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method.com
Cables LostGeneration
John Gilles
VP Engagement, Method
So its war!
At stake is the uture o television and billions o
dollars in revenue. Its the battle to defne the u-
ture landscape o digital communications. So who
wins, who loses and who gets wiped o the map?
Method
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Cables LostGeneration
John Gilles, VP Engagement, Method
10x10Method Inc
record, according to Sanord C. Bernstein & Co. Wall Street
analysts are looking or evidence o cord cutting among cable
subscribers in avor o Internet television, but have not ound a
clear trend. In act, it seems that Pay-TV subscribers are a loyal
lot who would rather give up dry cleaning and imported beer
than go without their Mad Men episodes.
So it is not cord cutting that cable has to worry about. Lost in
all the hype over the battle or the living room is the simple act
that young, new subscribers are not replacing older subscribers.As they leave college or their parents homes to start their own
households, the only subscription they want is broadband. Ca-
bles Lost Generation is the frst to be raised on the Internet, and
they are more than happy to entertain themselves with a high-
de Blu-Ray, a PS3, Apples Jesus tablet, or with a uzzy desktop
video pulled o a torrent site. The opportunity or brands and
content owners, thereore, rests with access that is not fxed to
a particular network, device, or context, but encourages multiple
points o consumption, be they fxed or mobile.
They called it the Battle Royale o media and entertain-
ment. This years CES pitted Internet video upstarts like Hulu,
Roku, and Boxee in a cage match against industry stalwarts
such as Comcast and Time Warner. At stake: the hearts and
minds o millions.
It was spun as a victor-versus-vanquished battle. It was either
going to be Internet videos David hoisting alot the head o the
Goliath that is cable TV, or cable mowing down Hulu and the
others like so much other Internet road kill.
At frst glance, it appears that David is a stones throw rom
victory. The ever-crucial 18- to 24-year-old viewer, who spends
$11 billion a year on entertainment, no longer watches TV as we
know it. They are Cables Lost Generation. However, it turns out
that they may not be as lost as we think.
Growth in Pay-TV, which includes cable, DBS such as DirecTV,
and IPTV like Verizon FiOS, has slowed to its lowest rate on
Atthis
YearsCES
Victor-vs-
Vanquished
David-vs-
Goliath
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Hulu
Boxee
Round
vs
Comcast
TimeWarner
Cables LostGeneration
John Gilles, VP Engagement, Method
10x10Method Inc
According to Boxee CEO, Avner Ronen, the average Boxee
user is not someone who canceled his or her cable subscrip-
tion to move to over-the-top television (OTT)it is someone
who has never had cable in the irst place.
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Ronen says that there is a growing legion o recent college
graduates who have never had cable, do not see the need to
pay or it, and are perectly adept at fnding what they want to
see through alternative channels. The Nielsen numbers back up
Ronen. For at least the past fve years, the young male demo-
graphic has virtually dropped o the map o television, and initial
speculation was that they were too busy playing video games
to watch TV. Now we know the truththese young household-
ers are consuming vast amounts o TV content, just not in the
traditional sense.The inviolable cable industry has good reason to be concerned.
These Internet Natives are a desirable bunch or marketers;
they represent over 30 million people in the US who spend $230
billion a year. Advertisers such as Sony, Xbox, and Anheuser-
Busch have ound this missing demographic using multiple plat-
orms, and other established content owners are also moving in
the same direction. For example, Scripps Networks, the parent
company o the Food Network and HGTV, recently launched
Food2 as an OTT video network aimed directly at the young
and content hungry consumer.
And they are not the only ones. Marketers who study the Nielsen
ratings are looking past cable and broadcast TV to fnd that
hard-to-reach demographic, and they are careully watching OTT
video brands like Revision3s popular Diggnation show. The old
world was built around a handul o media players profting rom
limited choice. In a world that now demands unlimited choice,
the vast availability o real time content rom numerous provid-
ers, next generation media, and a multitude o platorms have
obuscated the landscape. For marketers who want to reach that
18 24 audience, 30-second spots on TV are no longer a saebet. However, this presents a huge opportunity or the savvy
brand owner who knows how to optimize their use o these
alternative channels to attract distinct audiences with
dierent expectations.
o homes in the United States
have internet access
o young adults
pay or Netfix
o annual entertainment spent
in the United States is rom18-24 year olds
This chart illustrates the infuence that
young adults have on the entertainment
industry, particularly in regards to
over-the-top use.
o 18-24 year olds have a
home entertainment system
76
384
58
Cables LostGeneration
John Gilles, VP Engagement, Method
10x10Method Inc
Young
A d u l t s
and
Entertainment
C o n s
u m p t i o n
o United States population
is 18-24 year olds
10
%
%
%
%
%
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We predict that there is an emergent market to curate, distribute,
and monetize content and that it is wide open or game changing in-
novations that deliver these new streams across multiple platorms.
