The following document is a proposal letter for Alexander & Associates' much anticipated Advanced Media Communities project. If you would like more information on this project, please email Greg Durkin or Michael Gorman at aainfo@alexassoc.com, or reach them by phone at 212.684.2333.
 
 

One of the most eagerly pursued questions today has to do with the impact of digital cable systems, the advent of “video-on-demand”, the explosion of satellite channels offering “near video-on-demand” and the increased capability of broadband internet services to provide video programming.  With so many channels to the home, what will people do?  And what will happen to existing channels of distribution?

Contents
Background: The Explosion of Media Channels
Forecasting The Future:  Advanced Media Communities
The Outcome:  A Media Usage Forecast
The Invitation
 

Background:  The Explosion of Media Channels
This is not a simple matter, despite the intense public relations campaigns offered by so many proponents of one medium or one system or another.  As we have seen over and over again, this is not a “winner-take-all” environment from the consumers’ point of view!

The consumer experience of the explosion of media channels is a vast increase in choice.  And the consumer reaction to those new found opportunities for making choices is to make the choices that fit their needs, their budgets, and their lifestyles – in ways that bring them the kinds of benefits and satisfactions that they seek.  The result will be many different and overlapping patterns of behavior that will increasingly escape simple classification.  All of this will be great for the consumer – it's just the marketing departments that will have to work harder!

In addition to the increase in media channels is the amazing increase in household hours available for media consumption –  a topic often overlooked in the discussion of the future of media. The reason for this explosion, in the face of a static 24 hour-per-day clock, is the increase in media consumers in each household.  We are no longer a one-television, one cable outlet, one VCR unit society.   DVD players are on top of the TV set – and in the high school student’s computer in his bedroom.  DVD capability may also be in his younger brother’s video game system.  And the personal computer connects to the high bandwidth Internet services of the digital cable operator, offering more places in the household to choose media and enabling more decision makers in the household to do so. (Return to Contents)

Forecasting The Future:  Advanced Media Communities
The methodologies some use to forecast consumer behavior are demonstrably prone to vast error.  “What will you do when you can do everything at a push of the button?” is a question some often ask without thinking whether the answer to that question can be reasonably relied on!  How does the consumer know what his experience will be like?  How can he decide what he will do?  These approaches, which are popular, are hardly reliable enough for today’s decision requirements.

An alternative is to use focus groups and to take small groups of consumers into a laboratory situation in which they may have access to certain devices, and to probe for their reactions to these innovations.  At least the respondent has some hands on experience, but the experience is not part of his life and the consumers’ sense of what he might do if he had one of these things at home is forced at best and at least unrealistic.  Moreover, the results of focus groups, while they are instructive at a micro level, are not projectable to the larger U.S. population.

Alexander & Associates designed a methodology based on “Advanced Media Communities.”  This methodology has taken five communities in which digital cable has been established and in place for at least 24 months: Atlanta, Austin, Boston, Denvern and Sacramento. The selection of these communities took into account the demographic distribution of each area, so that all segments of the U.S. household population were represented making our  forecast even more accurate.

We sampled the whole community – not just cable or digital cable homes, but the whole community.  Some were satellite households, some were DVD renters, some were broadband Internet users, and some were digital cable subscribers.  The whole range of home entertainment media behavior was represented in the respondents from each site, and the sample of respondents for each site was rigorously drawn and statistically representative of the whole community.

The questionnaire used was based on our successful, well established and well regarded DTH Satellite Household Media Behavior Study.  This questionnaire focuses on the full range of home entertainment behavior, including cable television watching, premium channel subscriptions, pay-per-view by cable and digital satellite channels, multiple subscription (cable and satellite) patterns, and DVD/VHS rental and purchase activity.  Added to this mix for the digital cable study will be questions on PC and video game connectivity and use as a media channel for pre-recorded home entertainment. (Return to Contents)

The Outcome:  A Media Usage Forecast
The Advanced Media Communities that were the subject of this research and analysis are more than a glimpse at the future of home entertainment – they are the future!  The multitude of offerings and media alternatives for in-home use are not experimental and not developmental.  These are commercial offerings to consumers who have had the choices long enough not to be experimental with their products nor mesmerized by the newness of the technologies.  The way the consumers have adopted these technologies and the patterns of their adoption and use tell us so much about how the future of home entertainment will unfold.  Our final report is an in-depth look at the changes facing the business of distributing home entertainment in a market where the competition has become so extraordinary.  If not already, consumers will have many ways to acquire and/or view home entertainment – many more than ever before in the history of home entertainment -  and the demand for product to meet this broadening market opportunity will be strong.  Key sections of the report include:

• Multiplicity – as much as the investment community would seem to yearn for simple results and winner-take-all conclusions, the reality of these “Advanced Media Communities” is multiple, overlapping, platforms and options – in the community at large and in the individual homes.  These entertainment platforms include: analog cable, digital cable, direct-to-home satellite (which is digital), DVD (digital) and VHS (analog) retailers, high speed Internet connections (both from the cable operator and the local telco and independent providers), and videogame systems.
• Time and Money – home entertainment platforms are a growth business; consumers will spend more time and more money than they already do now to acquire and use these capabilities.  Average home entertainment spending in regular cable homes is roughly $28, while some of the most active, most connected households are spending $300 per month.
• Economic Clouds – the Advanced Media Communities are five to seven years ahead of the general market, and that lead could be even greater under some scenarios for the general consumer economy; we conclude that they represent the shape of the Advanced Media Society in the 2006-2008 time frame.
• Sector Implications – in our analysis of the future, there is no “winner-take-all” result, but there are systems and platforms that do better than others; we summarize our assessment of the prospects for each segment in this section.  The segments included:  Packaged Goods Home Entertainment, Electronic Program Delivery, Pay-Per-View and Subscription Video on Demand, Video on Demand, High Speed Internet,  and Video Game platforms. (Return to Contents)

The Invitation
Alexander & Associates’ Advanced Media Communities Report is now available and we invite you to increase their understanding of how upgrading to a broader pipe affects the media behavior in various market segments.

We recognize that client participation is key to the usefulness of this study.  By understanding your key interests and concerns, we will be able to further customize a presentation to meet your specific needs. For more information, email Greg Durkin or Michael Gorman at aainfo@alexassoc.com, or reach them by phone at 212.684.2333. (Return to Contents)