 As you know, the communications forum events are audio recorded. And within usually 24 hours of any event, an audio recording is posted on our website. A text summary of the event is also posted on the website you see there. And in addition to that, this semester for the first time, every MIT communications forum event is being videotaped and will be available in streaming video from MIT World, although there's a longer delay before those videos go up, because there's a lot of preparation involved. But I'm very happy to have this sort of extension of the communication forums reach. What we've been learning from looking at hits on the site and so forth is that our virtual audience is rather large. And we're happy about that. We seem to be reaching people not just in the United States, but in various Asian countries and Western Europe in ways that are very encouraging. And I'm eager to let not only our speakers know about this, but our audience know about this. One kind of feedback we've been getting, in fact, from people not on ground who experienced the forum in virtual space is that the questions from the audience are often the most important part of the event. So I mention this to encourage you to be as intelligent as you usually are when you attend communication forum functions. My task this afternoon is to introduce my friend and colleague Henry Jenkins, who will moderate this event. Henry is a kind of legend at MIT and hardly needs real introduction here. He's the genius loci of CMS, is an incredibly prolific author, has a trilogy of books coming out from the NYU press shortly, including a remarkable new study of what he calls convergence culture that I think makes a pathbreaking argument about our current media circumstance. And of course, he's an inspiring teacher known to now generations of MIT students as an important teacher. One way to think of him, I suppose, is to think of him as a force of nature. Henry Jenkins. Once I'm done walking across the water, I'll come back down to earth and moderate. Thanks, David, for a very generous introduction. I'm delighted to open up a session that is devoted to television's new economics. And our first speaker is going to be David Pultrack. He's one of the industry's most respected experts on audiences and audience measurement. He was recently named president of CBS Vision, the network's new research unit. Since 1994, he has been executive vice president for research and planning at CBS Television, overseeing all television research activities, encompassing audience measurement, market research, program testing, and advertising research. He teaches courses in marketing and media at both the graduate and undergraduate levels at the NYU Stern School of Business and at the School of Education and Communications. So let me turn it over to David. Thank you. Today, we're going to talk about the changing world of television economics. It's coming about because of the changing world of technology. And so as I was thinking, I'm here in the MIT Media Lab. And I'm going to be talking about the present, which I guess to the people in this building is the past. So because this is the world that they were looking at 10 years ago and talking about 10 years ago, and it is now coming to pass. And it is changing our business. This is a presentation that has a 20-minute version, a half-hour version, a two-hour version, and a four-hour version. So you're going to get the 20-minute version. So I'm going to go very quickly, but we have plenty of time for Q&A, so hopefully we'll be able to. This will just prompt some discussion and we'll move on from there. So let's see how reality looks relative to the video marketplace that was envisioned back 10 years ago. The change from analog to television to digital television is a technical change. As such, it is essentially content neutral. However, in reality, it is anything but. That is because the change from analog to digital television brings with it a change from linear to nonlinear television. The old linear model constrained viewer access to programs by limiting their exposure to a specific time and place. In the new digital nonlinear world, the viewer has an increasing array of ways to move television programming around in time and space, subsequently increasing the opportunities to view that programming. Before addressing the central franchise program theme, let me share with you the research that we have done on the various new digital program distribution systems, the DVR, VOD, the new portable options like the video iPod and the internet. Let's start with the DVR. The DVR was developed in 1997 and reached the market in 1999. By mid-year 2000, it was being proclaimed as a revolutionary product about to transform every aspect of the television and advertising market. A cover story by Michael Lewis in the New York Times magazine on August 13, 2000, entitled Boombox, presented the case that the DVR was a transforming technology. To quote Lewis, the new technology from Tivo and Replay provides the ultimate in television convenience. It will spy on you, destroy prime time, and shatter the power of the mass market. The article went on to predict that the DVR enabled sets would be in 28 million households by 2005 and 45 million households by 2006. The drumbeat for the DVR was growing in December of 2000, when yours truly addressed the likely impact of the DVR. To quote myself, even with the plans to incorporate them into the satellite and cable boxes, it is unlikely that DVRs will match the 10th year VCR penetration level of 50%. And in conclusion, the pundits that are constantly trying to present television scenarios built around the replacement of the current advertiser supported model underestimate the economic foundation of that model and fail to recognize the public's high level of comfort with advertising-supported television. So let's see who was right. The DVR has now celebrated today's birthday. And both Nielsen and Arbitron are now measuring DVR activity electronically. So let's review some of the previous research based on self-reporting by DVR owners and see how it holds up against the electronically measured behavior of DVR owners. By 2003, only 3% of US households had embraced this new technology. To say that this fell far short of the pundit's predictions is a major understatement. However, these pundits told us in 2003 the incorporation of DVRs into digital cable and satellite packages would soon bring penetrations levels up to their originally forecast levels. Two years later, with all the major cable MSOs and the two satellite providers having aggressively marketed their DVRs for at least one year, we see that penetration has only grown to 8%. Clearly, a substantial number of people fail that the DVR is something that they can do without. The next question is how much of those with DVRs using the device? In our research and other published reports based on self-reporting respondents, they claim to be watching 40% of their television in the playback mode. So when we look at the results from the Nielsen panel of Tebow Homes, playback is now being seen as in these electronically measured home is below the self-reported 40% level at just over 30%. But this measure is confined to Tebow-equipped sets or set or sets. We know that a substantial amount of television viewing is done on secondary sets. This is also a measure of set tuning, not person's viewing. Arbitron is able to report on playback viewing on a person's basis in its Houston PPM test market. 9% of the respondents in the Houston sample reside in DVR homes. Viewing in the playback mode constituted just 10% of the total viewing of these respondents during the in-season April-May period and just 7% during the summer period. Let's look at our latest research from last fall and then compare it to the early returns for Nielsen's direct electronic measurement of DVR use. Our sample consisted of 734 DVR owners from our entertainment panel. Here's what we learned. If there ever was any question in my mind about how the availability of DVR-type technology would change the way people watch television, this research really provided the answer. So it is clear, as we look at this chart, that viewing behavior changes substantially when a home obtains a DVR and enters the world of nonlinear program access. One result of this change is an increase in overall viewing. In the PPM survey, adults with DVRs watched 12% more television than their counterparts in non-DVR homes. Things really get interesting when we analyze the programs these DVR owners are watching. Broadcast network programs made up 71% of all programs viewed live. Broadcast network programs represented an even greater 80% of all programs viewed in the playback mode and they represented 73% of all programs recorded. Now, let's compare these percentages to the 47% share of total prime time viewing reported by Nielsen for the broadcast networks during this 14-day period. Now, we recognize that program-based recall is likely to overstate the relative share of popular network programs since it would exclude any sampling or channel surfing activity. However, the higher share viewing for the broadcast networks among DVR owners has now been confirmed by the Nielsen-Tivo panel results. In May, the first month of the new Nielsen-Tivo panel, the share of overall viewing, live plus playback, accounted for by the broadcast network of this affiliates was 63% fairly close to our respondents' self-reported levels in the fall and well above the 50% Nielsen figure for all viewers during that month. In our research, the top 10 programs in playback represented 30% of all viewing in the playback mode. The top 20 programs represented almost 1 half, 47% of this viewing. The most playback programs accounted for 25% and 39% of all prime time viewing activity, live plus playback. These programs represented far lower shares of total viewing reported by Nielsen for that period, just 9% for the top 10 and 15% for the top 20. So what are the most frequently playback programs? Mostly top network television programs. But that was a year ago and that was self-reported viewing, which would be expected to favor the bigger shows. How do these programs do when we move to direct electronic measurement of viewing? The first results from the Nielsen-Tivo panel reveal a top 10 playback list that looked remarkably close to the overall top 10 for that period. The one exception is the OC, which did much better with Tivo owners than with the general population. This is not that surprising when you could take it to consideration the fact that this program is scheduled against Survivor, the number two program on the list. Now let's look at why these franchise program brands dominate playback activity. This chart, which compares the monthly audience of CSI, 60 million viewers, to the average weekly audience, 25.6 million viewers. With the average CSI viewer only watching about one half of the episodes, it stands to reason that many of the CSI viewers who expected to miss a week's episode would record it for later viewing if they had a DVR. In our DVR research, the reported live viewing level for CSI among DVR households was 13%, comparable to the overall viewing level for this program recorded in non-DVR households of 13.9%. However, another 7% of the DVR owners reported viewing the program later that night in the playback mode after having recorded it. And another 15% of these DVR owners reported recording the program, this program, for later viewing. If only a portion of these recorders played back CSI on a later night, then the actual percentage of DVR owners watching this each episode of CSI would be close to double the 13.9% level of the non-DVR equipped population. We now have the first electronic measurement of playback by program. Nielsen has just begun including DVR owners in its national sample, but it has included them in its local meter market samples for almost one year. We combined the respondents from the seven markets with large enough samples of DVR owners. DVR equipped homes represented 8.5% of all the homes in these markets. The playback ratings for the top prime time programs added 5% on average to the total audience for these programs. The range was from a low of 1% to a high of 10%. This table ranks the programs by playback rating. The most popular prime time programs dominate the list. As you can see, the contribution from playback is adding close to a full rating point to the audiences of the major programs. When we rank the programs by percent contribution of playback rating to the total ratings, some of the lower rated programs that compete against the higher rated programs rise to the top of the rankings. For 8.5% of the viewers to add as much as 10% to the total audience of a program, they would have to be viewing that level at about 1.5 times or even greater than those in the non DVR equipped universe. So when we combine these early results from the three electronic measurement services, the Arbitron PPM sample, the Nielsen-Tivo panel, and the Nielsen local meter market panels, they would appear to support our premise that the DVR will increase the audiences for the most popular network television programs and raise the overall television viewing level. So what has been reported to be a major threat to the broadcast networks could very well end up enhancing the position of these networks and increasing the size of their relative audiences, respective audience. It has been my position that the DVR is a transitional technology that will be replaced in large part by various forms of video on demand when these services reach a critical mass in terms of the percent of programs that they offer. Let me share some of our research on VOD with you. Our VOD research was made up of 18 focus groups. The sample consisted of adults who were either the male or female head of their household. No dependent adults were included since these young adults would not be able to discuss future purchase intentions for the household. We restricted the adults to 25 to 54 years of age with one third, two third split between 25 to 34 and 35 to 54. Since the purchase decision concerning home entertainment technology is often a shared decision, we included couples in our groups. In total, we had 189 respondents, 65 couples, and 59 singles representing 124 different households. 