For the entire industry, at stake is the uture o TV, advertising, andliterally billions o dollars in revenue.
Either way, consumers win big, because whichever side they
choose they are going to get greater convenience, more content,
and better experiences. Most advertisers and industry players
will likely attempt to reach consumers through both TVE and OTT
services. The twin actors o choice and competition will reward
consumers with improved convenience, abundance, and quality
experiences, giving them what they want, wherever they want it.
The opportunities are too many to enumerate. For brands, it is not
so much about picking the winning pony, but fnding those missing
kids. The young, Internet-savvy demographic is highly sought ater,
and when you cannot reach them with 30-second spots, it becomes
that much trickier to get their attention. The good news is that wenow know where Nielsens missing demographic went. The kids are
all rightor now, they are just going over the top.
Disclaimer: Boxee, Cablevision, Comcast, BBC, PBS, Scripps Networks,
and Time Warner Cable are current or recent Method clients.
In a new report by category analyst Colin Dixon, entitled TVE vs.
OTT Are You Ready or a Throwdown? Dixon and his colleagues
heralded CES as the beginning o the battle between OTT and TVE,
but also emphasized that consumers are avidly interested in bothoptions and are willing to vote with their wallets.
A signifcant number o Pay-TV subscribers are telling us they want
TV services over their broadband connections, Dixon told us when
we caught up with him at CES. Theyre willing to pay or mobility
and i they cant get it rom their Pay-TV provider, they will certainly
look elsewhere.
When Time Warner Cable announced its TVE initiative, oering
Pay-TV subscribers ull-episode content on computers, phones, and
even TVs through IP cloud services, it was a reaction to the sudden
availability o premium ull-episode content on new services such as
Hulu, Roku, and Boxee.
Category buster Boxee has led the way to OTT. In line with a recentstudy by Bain & Co. that showed the most recommended company
in any given category grows 2.5 times the category average, Boxee
users are anatical about the service and advocate it, which makes
it the most likely service to be used as a true cable replacement.
Mostly or a younger, early-adopter demographic, the majority o
its members are true Internet Natives who have never had cable.
Meanwhile, grown-up organizations like the BBC and PBS are o-
ering ull episode TV over the top via the iPlayer and the PBS Video
Portal, respectively.
Method Inc
Cables LostGeneration
John Gilles, VP Engagement, Method
10x10Method Inc
Young
A d u l t s
vs
Gene
ral
P o p u
l a t i o n
o entertainment spending was rom
18-24 year olds, or $11 billion
o entertainment spending
was rom18-34 year olds,
or $46 billion20%
4%
$300 billion
is spent annually on entertainment in the US
$60 billion
by 18-34 year olds, or 20%
$11 billion
by 18-24 year olds, or 4%
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FirstIssue
next
Method Inc
Cables Lost Generation
By John Gilles, VP Engagement
Unlocking the Infnite Library
Turn Me On, Touch Me Everywhere
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Hey, You, Get Onto My Cloud
The Consumer as King(pin)
Wrap It, Pack It, and Stack It
Power to the People
Welcome to the Metaverse
About the Author
John Gilles is an internationally recog-
nized expert on digital media. A pioneer
in hybrid web/TV content experiences,
Gilles is now ocused on developing new
brand experiences across video games,
the Internet, television, virtual worlds
and other media.
About 10x10
2010 marks Methods 10 year anniver-
sary, and we are only looking orward.
Written by our own industry leaders, we
are launching the 10x10 series, which willocus on game changing topics that will
undamentally impact todays brands and
their search or new revenue streams.
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About Method
Method is a brand experience agency with ofcesbased in San Francisco, New York and London. Our
clients are best described as owners o progressive,
era defning brands, and include Google, Comcast,
Nordstrom, Sony, Samsung, Nokia, Microsot, Time
Warner, Intel, and BBC. Collaboratively, we help them
create products, services and businesses that are
smart, beautiul and extendable.
For more inormation visit www.method.com.
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