbed 51 percent.

Shifting Scene

TV watching “is shifting,” Jean-Bernard Levy, CEO of Vivendi SA, which controls France’s biggest pay-TV service, Canal Plus, said at a conference in Barcelona, Spain last week.

“A lot of the viewership for many, many years will be on linear programming,” he said, referring to TV watching with a schedule set by broadcasters. “But we are working hard and doing well in terms of catching eyeballs in other formats.”

For now, the absence of a mass exodus from living room TV sets to devices like Apple’s iPad is encouraging broadcasters.

Concern about the rising consumption of on-demand offerings is “pretty exaggerated,” Thomas Ebeling, chief executive officer of ProSiebenSat.1 AG, Germany’s biggest private broadcaster, said in an interview in Barcelona. “Consumers want shows and events that bring family and friends together in front of the TV set and which they can discuss with everyone in the office the next day.”

‘Explosive’ Growth

U.S. TV ad spending saw “explosive” growth in the second quarter, with basic cable networks recording percentage gains in the low-to-mid teens, according to market researcher Screen Digest. It is forecasting TV advertising to grow 8.8 percent in the U.S. in 2010, 7 percent at networks and 8 percent for cable.

While the comparisons are enhanced by weak numbers in 2009, many broadcasters are “over the moon” with their recovery, said Alex DeGroote, an analyst at Panmure Gordon in London.

One of the most popular programs in the U.K. is the X- Factor singing competition that can draw almost 50 percent of all TV-owning households to ITV, the country’s biggest commercial broadcaster. Now the network is teaming with other broadcasters to introduce an Internet-connected TV platform in competition with Rupert Murdoch’s News Corp.-controlled pay-TV channel, British Sky Broadcasting Plc.

The numbers are flowing through to broadcasters’ results. Viacom reporting net income that beat analysts’ expectations in the third quarter and Societe Television Francaise 1, France’s most popular channel, boosting profit to 96 million euros from 2 million euros. RTL Group SA, the European TV network owned by Bertelsmann AG, saw third-quarter sales rise 8.8 percent.

Stock Gains

ProSieben shares are the best performers on the Stoxx 600 Index this year, surging 154 percent. Viacom stock has advanced 41 percent and ITV shares have increased 30 percent. BSkyB, for which News Corp. has made a bid for full control, has gained 29 percent in the period.

As the on-demand options have multiplied, however, some traditional viewership numbers have shrunk. In the U.K., about 38 percent of video viewers turned to the British Broadcasting Corporation, or BBC, and ITV this year compared with 60 percent in 1998, according to Broadcasters Audience Research Board. The average weekly TV viewing, however, has held steady since 2007 at about 28 hours in spite of the new technologies.

Pay TV in the U.S. lost customers for the second straight quarter in the three months ended September, according to a report last week from research firm SNL Kagan, with cable operators taking the biggest hit.

Netflix, Hulu

By contrast, Netflix, the online movie-rental service, and Hulu, whose free and subscription-based models offer film and TV programs on-demand in the living room, on PCs and mobile devices, are gaining eyeballs. Netflix added almost 2 million users in the third quarter, bringing its total to 16.9 million.

Google and Apple are also expanding on-demand TV services, while Amazon.com Inc., Time Warner Inc’s HBO and cable companies plan to offer fare online. The new services are diverse, although almost all eschew TV with programs on a set schedule.

Although their numbers are declining, operators of multiple cable TV systems still hold more than 60 percent of all video subscriptions in the U.S., according to Charlottesville, Virginia-based SNL Kagan.

Also, broadcasters are themselves experimenting and making decisions on which new delivery channels to support. Viacom has said it is monitoring the progress of Hulu, which was founded in 2007 by General Electric Co.’s NBC Universal and News Corp.’s Fox, and counts Walt Disney Co.’s ABC and private-equity firm Providence Equity Partners Inc. among investors.

Avoiding Music Repeat

“Cable networks have historically been a really good business for us, since they bring in revenue from subscriptions as well as from advertising,” Viacom’s Dauman said. “That model works, and customers are used to it.”

Broadcasters are eager to avoid the fate of the music industry, which saw sales and profits plunge as consumers downloaded music off the Internet.

For free-to-air broadcasters especially, “the key unresolved question is whether the current consumer habit of watching TV linearly will survive,” or if audiences will move elsewhere, said Claudio Aspesi , an analyst at Sanford C. Bernstein in London. “Some of that will be captured by the incumbents, but some of it will go somewhere else.”

To contact the reporter on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net.; Simon Thiel in Barcelona at sthiel1@bloomberg.net; Jonathan Browning at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net.

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