32 states were represented in this research. This research is designed to monitor the leading edge heavy user segment of the home technology market. For this reason, our focus groups are confined to adults in households with cable or satellite television. The differences between our leading edge panel and the general population were more pronounced in the more advanced digital cable and broadband internet areas. Over one half of our respondents had each of these technologies versus just about one fifth of the general population. It should be noted that broadband penetration is now about 35%. We conducted two experiments designed to test the interest in VOD among these early adopters. In the first experiment, the respondents were asked to select the programs they would be interested in purchasing. In the second test, we had to simulate a night of television viewing. The first experiment was designed to measure the interest in purchasing episodes of top television series at $1 without commercials or 50 cents with commercials. Almost all, 95% chose at least one program that they would consider purchasing. On average, the respondents selected 7.5 programs. There's an even split between those going for the dollar option without commercials and those going for the 50 cent option with commercials. The program list from which the respondents' major selection included almost all of the top broadcast programs, as well as the 10 top rated original cable television series. Their choices were concentrated among a small list of top programs. The ranking of the selections closely paralleled the Nielsen Adult 25 to 54 rating rankings for the general population. The top 10 programs represented 34% of all the selections. The second 10 programs showed a little more variance with the Nielsen ratings. Nip Tuck was the only basic cable entry. Together, the top 20 programs accounted for over one half, 57% of all choices. Clearly, the market for VOD programming is concentrated among a relatively small number of programs. However, the demand for VOD programming is not limited to prime time. We also offered several daytime and late night programs at 50 cents per day or $1 per week. Among daytime programs, there was a significant interest in the top talk shows, particularly Oprah. The late show with David Letterman led the late night entry programs followed by Saturday Night Live, which given the fact that it was just once a week was priced like a prime time program. We also included the most recent release feature films that were available at Blockbuster at that time. These were priced at $5 for 24-hour access and $7 for seven-day access. Spider-Man 2 was the film chosen most with 18% of respondents stating that they would consider purchasing this film. Shrek 2 was second at 16%. These selections are consistent with DVD sales and rental results. While these numbers are impressive, they're below the top 20 program average purchase level of 22% and well below the 33% level for CSI, the first-place television program. Of course, the price of these films was much higher than the price of the television programs. The objective of our second experiment was to further test a respondents' interest in VOD programming by having them choose a night of television viewing from a list of VOD programs plus the regular prime time listings for the broadcast and cable networks for the night. We rotated the schedules by night so that each night of the week was covered. Our assumption was that the respondents would be less likely to choose programs for which they had to pay when they were presented with a full schedule of available free programming. Our 211 respondents chose to purchase 148 programs or 0.7 programs per respondent. The top five programs were selected by about 5% of the respondents each. Remember, that's 5% per night. Now, hopefully, this research has demonstrated the upside potential for the major program brands in the new nonlinear television environment. VOD offers the possibility of generating a substantial second revenue stream for program suppliers to direct to the consumer rentals and sales. The DVR, which offers free access to time-shifted programming, actually undermines the potential for the second revenue stream. Today, owners of DVRs that also have access to VOD are split right down the middle regarding their preference for DVR, their DVR, or for VOD. 49% for VOD, 48% for the DVR. However, if you look at the reasons that the viewers give for their preferences, you can see that those preferring the DVR do so because of the greater range of programs available and the greater control of the process. If and when, VOD services expand to a full inventory of programs, including the most popular programs that are currently not available, then the DVR advantage will no longer exist. This is why I believe that full VOD will eventually surpass the DVR as the major means to time-shifted viewing. But that VOD will not be confined to today's cable and satellite offerings. New VOD services are now emerging. First, let's look at the new portable viewing devices. The Video iPod is certainly the most talked about new portable video option. In our latest new technology survey with our panelists, we found that almost 1 half, 42% owned an MP3 player and iPod had just slightly under a 50% share of that market. Only a small percentage of these MP3 owners were interested in upgrading to the Video iPod or of purchasing one for someone else. This survey was conducted just a month before Christmas. However, over 1 third, 35% of iPod owners were interested in the opportunity to purchase episodes of their favorite series for use on their iPods. About the same percentage of past VOD purchasers, 37%, were also interested in this service. So you can see why Apple wanted to make the deal with ABC for lost and desperate housewives and continues to aggressively seek to add program inventory to iTunes. Those that do not currently own an iPod while not running out to buy the new video version due to the availability of these programs still acknowledge that the availability of these programs makes them more interested in obtaining this product. Moving to another new device for portable video distribution, the full motion video cell phone, we see that 11% of our high-tech panelists have already obtained one. However, the remaining panelists showed very little interest in joining these early adopters. Only 1% and 2%, definitely in very likely categories. Overall, our panelists prefer the iPod by a slight margin over the cell phone for full motion video. Since putting this paper together, we've done further research on these two devices as well as the Sony PSP. The Sony PSP finishes third in the survey, but it beat the cell phone and mounted a strong challenge to the video iPod in our in-person testing with demonstration due to the quality of its picture and its size, the size of its screen. However, the dominant VOD player is still likely to be the internet itself. Of the 8 million plus downloads of current television programs available on iTunes, the vast majority of those downloads are for direct viewing on the PC itself. These downloads never migrate to the video iPod. Given the extraordinary rate at which new distribution options are emerging, it is clear that the freeing of a substantial portion of the television audience from the constraints of linear delivery is well on the way. It is also clear that the winners in this new nonlinear market are likely to be the most popular programs and the companies that control them. Because the new nonlinear digital television era will be an era of the franchise program, this new era will even more than in the past be characterized by the survival of the fittest. With the viewers having universal access to all programming, the strongest programming will be even more dominant. And for the most part, the franchise programs will be found on the broadcast networks. I'll skip over this a second on the internet. More and more, the process, this process does include the internet. Yes, the internet is a new competitor in the advertising market. However, the internet also represents an opportunity to expand the reach of franchise television program brands. Let me give you an example of how we at CBS are expanding our franchise programs into the internet sector. First, we actually are putting TV content on the internet. This includes things like a short continuation of an episode of CSI Miami that you went to after the end of the show to find the resolution of, which got one million streams in just hours after the telecast. It also includes running full programs like Everybody Hates Chris, which was streamed on Google Video and had 120,000 streams during the short window in which it was available. It also includes live internet talk shows. We have live internet talk shows for the amazing race, Survivor Live, House Calls Big Brother. All of our reality shows have a separate original programming that currently is running on the internet. It also includes such things as podcasting, blogs, and interactive applications that we are using on the internet. And perhaps the most exciting of all of this is that next week we will be running the NCAA Final Four live on all the games live on the internet. We believe currently the record for the most simultaneous users of a streamed video content was live eight, which had 188,000 streams simultaneously. We believe that we are going to break this record and dramatically when we stream the NCAA Final Four on the internet. And in fact, we have already gotten a great deal of concern from a lot of major corporations since these games actually air from noon until 5 p.m. that we may bring down some of their computer systems. So to wrap up, the era of digital television is going to be, we feel, the era of the franchise program. And we're very excited about this new era. That is why we formed this new, our new operation that I'm the head of called CBS Vision, devoted to research in this new sector and we're working with our partners such as Google and Comcast and Yahoo and all these new players exploring in our research facility in Las Vegas and also over the internet with our various panels the New World of Television Distribution. But we believe the New World of Television Distribution is all and all and we're working with our partners all and all an opportunity for us and we welcome it. Thank you. Thank you very much. Our second speaker is going to be Jorge Schment. He's a leading academic scholar of the statistical matrices of consumption and information exchange. He's a distinguished professor and co-director of the Institute for Information Policy at Penn