Telco’s foray into TV services is a rational response to an unfamiliar and threatening competitive environment. With legacy telephone revenue under attack, DSL uptake continuing to lag behind cable broadband, and the lack of a full “triple-play” service bundle to offer consumers, telcos are under tremendous pressure to expand their service offerings or risk obsolescence. Strong language, but the big telcos are all too aware of its reality. They must somehow incorporate video services into their core offerings if they intend to compete with cable MSOs in the residential market. Their long-term survival depends on it.

But competing head to head with cable and satellite TV providers will not be easy. For one, both have years of experience in building and managing TV networks. Second, cable and satellite TV providers have a detailed understanding of how consumers use television services. Of these two challenges, building the networks to support TV programming will ultimately prove to be the less cumbersome. The more difficult task will be convincing consumers that their local telephone company is the best choice for TV services.

In order to address this challenge, telcos must start with the fundamentals – for example, understanding TV usage in the Internet age. Parks Associates latest research initiative, Electronic Living @ Home, surveyed 1,000 U.S. households regarding consumer electronic ownership and usage in the home. What follows is a cursory overview of our findings relative to TV usage.

1. TV penetration is near 99% of U.S. households with almost 75% of all U.S. households owning two or more TVs.

Figure 1

Figure 2 below offers a detailed comparison of TV ownership in late 2001 and early 2003. As of April 2003, only 1% of U.S. households reported not owning a TV, down from 2% in 2001 (Bundled Services & Residential Gateways [October 2001], p. 3-70).

It is interesting to note the increase in the percentage of households that own one TV (from 19% to 23%) and the decline in the percentage of households with three or more TVs (from 48% to 43%).

So what impact does the presence of an Internet connection have on TV ownership and usage? According to Figure 3, non-Internet households tend to own fewer TVs on average than U.S. households in general, and less than Internet households in particular. Furthermore, households with a dial-up Internet connection tend to own fewer TVs than broadband households.

Figure 2

Figure 3

Conversely, although non-Internet households own fewer TVs than Internet households, watching TV is more important in their daily lives when compared to Internet households. Interesting turn: having more TVs in the home does not necessarily translate into a greater importance of watching TV in one’s daily life, especially when it comes to the Internet-connected home.

Why would this be the case? Research indicates that homes with PCs and an Internet connection are much less inclined to rank TV as important in their daily lives compared to households without PCs or an Internet connection. Second, it is essential to keep in mind that the survey sample is populated by heads-of-household and does not include the opinions of others in the home, such as children who are likely to have one of these additional TV sets in their room.

2. Most TVs are located in the living room or great room of the home.

In terms of the location of television sets within the home, there are two different ways of looking at the data. Figure 4 below illustrates in which room in the home TVs are located as a percentage of all televisions in U.S. households. In other words, of all the TVs now in U.S. households, 42% are found in living rooms, 27% in master bedrooms, and 15% in a second bedroom. The remainder are scattered between game rooms, kitchens, and even garages.

Figure 5 below breaks down TV placement a little differently – it illustrates the percentage of each type of room within the home that has a TV located within it. In terms of the presence of TVs in different rooms of the home, about 93% of all living rooms have a TV set, followed by 60% of master bedrooms and 33% of second bedrooms.

Figure 4

Figure 5

Why is this data important? If telcos are hoping to tap into current TV usage models, understanding the location of these TVs in the home provides a glimpse into possible content preferences among various users, as well as where media networks are most likely to be run.

3. One-half of TV households report simultaneous usage of two or more TV sets.

Astounding though it may seem, almost one-half (or 48 million) of U.S. TV households report that two or more TV sets are often viewed at the same time in different rooms of the home. Among those that report simultaneous TV usage, about 78% use two sets, and another 18% use three or more sets at the same time. For the purposes of estimating simultaneous bandwidth consumption in the networked home, such information is extremely important.

Figure 6

4. Almost 80% of TV households spend more time watching TV in the living room or great room than any other room in the home.

Almost 80% of all TV viewing households report that they spend more time watching TV in the living room than in any other room in the home. Similar to the distribution of TVs within the multiple TV home, master bedrooms finished second.

We were intrigued as to whether the age of the head-of-household mattered in terms of which room was used most frequently for viewing TV. But when we tested this hypothesis, we came up empty handed. It seems that regardless of the age of the head-of-household, 70% to 80% of all TV viewing takes place in the living room or great room. That being said, however, those between the ages of 18 and 34 are significantly more likely to use the master bedroom for TV viewing than other age segments (12% versus between 7% and 8% of all HOH).

Figure 7

5. Almost 90% of TV households use a premium or subscription TV service.

Among U.S. households, 87% now subscribe to some form of premium (i.e., non-broadcast) television content service, leaving only 13% who rely solely on broadcast TV. In other words, the current market for premium television services in the U.S. is around 88 million households.

