You get what you pay for

They were not quite Christmas presents but, in the past month or so, three pieces of independent research have landed on my desk, all of which run counter to the prevailing wisdom (cf. Chris Anderson) that ‘free is best’ and paid for media have had their day.

The first piece of research came from Kantar Media (part of the WPP Group) who looked at consumer willingness to pay for different media experiences. They looked at willingness to pay for content across newspapers, radio, mobile phone, internet and television.

The research shows we are expecting many things that we have traditionally paid for to be free; music and news access are just two of the most high profile examples. But there was one area of media where consumers value the experience so much that many of them are prepared to pay for it at a time when the crowd is supposed to be dashing in the opposite direction. That was for long-form, immersive, narrative-driven, audio-visual entertainment; consumers call it TV.

Just a couple of days after receiving that research, I attended a hugely insightful briefing at Oliver & Ohlbaum which demonstrated the resilience of the pay TV sector during the current recession. Although most forms of discretionary household expenditure are being cut, one of the few to remain steady was in-home entertainment and, within that category, the most resistant of all to household cutbacks was pay TV. This was absolutely in line with a report from Deloittes just a few weeks earlier. It is obvious that, at a time when people are being restricted in their ability to go out and socialise, they are instead spending on TV access at home to sweeten the pill. This has resulted in a bumper year for both BSkyB and Virgin Media in terms of subscription revenues and again demonstrates that people are prepared to pay for what they value at a time when many businesses are struggling to adapt to ‘the power of free’. Ofcom’s August 2009 Communications Report showed that UK TV subscription income, at £4.36 billion, is now higher than both TV advertising revenues and the BBC Licence Fee income.

Finally, a statistic from Screen Digest really caught my eye. Despite the deluge of ways to access on-demand television – from digital recorders to web TV to closed source IPTV services – the total share of European DVD sales taken by television series has almost tripled from 5% to 13% in the three years between 2005 and 2008. This has mainly been driven by France and Germany, but even in the UK sales have beaten the market trend.

All of these growing sources of cash are proving crucial at a time when advertising income has been squeezed by the recession, because it ensures that investment in quality programmes can continue. TV advertising income is still vital of course. When advertisers spend on TV they are investing wisely in two ways: for their brand and for the future of the medium that returns so much to them.

So, whether it is access to on-demand content, willingness to pay subscriptions for pay TV packages, or the resilience of the boxed set DVD market at a time of unprecedented free access to TV content, consumers seem willing to spend money on the TV they love even when pressures on their purses or pockets are stronger than ever. Surely cause for celebration…even from Rupert Murdoch!

  • Graeme Wood

    Great round up of a range of research David – while I don’t think fact that pay TV has grown in 2009 should come as a surprise, it is surprisingly easy for TV naysayers to ignore.

    Having said that, I’d take issue with your statement that this is counter to Chris Anderson’s case for Freemium business models. Anderson’s point is that people won’t pay for content, they will pay for ease of use and innovation. Which in Sky+ & V+ is exactly what pay TV delivers. Once someone buys into the role that Sky+ plays in their life, the upgrade to premium (ie sports/movies) content is a natural progression.

    Similarly I’m not convinced by the idea that 8% of people would pay for content on their mobile. Obviously anyone with a mobile is already paying for some level of content on it, so the question is more around how additional layers of content are packaged – this can be at an operator level like the unlimited data in O2’s iPhone tariff, it can be micropayments like the Apple app store (and media brands such as the Guardian’s use of the app store to deliver content in an easier to use format than newsprint), or it can be all-you-can-eat partnerships like Spotify on 3 or Nokia Comes With Music, both of which are effective ways of charging for music)

    While I’d love to know how News Int are planning to charge for newspaper content, it seems odd that they wouldn’t be thinking of the huge installed base of pay TV customers who pay monthly for channels that they don’t use. To offer a package that let their users choose to have access to exclusive ‘newspaper’ content rather than one of the two TV packages that they currently include in their base package would effectively monetise millions of News Int newspaper users online. It would also be precisely in keeping with the freemium concept of charging only for exclusivity and ease of use. In exactly the same way as the Sky TV iPhone app is worth paying for because it is portable, but it is free for 3 months so you can decide for yourself how valuable this portablilty is before any money changes hands)

    (see here for more random ideas on what News Int might be able to do with their pay TV base