State University where his research interests focus on the social and policy consequences of the production and consumption of information. He serves on the Board of the Media Access Project, Libraries for the Future and the Benton Foundation. Thanks. Thank you. I got so engrossed in listening to Dave's conversation here that I didn't lost my place on my sheet. Very fascinating. What I want to do is talk about some of the larger historical themes or tendencies that have characterized the 20th and now the 21st century and how they've affected the kinds of homes that we live in. So I want to start with an image of the American home that is the anchor to a lot of policy discourse today, certainly in my circles of telecommunications policy. It is always hovering in the background when we talk about the home, the household, et cetera. And it's taken from a 1927 collection of readings from Edna Ferber. It's a description of the Comet family. It says, such was the Comet family life. There's was the spendthrift and almost luxurious existence of the American working class, ready-made clothes, white shoes, Sunday papers, telephone, phonograph, a radio, pork roast, ice cream, the movies, a somewhat sordid household, certainly, but comfortable to, bookless, of course, extravagant with its quarters, its half dollars and its dollars. I think in some ways that image is quintessentially American. The Edna Ferber's stories did so well that when they made the transition to television, mother lost her place and father was replaced and became father knows best. But nevertheless, when we talk about households, we're generally thinking of an integral household, people living together. This description already by the 1920s defines the household around information technologies. As we continue to do today. I want to suggest that while that is our anchor, there are good reasons why we ought to be thinking a little bit differently about who we are. That some significant demographic changes continue to take place. ICTs, information and communication technologies arrive in households in waves rather than singly and individually, and that they tend to displace pre-existing information technologies, but they don't replace them. In other words, television didn't replace radio, the computer didn't replace television, but they have nevertheless found niches for themselves as the home has become fuller with information technologies. And that in the process of all this, we have become not so much members of a household, but individuals in a household who tend to participate socially and politically as individuals rather than as members of larger social entities. Well, first of all, the average size of households in America has been declining, and it has been declining since the very first census was taken in 1790. And the decline has been quite dramatic. We are now living in households that on the average have a size that doesn't quite allow for three actual human beings in it. That is well below the three number that we have been. It looks like it's going to drop a little more even. My guess is not too much more. But it has an implication for purchasing behavior in the way we think of the media that we have access to. Similarly, the percentage of households with children, this goes from 98 to 2010, has continued to drop. And in that period, the drop, if it continues, will also be quite dramatic from 33% in 1998 to 28% by 2010. As an increasing number of households have fewer children or no children, again purchasing behaviors in the way people think about themselves begins to change. And thirdly, single-person households, as a characteristic of American homes, has tended to go up also quite dramatically. So we have these converging forces, size shrinking, fewer children in households, people living alone tending to go up. The real jump in people living alone really comes after the 1960s. So while you think of that, I want to propose that if we take those together what we find is something like this. So think about it. It is that traditional household that we typically talk about, at least in policy circles. Dad is at work, mom is home, there are children in the household. How representative is that? It's just about 7% of households. The other 93% of households in America are something else. I think Dave's people are very sensitively aware of that. But in public discourse, we have tended to ignore that somewhat. Dual-income households with children are 16%. Without children are 13%. Female-headed households and male-headed households together comprise about 9%. Female-headed households and male-headed households without children. This happens when the census taker arrives at the door and says, who's the head of household? Whoever says they're the head of household ends up being counted. But in fact, it's a relatively large number of households where people live either married to each other, not married to each other in some combination but without children. And then there's that very large chunk of single-person households. If there is an overall picture, it is not of convergence in terms of the daily realities in which we live our homes, but actually a kind of fragmenting. The realities of living at home alone are quite different from living at home with a number of small children living at home with a single parent. Even the difference between having a single dad or a single mom creates differences that in a sense create different realities for people. Here are some projections for New York and Los Angeles comparing 1990, really, 1990 census to our projections for the 2020 census. And what you see is somewhat different. Actually, the projections for New York, if you've been reading the New York Times, for example, recently, are way off. Not only is Manhattan already a city where whites are a minority of the population, but the entire New York metropolitan area will be an area where whites are a minority of the population within some estimates are as quickly as within five years. There are other estimates that indicate within 10 years the entire state of New York will have a minority white population and a big mix of others. If you look at Los Angeles, Los Angeles, of course, is part of a state that has already made that transition. And, of course, in Los Angeles, how many of you have a West Coast experience here? Well, if you do, you know that there are no white people in the West Coast. They're called Anglos on the West Coast. And that's also a lesson, right? Even the language we use to describe people in America is, in a sense, moving in directions. One on the West Coast. In the West Coast, there are Hispanics. In the East Coast, there are Latinos. In the East Coast, it's whites. In the West Coast, it's Anglos. Nevertheless, Los Angeles has now spent a number of years as a city where Anglos and whites are a minority. So if you're getting an image of, in a sense, glacial population movements transforming, if you think about the effect on these cities, not only does it transform who lives where. In a sense, that's nice, but not very meaningful. It transforms the economy. It transforms popular culture. It transforms language, as we just saw with several important labels. It also transforms in ways that people participate democratically and the ways in which they envision the democratic process. So we are likely to see, my guess it's a very interesting discourse in the United States that's just beginning to bubble up that will take directions that are, in a way, quite different from the directions that we've had before. History still counts. The concentration of African-Americans in the United States tends to reflect two important events. One is an event that ended in 1865. The other is another war that drew African-Americans out of their concentration in the deep south into industrial cities across the United States creating the populations that we have today. So while significant changes are taking place, they're still going to take place within a context that's quite historical. In the same way that they do for Latinos in the United States. Here we have three events reflected. One is a war that was fought even before the Civil War. The second is basically a tourist fair initiated by American Airlines in the very early 1950s that gave you a round-trip ticket to Puerto Rico for $99, which also served as a one-way ticket to New York City. And then, of course, the 1959 Revolution in Cuba. But I want you to notice the border between where African-Americans end in the West and where the eastern border for Latinos in the east. It's a strip of about two counties. And those two counties represent east of which ranching doesn't work and west of which cotton can't be grown without irrigation. And those two very simple, both economic and geographic facts have, to a large part, channeled population distribution in the United States even today. So while we can look forward to some very dramatic changes, those dramatic changes are going to take place within some fairly strict historical constraints. But keep in mind that not only will New York make this transition in the next, say, 10 years, but three other states are expected to make that transition as well. And none of them are in the west. One of them is Iowa, another one is Michigan, another one is Kentucky. Not states that 10 years ago I would have picked, but nevertheless states that are experiencing. Well, typically, at least in the way we both measure and think in the U.S., is changes occur to us invisibly and they just pop up all of a sudden and suddenly we discover the statistics are different. Partly it's because we don't look very well. But nevertheless these transitions are taking place already. So let's put the demography to one side. Let's think a little bit about technology. Another long trend. Americans have been eagerly purchasing ICTs for over 100 years. If you think about the first great opportunity Americans had to purchase an information technology for their homes, the invention of the telephone. Well, the telephone was demonstrated in 1876 on the same day, by the way, that the Battle of the Little Bighorn was fought. So in a sense a door, one historical door closing while another one open. Television arrives and I'm going to suggest that what we think of as driven by technology may in fact have been something else. And then before 1980, the typical American home contained a fairly simple technological environment, but after 1995 it became very complex. Turning the home, I'll suggest into a node on a network. Those of us who, how many people here were alive at the midpoint of the last century? Okay, so just a few of us. Well, those people who were lived in a home that where half of all American homes had no telephones, where half of American homes did not have a car, where about a third of American homes received mail via rural free delivery and where a radio was probably present, but only one radio in the entire home and that constituted the entire environment. So think about where we are today, but first let's look at these long curves in terms of the adoption of some information and communication technologies. The blue line is radio, the red line is telephone, the green is television, the yellow is cable, and the purple one, if it's purple. Actually I'm guessing on all these because I'm actually color blind, but I'm told that that's what they are. So I don't know, what is it? Is that purple on the far right? Okay, peppermint did you say? Oh, purple. So once more my graduate students haven't deceived me. So what we have here is two patterns of diffusion. We have patterns that are a bit scary in terms of the speed of diffusion. Look at the diffusion of radio, for example, and television and to some extent VCRs. And then patterns that have taken a very long time. Telephone starting in 1876, not reaching 90% distribution until 1970. So almost 100 years to do that. And cable from its true origins in 1945, not appearing even above 20% until 1980, and then taking, but still leveling off at around two thirds today and perhaps growing very slowly. What we have are economically two kinds of markets. We have a market for goods and we have a market for rents. And the telephone and cable represent rents. The other three represent goods. So think about what Americans have done. When Americans are given an opportunity to buy things, they do so shamelessly. I mean, look at this. Look at radio and telephone. We're in the middle of a depression. 