Figure 8

6. Two-thirds of premium TV subscribers chose cable over digital broadcast satellite.

As of early 2003, about 68% (or 70 million) U.S. homes subscribed to cable television service, while 19% (or 20 million) subscribed to digital satellite. Among cable subscribers, 67% (or 49 million homes) subscribed to standard or analog cable, while 33% (or 24 million homes) subscribed to digital cable TV services.

Figure 9

Among premium TV subscribers, approximately one-half now subscribe to some form of digital TV service.

7. The vast majority of TV users are very satisfied with the range of current TV offerings.

In general, most of those who subscribe to premium television service are satisfied with the quality of their service: 69% ranked the quality of their service positively, answering with a “5” or above on a 7-point scale. On average, premium subscribers gave the range of content received a 5.0 on a 7-point scale, with “1” meaning “not at all satisfied” and “7” meaning “extremely satisfied.”

This begs the question as to what types of TV programming a telco could possibly offer that would differentiate their services from those of cable of satellite, something to help to tip the scale in their favor. Additionally, it is not clear that consumers are in need of another type of TV service (that is, besides broadcast, cable or satellite), so telcos entering this business will not have an audience impatiently awaiting their arrival.

Figure 10

Rolling out video services, then, is but a part of the larger strategy of creating bundles of services that are compelling enough to compete with those offered by cable MSOs. Again, it’s not about the TV service itself, but about the power of a bundle that has a video component that is the goal.

8. Watching TV continues to rank among the most important media activities in the home today.

In our most recent survey, we asked U.S. heads-of-household about the importance of various media activities in their daily lives. Among the applications considered were:

• Watching television;
• Listening to music;
• Using the PC;
• Watching movies;
• Organizing and sharing photographs; and
• Watching home movies.

We asked heads-of-household to evaluate the importance of these media activities on a 7-point scale, with “1” meaning “Of no importance whatsoever” and “7” meaning “Extremely important.” The average rankings for each application is listed below.

As indicated below, listening to music is (on average) more important in the daily lives of U.S. consumers than any other media category, including watching TV (ranking 4.68 and 4.37, respectively). Of course, what’s important to one consumer segment may be of little importance to another. Accordingly, we cross-tabulated media affinity across a number of attributes to try and get a better idea of how factors such as age, Internet subscriptions, and PC ownership might impact media affinity.

The same research suggests that the older the head-of-household, the greater the importance of watching TV. This is not to suggest that watching TV is somehow unimportant to those heads-of-household a bit younger: the fact that watching TV ranked above average (that is, above 4.0) suggests that for all age segments, watching TV remains a very important part of their lives. Can we therefore conclude that as one ages, TV viewing becomes more important? Not necessarily. The more obvious conclusion may be generational: in other words, those in Gen X or Gen Y (between 18 and 34) may simply feel that watching TV is less important in their daily lives than those of older generations.

Figure 11

Figure 12

As evidenced in Figure 13 below, subscription to Internet services (as well as the type of Internet service subscribed to) has a negative impact on the importance of viewing TV.

• Households without an Internet connection rank viewing TV as 7% more important than households with a dial-up Internet connection (4.62 versus 4.31, respectively).
• Households without an Internet connection rank viewing TV as 16% more important than households with a broadband Internet connection (4.62 versus 4.0, respectively).
• Households with a dial-up Internet connection rank TV viewing about 8% more important than those with broadband (4.31 versus 4.0, respectively).

Figure 13

Similarly, households with a personal computer rank watching TV as less important than households that do not own a PC. Those with two or more PCs believe viewing TV is less important than either those with a single PC or those without a PC in the home. In fact, the percentage differences between these three levels of importance are almost identical to those found between non-Internet, dial-up, and broadband households.

Figure 14

It seems that the more children in the household, the less important watching TV is to the head-of-household. This is not to suggest that the household in general watches less TV or that watching TV is less important to the household as a whole. Rather, the more children living in the home, the less important viewing TV is to the head-of-household. Perhaps its simply more difficult for parents to find time to watch TV when they’re having to manage four or five children!

Figure 15

Conclusion

As telcos continue to watch their legacy revenue streams dwindle – impacted by the dual forces of regulatory shifts and the arrival of IP – the pressure to expand their core service offerings becomes more intense. And while most telcos have conceded that adding a video component is absolutely critical, simply rolling out TV services will not cure what ails the ILECs. Telcos must understand the context in which consumers experience video – their usage habits, their preferred devices, the other media applications against which TV viewing must compete. Without such an understanding, the chances that “telco TV” will succeed are undermined.

About Parks Associates
Parks Associates is a market research and consulting firm focused on all product and service segments that are "digital" or provide connectivity within the home. The company’s expertise includes home networks, digital entertainment, consumer electronics, broadband and Internet services, and home systems. Founded in 1986, Parks Associates creates research capital for companies ranging from Fortune 500 to small start-ups through market reports, multiclient studies, consumer research, workshops, and custom-tailored client solutions. Parks Associates also hosts two executive seminars, both part of the Fall Focus series, and co-hosts CONNECTIONS™ (in partnership with the Consumer Electronics Association) each year.

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