25% of American households have nobody working. For example, times are very tough and Americans are buying radios hand over fist. And in order to do that, they're giving up their telephones. Now, you might say once more Americans have shown they got it backwards, right? The telephone is the utility and the radio is the luxury. Well, maybe the Americans of the 1930s didn't think that way. And what we find when we look at surveys taken of poor Americans across the United States, it is that they will give up the telephone in order to make a forced choice purchase to have cable. Again, you might say people are giving up the utility to have the luxury. But if you think about it, in both cases, it makes a lot of sense. Whether you're living during the Depression or whether you're living as a poor family today, we have surveys from South Texas, for example, from Camden, New Jersey, and from the Mission District in San Francisco. When poor people have telephones, who calls? The bill collector, the police, the truant officer. All these people are just dying to talk to you, right? But when you have radios and when you have cable, what benefits do you get? First of all, you get the service all the time. And you can keep an eye on the kids because you are much more likely to be able to keep the kids home. And while America of the 1930s might not have been a particularly dangerous place, certainly for a lot of children in urban environments like the Mission District in Camden, New Jersey, having something to keep the kids at home is actually a very important value. So the hidden lesson there is other people's rational choices are not necessarily your or our rational choices. The other lesson is that for new technologies coming online, those that expect people to pay every single month that is make a purchase every month are going to experience a much slower diffusion than those for which people can save up some money and make a purchase. And I think the most recent example of that is the iPod. iPods even surprised Apple from what my friends at Apple tell me in terms of the sales that it took, although the all-time champion is radio. The radio orders outstripped manufacturing production consistently throughout the 1920s and 1930s. Now, some coincidences. We typically think of the arrival of television as the great turning point. And I think I would support that view. Television in our house, the year is 1954. My mother bought a television. We used to have a sofa against the window so we could sit and read our comic books to light from the window. And another sofa that faced that sofa, one day a television showed up. They brought it into the house. We rearranged the sofas. They put the television in the corner by the window. And now we had sofas facing the television. But my mother, never to be outdone, made sure that the television was placed so that everybody in the neighborhood could see that we had a television. And in South Texas in the early 1950s, there was no air conditioning. And so people would go for walks. And for a time, we were the salon in the entire neighborhood where people dropped by just accidentally to say hello. And oh, by the way, could they see our television? So there's oftentimes more going on than meets the eye. Well, here's what happened to newspapers during that time. Newspaper circulation per 1,000 adults peaked in 1950 and 1950 is the year when television began to show up. It has never recovered. And as my generation begins to exit the stage, the chances are that the traditional newspaper will not ever recover. That doesn't mean people aren't reading news. They're getting it in different places, as you know. Here's another view of that coincidence. Here we have admissions to motion picture theaters and purchases of books and maps. Books and maps together because that's the way the census collects the data. And what I want to show here is that television, contrary to just about every history I've read, did not kill the movies. The movies suffered their biggest decline before most households, before even a small number of televisions. So what happened? What happened between 1945 and 1950 that caused this crash in movie attendance even before television sets arrived? What do you think? What do you think? Hot guys and hot women. About 10 million of them all being turned loose at the same time. And producing within a span of 15 years, 78 million babies, of which I'm thankfully one of. So the story here is that we oftentimes focus on technology so much that we miss the driving forces that are not technological. In this case, television, I'm going to suggest, just arrived at the right time. It arrived at a time when Americans were forming households and when they had very little disposable income and the television was a very good investment for a household that could no longer go to the movies two and three nights a week, as had been happening in the 1940s, for example, and could no longer afford going out to dancing gardens and stuff that Americans had done. And we're looking for something to invest money and to have home entertainment on the television. Arrived at history's perfect moment, I would suggest. The other line, the slow flat one, is also, I think, an important one because it indicates that for certain media there's these big forces have very little effect. Book buying for a fairly relatively long period continues today, you know, just sort of hangs in there. People don't always buy the same books, necessarily the same kinds of books, but nevertheless it appears to be a relatively stable part of American expenditures. Now, in the era of nonlinear television and everything that I think Dave was implying, we can hypothesize whether that will change or not, but I would suggest caution. This is the decade, this is the turning point decade, I think, for what made the American home a note on a network. In the 1980s, answering machines, cable, video games, home satellite receivers, VCRs, modems, compact disks, different kinds of TVs, different multiple telephones, camcorders, home security systems, faxes, PCs, all of them arrived on the horizon and begin to enter American homes, and in some cases entered American homes quite dramatically. So that by 1995 and past 1995, the American home looked very, very different. So let me ask you guys a question and look around you. How many of you have as many in your household home, not your dorm room, but how many of you have as many television sets as you have homo sapiens? How many of you have more telephones than human beings? How many of you have, and don't forget the radios in the car, how many of you have more radios than humans? How many of you have collections of media, that is CDs and video cassettes, that exceed 100, exceed 500? So, you know, raise a very important question. What the hell are you doing with all that stuff? And how can you justify spending all that goddamn money like that? I mean, there's many better places to spend the money and here you are spending all that money. Well, you know, that's a very good question you asked. I teach an introduction to telecommunications class to freshmen and this is the first year that I had to bring a vinyl record because over a third of them had never seen a vinyl, had never seen a vinyl record and over half of them had never seen a 45 RPM with the big hole in the center and of course we also showed them Edison cylinders and all that other stuff that goes with it. But there's a sidebar to this. I used to, for many years, whenever I had a student named Amy, I would ask them, did your dad sing you that song? How many of you know that song? Well, this is what happened. You know, these old people, Dave knows that song too. He's just too embarrassed to say he knows it. So does Henry. So the song is called Once in Love with Amy and it's a really cute song. You know, I like singing it in the shower. In 1992, that day ended. Previous to 1992, there was always an Amy in class whose dad sang her that song. In 1992, there has never been an Amy again in class that who even knew the song. So I think that's how popular culture changes. There is this flow and at some point a disconnection takes place and after that it's gone. Well, in this case, the disconnection to that old simple home took place in the decade of the 1980s and the home became much, much more complex. And these over-purchases, from one point of view, that you all have made, occurred in a completely rational environment. It was a rational environment after 1980, not before 1980. This, I think, is the biggest turn that's taken place. I mean, I'm sure you all know that the video game industry last year made as much money or more money than the movie industry made. These were the games that were the big sellers. But I think what's more important is to recognize that 43% of video gamers are women. And that if you take women 18 years of age or over as a percent of the total, they're a higher percent than boys 6 to 17 years. It may be, and I think it's largely true, that those 6 to 17-year age group were the pioneers who basically established the industry, but they no longer drive it. That the average age for all gamers is 37. And that about a fourth of gamers are over 40. Are there any gamers here who are over 40 who are willing to raise their hands? And that the biggest place to purchase them, of course, that's not so surprising as Walmart. Walmart is the biggest employer in my home state, Pennsylvania. It is also the, and here's another change that's taken place. In 1945, the biggest employer in Pennsylvania was the Pennsylvania Railroad, high-paying union jobs. Today, the biggest employer is Walmart. And we wonder why the people of Pennsylvania don't like tax raises, because they don't make any money. So the American home, I don't believe, given this data, is even close to being saturated with all kinds of information technologies. Okay. Well, we don't need to read that. Personal consumption expenditures. This, I think, is also a remarkable aspect of the American experience. They don't change much in percentage. They may have micro movements, but between 1930 and 2000, the personal consumption expenditures as a percent went from 4.5 to 5.5%. Why is that? Well, because information technologies get cheaper over time, and earlier ones tend to be quite expensive, and we have this cycle of purchasing. This is Internet access up until 2003. Has it continued flat that way, Dave? It's about 60%. Yeah. Okay. So we have a relatively slow movement. What about those people on the other side of the curve who don't have it? One of the areas that we have been looking at is what happens to rural communities. All right. Well, here's what happens. Rural communities, at best, if they have access, have access down at the lower end, eight kilobytes per second, up to 56 kilobytes per second. Their hope to prevent themselves from dying on the vine is to attract businesses. This is what businesses need. Those eight kilobytes per second are way down there, and this is where businesses are and their demands. The picture for rural America is of a very slow, but I think quite painful decline as towns become ghost towns, in effect. As is certainly happening in Pennsylvania but happening all across the U.S. Now, I want to hear from Dave on this because this is something that we're quite interested in. This is TV preferences by ethnicity. Remember at the beginning, we were talking about demographic changes taking place in the United States. This is what we all have in common. This is what draws America together, Monday Night Football. The great discourse of our time. Monday Night Football shows up as number six for whites or Anglos. It shows up as number three for blacks and for Latinos, it also shows up as number three. Now this is 2003 data. My graduate students handed me this as I was going out the door for 2005 data for African Americans. So I haven't checked the data, so I'm always nervous about presenting stuff. I haven't checked myself, but this is what they tell me is going on. Does that look about right, Dave? All right, so where does that take us? This is the home that we have become as a result of these changes. This is taken from interviews that we conducted in New Jersey a few years ago. It seems to be the best time that we have our family discussions when we can get away from the home, go out to a restaurant. There's nothing to distract the kids. No video games. They can run off to no phone ringing, no TV. It seems like a lot of the meals around this table, even though we're still pretty good at coming together, usually will be something that we have to get done. There's a game coming on, TV show coming on or something. The phone will ring during dinner, so we look forward to the times that we can go and take the kids and go out to someplace, and they really have good family discussions. Americans today have to purchase intimacy because they don't have it in their homes. Because the homes that they have voluntarily constructed, if you take the roof off them, look like multiplex theaters with arcades. And this is not a judgment. This is the home Americans want. So if I was to ask myself, what does this mean in terms of words to think about? The first is Henry David Thoreau. I had three chairs, one for solitude, two for friendship, three for society. This vision of society made up of individuals, atomistic is who we are today. And Le Corbusier, a house as a machine for living in, this is the home we have built for that atomistic society that we live in. Thank you very much. We will start questions from the audience in just a moment. We'd like to ask, if you're going to ask a question, if you would please come down to the mics on either side. To phrase the question, since we're recording this for MTV, MIT World. That would be a big hit on MTV. And we would love to have you recorded for posterity as opposed to recording your posterior. So if you could come down to the mic. I'm going to begin asking a couple of, take the moderator's privilege and ask a couple of questions to get us started. David, you made a fairly convincing case for the centrality of network programming as we look forward in terms of digital, video on demand, digital VCRs. It seems like networks will still play a very vital role, but if unless I misread the charts, there does seem to be some significant shifts there in terms of the types of programs that are seeming to do well in that environment. I was struck by the top 22 shows that you showed on one of your charts, I think it was DVR viewers, that only one sitcom was listed out of that 22. The only majority of the shows that were watched on DVR seemed to be dramas and reality television, which were overwhelmingly serialized, at least the ones that were chosen there. It seemed to be almost a split. I realized the sitcom is doing less well in ratings across the board than general, but it's also been the standard of syndication packages for most of the last several decades. So I wonder if you could speak a little more to the types of programming that may be emerging as we look at the data that you're collecting. Is there a shift in what people are choosing to watch those media, and will that have an effect on programs produced and the economics decisions you guys are making? Well, there certainly is a change. The most dramatic change is the emergence of the reality program, and the situation comedy seems to be an endangered species. It has been an endangered species before, and I think it has a little bit to do with the home that Jorge was just talking about. When we had, back in the 1960s and 1950s, when you could relate to that family, you could relate to that situation. And right now these situation comedies, the ones that are successful are the ones that people relate to, to a great extent. And they basically were a reality. And they're no longer reality. Because what happens is even friends was limited in terms of the number of people who could relate to what was going on in that environment. And as we have more complex relationships, it seems that the situation comedy, we're not able to find the universal themes that made the successful comedies of the past. That doesn't mean they won't emerge again and we won't find them. But it's been a fairly long period of time now that we haven't found them. The dramas that are successful are, to a certain extent, are fantasy dramas. They're not real. They don't relate specifically to our life. Most of us fortunately do not deal with, have people who are murdered around us on a regular basis like they do in CSI. We don't deal with death on a regular basis. But there's something fascinating about it. Desperate housewives, I guess, have a certain amount of reality to it, but it really is a fantasy world, I think, for most people. And the serial nature of them is also, I think, a critical aspect of this. We talk about the Hispanic culture. Interesting phenomenon. Hispanic television is a thing called a telenovela. And the telenovela is the most popular form of Hispanic television. We've never had a successful telenovela in the United States. The Univision right now, the list there that showed the top shows in Hispanic households were basically with network shows. Actually, the top shows in Hispanic households are on Univision. And they're Spanish speaking. And they're basically telenovelas that come from Mexico and from Brazil and from South America and that are exported into the United States. And they get huge ratings. They're very, very popular. And what they are is they're serialized shows that have an ending. So they run for a certain number of episodes and then they end. And I always say, well, you'll never have telenovelas in the United States because if you got a 30 rating, you're never going to let it end. We don't let things end that have 30 ratings. But now, this year, because of the increasing social and cultural impact of the Hispanic population, all the networks are developing English language telenovelas. And starting this summer, you will see telenovelas designed and patterned after the traditional Hispanic telenovela on all the major networks on an experimental basis. And those are short serialized dramas. Didn't we call those mini-series? Yes, but they were real. I mean, these are much longer. These will run like 20 episodes. And they'll run for a longer period of time. But the new technologies, what nonlinear television does is it really benefits the serial drama because the problem with serial dramas is keeping up. And when we go to nonlinear television now, you don't have to worry about keeping up. You can keep up in a variety of ways. I'm somebody who basically never watches 24 because I can't make the commitment to watch 24. I just wait until it ends and then I get the DVD and watch the whole thing in one weekend. So I think that the new technologies do favor the serialized form. Okay, well, Jorge ended with some interesting statistics, both showing, began with statistics, showing the racial shift in the United States. And you ended with statistics showing that it has enormous impact in terms of what people watch. And I'm wondering as those statistics shift, what we think the impact is going to be on the kinds of television produced and the kinds of relationship networks have to their viewers? Presumably as the Hispanic and Black viewers become much more significant proportionally, the shows that you showed mostly to appeal to those are on the second tier networks, not by and large CBS, ABC and NBC. What are going to be the consequences for that in terms of what people watch and why? Well, I'm glad Dave brought up telenovelas. Telenovelas are enormously popular internationally. Brazilian and Mexican telenovelas play very well in Russia, for example, and in other parts of the world. So my guess is that this is not the tip of an iceberg, this is the opening of a door, that we're going to be seeing, increasingly seeing that sort of thing. One of the outcomes of the changing ethnic makeup of the United States is an increasing number of people who have what in my youth are called mixed marriages, where Angles marry Mexicans, Puerto Ricans marry Santa Dominguez, African-Americans and Californian marry Mexicans, all sorts of combinations, and when that happens, you have a negotiation of cultures and a negotiation of tastes, and that's, I think, a fairly unexplored territory. The younger generation is much... What we have done in television in order to make the... to address the whole issue of integrated society, of course, is we basically have created segregated shows. So we said, okay, we need more blacks on television, so we've made situation comedies that have all black cast. And so the shows that you showed up there for the black audience, essentially, you know, UPN is a network that we own and now is being merged. That's another interesting story in itself, merging the all-white network with the African-American network, but essentially, what we really are trying to do is what we're really going to have to do is try to develop programs where there's an interaction of all ethnic groups in a real situation. And I think my generation, that didn't really take place. The social interaction never took place. The acceptance took place, the recognition, the working place phenomenon took place, but the social interaction among the races never really took place. The younger generation, the social interaction is much more comfortable. And you're going to see a whole new form of television programming where I think that generation is going to be effective creatively. We'll find the magic to creating these... Grey's Anatomy, it's a show that I think is doing a very good job in that regard in terms of integration of all the cultures. Five years ago, we were doing a testing of a doctor, of a hospital show, and it was similar to Grey's Anatomy type of hospital show, and it was set in San Francisco, and there were no Asians in the show. And you say, how can you have a hospital in San Francisco with no Asians? Have you ever been in a hospital in San Francisco? That was the mentality. You go forward to Grey's Anatomy, and I think we made a lot of progress. There's a question over here, if you could identify yourself as well. Can you turn the speaker or the questioner mics on? They don't seem to be on. Hello, my name is Nina Huntsman, and I'm a professor at Suffolk University. My understanding was that the threat, or potential threat to network television from DVRs was not that people would watch less network TV, but that the economic structure of network television would be under threat, and that is advertising that folks would perhaps skip through advertising. And at least from what I've been reading in the popular press is that advertisers are perhaps losing faith in network television because of the threat that DVRs have to people actually sitting through and watching their advertising. Is there any research or perhaps any suppositions that you have about the economic structure of network television in terms of commercial viewing with DVRs and on demand and other ways to avoid commercials? This is my plot because basically the hour in one hour and two hour version spend the remainder of the time talking about that part, but I couldn't fit it into 20 minutes, so I knew that somebody would ask that question so I'd be able to answer it, I'd be able to get that in, so now I'll give you the second hour of the presentation. Hopefully not a little less time. What we know so far is that the question is okay, so when people watch television in a playback mode are they going to fast forward to the commercials and therefore are the commercials going to be missed? Well, the initial self-reported stuff with people telling us that 70% of the time when they watch television in the fast forward mode they do skip the commercials. In the playback mode they skip the commercials. The initial electronic measurement of that where people are actually electronically recorded suggests that it's more like 50%. Now 50% is significant, but if you look at shows like CSI or Graze Anatomy or Lost or Desperate Housewives or something, you see this significantly higher audience and a certain percentage of the playback the net result is you still get a higher level of advertising impressions. Plus, but the more interesting part of this is the phenomenon of how they fast forward to commercials. Over half the people who fast forward to commercials say they do it selectively and they do stop when they find commercials that are entertaining, interesting or they're comfortable with. They tend to start late and they tend a lot of time to go fast forward they won't start fast forwarding through the commercials until they get the one they really are really obnoxious commercials then they start fast forward. They come back early because they don't want to miss the show so they usually catch the last commercial. The other thing is that when you fast forward to commercials you have the eyes on the screen and 21% of the people who reported in our research fast forwarding through a commercial the previous evening were able to recall the product or service of the commercial that they fast forwarded through. That's higher than the recall for regular commercials. You're doing something wrong. So my solution to all of this is I tell the advertisers make your commercials in slow motion. So just out of curiosity how do you quantify the obnoxiousness in the level of commercials to arrive at this district you just used? It's in the eyes of the beholder I see. There's a question over here. Hi, my name is Curtis Henderson and I'm the Executive Director for Boston Neighborhood Network Television in Boston Mass. I guess I wanted to know in terms of the data at least that I saw today presented is community media, community television a factor at all in TV viewing was that something that was explored in terms of the research? I know that for instance in Boston there are over 14 languages represented on our channels but these are programs made by community people and obviously they're not viewing as commercial TV is viewed but was any of this considered in terms of the data gathering and also the data that was talked about here today is that available for download? I think it is available for download. That's why we're making it. The community thing is very interesting. This is a classic television versus internet issue now because what we now have on the internet is you have a much more personal medium and the question is not whether community television exists but is community television does it end up being transformed and moved from television to the internet because with podcasting and blogs and all of the intimate communities that are all being built up on the internet as people get broadband and have the ability to do their own videos and develop their own videos there is what is right now a lot of chat rooms and conversational material could eventually evolve into video where you have video communities and people interacting in an audio visual way over the internet and that is a role that is played today by community television community television will always be a part of television because cable television has really allowed people are always interested in what goes on in their community the question is whether the economics are there for that to survive or is it in fact going to is the experience of community television going to be transformed to the internet where instead of communities getting together in a text messaging chat room kind of a context they start to get together in a live audio visual context download it download it available if you go to the communication forum site you will be able to get the transcript there will be a text summary an audio recording an audio transcript of everything that has been said up in 24 hours so audio will be up in 24 hours and the video stuff weeks away but will be coming over here Hi there my name is Tom from the Harvard business school my question is about the internet and content distribution to the internet so you can envision individuals being able to publish very easily and create their own TV station so to speak I wonder if you believe this will cause a fragmentation in how content is distributed where there will be many individual networks that will spring up or do you believe there will be a validation where there will be a few major networks like Google or Yahoo or ABC maybe even CBS who will control the landscape and filter the content for users and provide some of the services they do today in the traditional television world this is what we call the critical gatekeeper function and initially the gatekeepers are going to as content providers we're interested in having a proliferation of gatekeepers we don't want any gatekeepers to have too much power certainly it looked like for a while the Comcasts of the world and the big cable players were going to be amassing this great gatekeeper power and what's come along then satellite came along and satellite challenged them and now what's really looming is the telephone distribution system I mean this big announcement this ATT announcement is just one of the latest in a series what's going on the telephone industry just wanted to go about ten years ago they tried to go after the cable industry and then they backed off and the time wasn't right now they think the time is right and they're going back in so I think the horizons of the world the singulars of the world are going to create a whole new distribution system and then Google is involved they're in the picture now the big question about Google is a group of people who did one thing really really well and maybe won't be able to repeat it or are they going to basically take over the world you have the people who claim they've got to take over the world and then you have the people who claim they did one thing really well but right now Google Video is a major player and Yahoo and they're struggling a little bit in terms of distribution but I think all of these as forms of distribution it's going to become ubiquitous all sorts of different forms of distribution and that's why I'm more comfortable in the content part of the business and I would be in the distribution part of the business right now you know in 1984 those of us who were involved with the breakup believed that regulation brings you monopoly now we know the free enterprise brings you monopoly as well but it seems to me that commercial distributors on the internet have been very clever and funneling user attention either by encouraging you to go some place to hook, letting you do bookmarks providing feeds, all that kind of stuff but it doesn't prevent very, I don't want to say local because local is not good but very small scale communication if you will so an example my son Daniel came to me he's 13 years old he came to me the other day to show me a website he thought was hilarious and in this website there is a what is in effect a situation comedy is available through stop motion and you can see the hands holding the dolls and they move up and they face each other and the dialogue is hilarious and so my son and his friends get together and they talk about it and they watch it now what is that well there's a very, I don't know how small the audience is but there's an audience for alternative what in some ways is a parody of more traditional network programming and whether that can survive as the restructuring the internet takes place is at least for me one of the big questions that's still in the air okay this question over here and then we'll my name is Kevin Regal I'm a student Professor Thorburn's television class you mentioned that you had the statistics of what shows people with DVRs were watching and you pointed out that the top 10 shows they were watching were pretty much the same as the top 10 shows people were watching in general but you also mentioned that overall their TV viewership increased and I'm curious if CBS has restructured its programming and need to take advantage of a this effect to which people have occasionally applied the term the long tail effect the idea that you can target a lot of niche markets in a way that you couldn't with digital technologies so has CBS is CBS noticing this and taking any action because of that well the certainly when we were part of the Viacom Corporation of course the I mean this was a big big part of the MTV networks just basically fragmented into a whole variety of different MTV networks and they definitely were much more into the long tail concept within the context of the CBS Corporation yes I mean we are developing content that would be much more narrowly focused I mean the CBS television network is still trying to you know it's all about hits it's making hit programs but generally the some of the other things that you're doing is so you take a show like Survivor and you put the show on the air and it draws millions of people and now you do this on the internet we have a Survivor talk show well you know you got to be really a fanatic Survivor viewer to go to that talk show but that creates a relationship multimedia relationship with the show and we're trying to serve those smaller audiences in different areas we're trying to do it through the videos through the internet through the deals we're making with Apple for iTunes and for distribution on all these portable but the key thing is what we call pulled through marketing here that essentially with the multiple distribution systems that we're talking about we've got to use our marketing strength to generate the huge demand for programs that sort of pull the audience through all these distribution chains there is going to be an increasing potential for more and more fragmented and selective types of programming but that isn't the business of the CBS television network it will be the business of the CBS corporation okay thanks over here hi my name is Brian I run a local advertising research start up I actually just have a follow up question to the question about the DVRs and commercial skipping there's two different technologies out there right now it seems for commercial skipping one is fast forward and the other is the 15 or 30 second skip and I know in my house actually we have both and my wife and I tend to congregate now around the television that does the 20 second skip and so we it's true when we use the DVR the fast forwards we do actually stop on certain commercials notice them pay attention but with the skip it's a completely different thing going on and I was just wondering how if you've been looking at that slightly different technology what its implications are and is this sort of like a DRM movement where you're going to lobby the organizations that create these things not to put the skip in well we've already done that essentially I mean the good news from our perspective is that the number one distributor of DVR the top two distributors of DVRs in the country right now are Direct TV and Comcast and Direct TV is owned by Rupert Murdoch and Comcast is a major advertising funded organization too so they're not their DVRs are not 30 second skip DVRs they're more advertiser friendly DVRs the people who are the most interested in avoiding advertising will gravitate to that type of DVR I think the more encouraging thing from our point of view is we've done a lot of research in a lot of different ways now and we give the people this choice of whether they can watch they can get something free with advertising and you can't skip the commercials or not free for a charge with advertising and to give an example of how the economics work on this when you ask when we say tell people okay you can get a you can get a show for a dollar any show you missed for a dollar with advertising or 50 cents without a dollar without advertising 50 cents with advertising but you have to skip the advertising about two thirds say I'll take it without the advertising but then when we did the exercise here and the people went through the whole process it went to 50-50 and the reason was that the people chose seven or eight shows that they wanted to buy so all of a sudden it's not a dollar versus 50 cents it's eight dollars versus four dollars so as soon as it got to eight versus four then advertising became more acceptable and the people will accept the trade off of advertising and the internet the television format of internet is right now essentially you can't skip the advertising on the internet so when we when we in the internet model if you order a show video on demand on the internet and you say you want to with and it'll be less money with advertising I'll take it for less money with the advertising and there's no way to skip the advertising because the stream you stream the video and you stream the advertising first and it comes on and the people can't it's being streamed they can't fast forward through it they could basically go to the bother of recording it and then playing it back for themselves but that's not saving them time so generally it's only about one-third of the people who really have a passion about avoiding advertising in any way, shape or form and the other two-thirds of the people will always I think are eventually going to accept the lower cost advertising supported version of any form of media. Do you have a breakout by age? It depends on the advertising actually younger people are more technologically savvy, but if the advertising is targeted to them they are also the ones that tend to be the fans of really creative advertising so I think if the advertising is targeted to the right audience it doesn't really make a difference but general advertising the younger people will be more likely to avoid it. Question over here. Hi, my name is Alana Lenhart and I had a question about this study and I'm going to cover the video on demand and how eager people would be to adopt it and I guess two parts. The first part is I'm curious about why you would overlook the younger people in the home because I know growing up and I know from children I babysat for that actually the adults is not the one making most of those decisions they're heavily influenced by their children in terms of what their children are going to want to watch what their children are going to sit through what their children are excited about trying so I'm curious why you would interview the people who from my experience seem to be only responsible for about 50% of the decision even though it is their money. You're saying the children are deciding what's being watched in prime time or just... The video on demand market for children's programming is huge and it is again we you sort of have one half of the corporation here I mean Nickelodeon and MTV all their research on children and teenagers is basically they're the major part of their research and we the market for and they're very aggressive in this marketplace the video on demand market right now for movies and for television is a large amount of it is children's fair and that is a major part of it we're not overlooking it in this particular case we are in this particular case we were looking at prime time television programming which in the advertising world is mostly an adult medium but we're not ignoring the huge demand for children's programming we're just studying it in a different area well I guess the age group that you looked at was such that would have children who could be watching prime time television that you said that you did not consider that you looked only at the one who would be making the primary decision in terms of the financial that's what I understood from the slide yes but that doesn't mean that we ignore the children I mean this was a technology the children don't make the technology we actually did this research with teenagers too which was fascinating scary but fascinating and we have done it with children as well in those households but we do definitely consider the children's audience and the children's appeal and we look at the family interaction programs that families watch together and we don't ignore the children but in this particular and a lot of this technology a lot of this research that we're doing here was basically about purchasing MP3 players and purchasing all this other technology and when the people told us that they purchased it well I'll give you a classic thing I came out of this research exactly what you're talking about we were testing iPods video iPods cell phones with video and Sony PSPs as portable video devices and so these people came in and we had the demonstrations of all of them and they could see them and a significant number of the people who came in had Sony PSPs so we started to show these Sony PSPs to them and they looked at them like they couldn't believe it they had bought these Sony PSPs as game players for their kids they had no idea that you could play video on them that you could go on the internet on them they had no idea what these things done they thought all you could do on these things was play video games and I think we probably caused great consternation in the homes because they were all going to go home and take the PSP back from their kids but we the dynamics of children do come into this so I'm going to play moderators privilege and insert another question in here before the next question follow up you can stick one in but the reason I was interested about the age group you excluded is because it seems to me that that's the age group who is most likely to be going on and getting basically video on demand on the internet for free without advertising through like bit torrent and so if you're asking their parents what they're willing to pay for and the parent is not aware that they can get it for free you might end up with different information that if the parent talked to their kid and realized they could get it for free or they're talking about a family viewing opportunity or something that they would purchase because their kids would be interested in it whereas the child doesn't need it the child is already getting it for free without commercials with no fee at all and the I mean the whole the rights management thing is a major part of this whole thing and what we the mistake that the movie we believe the mistake the music industry made was that they didn't get the stuff up there for a charge legitimately fast enough and as a result they allowed this free illegal way to get permeate the entire culture and basically destroy the market for them that's why we are aggressively putting our content on every form available now and making deals with every form available because the public tells us that most people will pay and accept the right of creative people to be paid for their product they are willing to pay if it is universally available to them so we believe that in the cases of our product video product the more ubiquitous we can make it the more available we can make it the less likely the illegal download market will be cannibalized the less the business will be cannibalized by illegal downloading they'll always be there they'll always be free ways to get this but if you make it easy to get it at a modest price you undercut the demand for that free content significantly so you're edging toward what I was going to ask there was a lot of consternation in the television industry over the last few years about the disappearance of the young male viewer and it sounds like Jorge's explanation would be in part games it's sort of a shifting center of gravity but I'm wondering to what degree is video iPod countering that is there a statistically higher percentage of these young male viewers watching video iPod than the general population are they more likely to watch in that form than broadcast do you have any statistics that would speak to that the essentially one of the problems we have with our measurement system is that the television measurement system does not measure out of home television viewing the current television measurement system measures in home television viewing young males do a substantial amount young people do more television viewing out of home than older people and young males do significantly a greater amount of their television viewing outside of the home and now with the ability to actually watch television on your PC and with things like sling box and everything this is going to only get more and more significant so the first thing we have to do is we have to get a measurement system that measures television outside of the home and that's what that PPM technology is so we're working on technologies to measure out of home television viewing in all of these different forms but the young male the fact is actually that that phenomenon of young men watching television was was a statistical result of changes in the Nielsen measurement and young men are not watching less television actually watching this year they're watching slightly more television and the fact that young people watch less television than older people is not a function of any lack of interest in the medium or it is actually just it's strictly lifestyle it essentially is the fact that young people most young people when asked why they watch less television or if they say they're watching less television say it's well my life got busy I'm doing this I just got a job I changed I'm working nights or something the difference between a heavy television viewer and a light television viewer is to a substantial amount of function of just the difference in their lifestyle and that's why the there is this there has been we and we've studied television going back to the 1950s generation to generation and when you reach 35 you discover news I mean there's just no way about it people under 35 do not understand news programming but as you hit 35 all of a sudden you start watching news programming and you start watching more television because they're not going out as much and so the reality is that a lot of this has to do with right now younger people have more alternatives there are there is multi but the tremendous multi-taskers well that's if I can pick up on that there's a couple of corollaries here is that even though there are fewer young males playing games and there are women over the age of 18 those young males play longer and the gaming experience is intensely social even though the size of the family unit is smaller there's much more socializing that goes on with it that parallels television behavior so at that point where you can have a television where you either have the game on and the TV in the inset the show in the inset or vice versa you you match them both both together but there's no no question that both game playing and TV watching for young males is a very social activity even if they're watching alone what they report is that they end up having long conversations at lunch at school or whatever with their friends about what they've watched and what they played and at least from small interviews we've conducted indicates that it shapes who they pick as friends that if you're a Nintendo Kirby addict your friends are much more likely to be Nintendo Kirby addicts also and what I find fascinating about that of course is Kirby is nothing but a pink tennis ball there's no facial features or anything to speak of but intense quality on the part of of a number of kids so much so that they pick their friends by whether they like Kirby or not this woman here was next oops get on that side after that hi my name is Gladys I'm a student at the Sloan Business School going back to the to the iPod how how successful has the the iPod video being respect to what you expected and more generally what's your perspective on the portable on the portable video device the well the video iPod and these figures keep changing but the last I think when Stephen Jobs was in January at Mac World he said that they had sold 1.8 million video iPods and that and at that time they had sold 8 million downloads I think they're up to 12 million downloads now and which is a significant number but the issue with the video iPod is the issue with all these new technologies and that is it's still pretty pricey for people and the for it's too heavy a lot of people when we showed it to them they said well it's heavier than the nano and I and it doesn't have that much more capacity and I like light and other people said the screen is too small and they didn't care for that so I think it's going to be a limited there's going to be a limited market for this as long as the price point is as high as it is but the price point will come down it's like high definition television I mean high definition television is is something that is very it's still the consumers tell us that they all want high definition television when you can get a set for under a thousand dollars and but now most of the television sets at a high definition are over a thousand dollars when you get the hookup and everything like that but as one person in a focus group said TV came out color TV was very expensive and then color TV became became TV high definition is going to become TV and then high definition television sets are going to be four hundred and five hundred dollars and they could wait so I think a lot of this technology is coming I think right now the video iPods pricing is keeping it at a fairly limited high end marketplace but these devices will be ubiquitous I believe the cell phone is eventually going to because the cell phone two things are coming very quickly in the cell phone first they're going to get a better picture the quality is going to improve in the picture and we're also very close to having live television on the cell phone that's already been developed Qualcomm and those people have already developed so we get live television on your I think we need to get live television on your cell phone the cell phone is going to be the portable the most popular portable video device so you showed us a lot of growth curves in terms of technology you have any thoughts about the two technologies we were just talking about the high density HDTV and the video iPod what factors for the technologies you were looking at shaped which ones took a long time to really get rooted in which ones moved fairly swiftly well on the at some point in the next five years I'll be asking an audience how many of them have as many HDTVs as they have people in their households and those hands will begin going up because as Dave said we have a very long term set of cultural expectations as a society that sees the world as one of arriving technologies and doesn't do a very close analysis of whether we really need this technology or not but carries with it the assumption that we're going to want this technology and that for a home to be a well furnished home there has to be some of this in the home and we'll continue the gender territories that have been set up for about a hundred years around these technologies which is that single women living alone will ask men their advice when they go to purchase something men will purchase something and then have a certain amount of competitiveness with each other showing each other what they got so fuel part of the buying that Dave is talking about but increasingly what will change that is the more gear that we are willing to carry on our persons that's somewhat of a change from the past whether it turns out to be a universal device which I also think is likely to happen or whether it turns out that we want to carry multiple devices around with us our persons are going to become in effect metaphorically households where we carry stuff carry stuff around with us and then the competition is going to break out in lots of different ways it is not likely that 55 year old males will want to carry the stuff around them that 15 year old males are going to want to carry around them the opportunity for niche marketing is going to be my guess is going to be quite rich but I think Dave's figured all that out already fascinating thing pertaining to the households and I was thinking about this when you during presentation an interesting phenomenon going on because what happens as people got more and more television sets there was a fragmentation of viewing so the teenager now went into her bedroom and watched television by themselves the family was no longer watching television or gathering around the TV like we were in the 50s or 60s but what's happening now is this phenomenon that these people are now at the high end they're buying these high definition television systems and with surround sound and they're building these home theaters and so now all of a sudden in the home there's television and then there's television and so now all of a sudden the kids are coming back out of their bedroom because they want to see them on the high-def TV with the surround sound so there may be this temporary return to the family gathering together around the television as the technology in the main viewing area is different from the technology in these other sets the one constant is that the home is always a place of negotiation even when you live alone so we're now about to go into the lightning round of our questions because we have five people waiting in line eager to ask questions and ten minutes to answer them so let's see if we can keep questions brief but at least cover the territory of the people who've been waiting so if you could ask your questions sir my name is Ed Imbeer and I was interested to see what is the difference in viewership time actually watching television with all of game playing internet and music, portable music and whatever it takes people's time it's actually going up and television viewing is going up there's two counter trends the first trend you've got all these other things to do so you say well that should be taking away from television viewing but the other thing is all these things that you're doing are keeping you home so there's more opportunity to watch television because you're home more and increasingly we're multitasking a substantial a very high percentage of the people at home during the evening that are on the internet are in the presence of a television that's on so they're watching television and they're on the internet at the same time how many of you can watch TV be on a computer and listen to music at the same time and have fun doing it okay question over here I'll be succinct David Lerov chief technology officer at WGBH I think we would all agree we're in the first nanoseconds of this transition to the digital era where the user has more control over the content than the distributor has both of you have studied trends over time and if your assignment for this afternoon was to look at the how did you just grab it David the scary behavior of teenagers in their media use and the question was project what we know about how teenagers are using media today 10 years forward would the response be as sanguine about the impact on the economic structure of media in this country I'm actually more worried about the kids the sanity of the children who basically are I mean there's some interesting phenomena I guess somebody pointed out that probably all the young people today are going to lose their hearing in their 40s that's a little frightening because there are the distribution and the look and feel of the content is probably going to change but the themes are not I mean getting information becoming informed laughter and humor and basically having an emotional experience shared experience the whole concept about television it's all about shared experience it's if you watch Desperate Housewives you'll watch Lost or any of these popular programs it's less of an experience if the next day you have no one to talk about it so the shared experiencing is part of the whole consumption of media and that's still going to be there it's going to be different it's going to be geared to the lifestyles of those young people as they grow older and those lifestyles are going to be different but it's still going to have the same universal themes it's going to be things that make you laugh and things that make you cry and things that make you feel smart and I don't think we're going to differ that much I'm going to China next week and I've been there I went there and did a whole seminar last year and I'm going back and doing them again and it's absolutely unbelievable what's going on in China and the young people in China I describe China as basically a prep school with billions of precocious children and one headmaster who's losing control and clearly that's one thing that's going to be part of the phenomenon and that is you know we're going to be communicating throughout the world instantly the breakdown of these national borders is going to everything's going to be international I think we're always going to be dealing in international distribution and opportunities two quick points one is for teenagers multi-tasking intensifies the experience and the intensification of experience encourages further socialization and secondly it seems to me that we shouldn't be so quick to assume that it's technology that causes teenagers to be scary you know I mean you can think of the Iliad as a story about what happens when you give teenagers knives and it's pretty scary so that stuff's been around for I mean teenagers are just a scary time it seems to me okay over here My name is Kirsten Walton I'm from a company called Market Platform Dynamics and my question is actually the first part for you professor the second part for CBS in thinking 10, 20 years out what technology or device do you see as poised to be most disruptive to traditional media and in light of that 10, 20 years out what do you see as CBS's role gatekeeper are you the content creator, distributor My guess is that 10, 20 years now all the technologies we're talking about have been figured out and CBS will have a very good handle on all of them but if the internet does continue to have the opportunity to allow you know small or young teenage boys to put up a website and do their own little show together that that's the area and it may be that what we see is a spawning of subcultures that aren't isolated from mainstream media but that in fact are connected to mainstream media in a number of ways The internet is going to be the most disruptive but I think it's one of great opportunity but it does it does break down the access concept there is universal access through the internet and as more and more people get better quality production capabilities I mean the technology is right now if you try to make your own make your own film or make your own situation comedy or something like that it's still going to look pretty primitive but I think what's going to happen is 5 to 10 years now these young teenagers today are going to be able to whip out something that looks like CSI at home they're going to have better equipment better video equipment better audio equipment and they're going to be producing some pretty wild stuff and be able to get it distributed through the internet the internet is definitely the most disruptive they'll be able to do that but my question is will they be able to write that's not at all clear to me well that is absolutely that Barry Barry Diller made a point he was at a function and he's now moved from the television world into the internet world very aggressively and these young entrepreneurial people in the internet world were talking about how they were going to take over media and from the major media companies essentially where Barry Diller said there are only so many brilliant creative people in the world and the big media companies will pay them more money assuming they can identify assuming they can identify them okay that's the last two questions then quickly we're going to start from the Harvard Business School part of the value introduced by digital media and digital information is the ability to embed metadata and this is especially important as the amount of data increases has do you think content providers or content creators will be making taking advantage of that as digital distribution methods allow for embedding of metadata yes I think it's going to be emergence it will be through mergers and acquisitions and companies that are companies that are basically in the technology technology companies and content companies coming together the CBS model basically is we like the idea that we're a content focused company and we make partnerships with technology focused companies and the two together we believe works more effectively than one company trying to do both so we will be taking our way of taking advantage of all of that is to talk to these people and to reshape our content to as the capacities grow and the opportunities grow and to focus on the creative product and let others focus on the technological part but it is we are constantly looking for it our digital media group is the fastest growing part of CBS right now and we're these people are coming from Microsoft and Google and every place we can steal them from can I just people of my generation were taught to look for information by developing skills that taught you to find the information you want I think the challenge for these guys is to help you find information by allowing you to ignore information because they're so much available that the task is what to let wash over you rather than what to find out exactly and that's going to be a very different way of doing it and it's going to take a generational transition for that to happen final question yes Professor Poletrack you showed us that technology changes are not neutral and you showed us that demographic changes are not content neutral we seem to be on the cusp of some very tough times globally I'm interested in content called the news didn't flash up on the screen much the daily show was seventh on one list once 60 minutes appeared once what's the prospect for well financed highly produced global news that might or might not be a shared experience in this multiethnic multiracial world of tomorrow well certainly traditional news organizations have a major challenge we are trying to reshape our news I mean we have news bureaus throughout the world we have hundreds of people working gathering news around the world and in the old model all of that news was distilled to 22 minutes a day we threw away more news than we put on the air by a factor of probably 100 every day the opportunity now is to take and actually get all of that news to the public and to use all of that news