Pay attention to March Madness this year. In a decade, you'll be telling people about how you were alive to witness the passing of the torch from television to the Internet. We may not hit the tipping point this year… or even next year… but it's fast approaching, and it's inevitable. More and more viewers are going online for their content, and it's starting to make financial sense for content producers as well.
When the NCAA March Madness basketball tournament first streamed games online—in 2003—hardly anyone watched the games on the computer. There were issues with connection speed (broadband was still far from being a standard) and advancements in online video technology hadn't yet allowed for a seamless stream of a quality picture. In 2005, according to the New York Times, there were 20,000 viewers for the online presentation of games, all of whom had to pay for the right to see the games online.
In 2006, CBS dropped the fee and made all the games free. That act, combined with the improvements to connection speeds and video quality, caused a spike in viewers from 20,000 to 1.3 million. That's 65x the viewers from one year to the next. In 2007, viewers rose to 7.5 million, and to 8.5 million in 2008. CBS Sports expects to have their highest number of online viewers ever for this week's tournament, somewhere between 8 and 10 million. There is some question of whether the online viewers are so-called "new viewers" or if those broadcasts are just cannibalizing the television audience a bit. For my purposes today, the answer is meaningless. Online viewership is growing, regardless of where it came from.
They also expect their highest level of income from online viewers ever. They stand to make $37 Million this year, which is impressive. Of course, they'll make near $700 Million or more from the television advertising, so there's still a ways to go before that big shift occurs. But you can't deny the trend of the numbers. Along with the viewership increases every year there has also been a steady increase in the advertising revenue. In 2006, online revenue for CBS was at $4 Million. In 2009, it was $32 Million. It just keeps going up. The increase in viewers is relatively proportional to the increase in ad revenue.
But that's not even the most relevant and interesting fact about CBS' online ad revenue for March Madness. What's most impressive is the increasingly-important measure of "ad dollars per viewer.” For the longest time, advertisers were willing to pay more for television ads than spots for online video. Obviously that's changing, as advertisers are starting to wake up to the vast audience awaiting them online—there's even some evidence that the online viewing audience is actually more connected to the ads than the television audience is anyway… there's maybe a longer-lasting impact from online video ads than those on television. CBS made $4.76 per television viewer last year, and $4.26 per online viewer. That's what I call a narrow gap. They're making practically the same amount of money from online advertisers as they are from television advertisers.
Let me see… online viewers are on the rise, online ad revenue is on the rise, and the gap is narrowing between television and the Internet in terms of what networks can make per viewer. Sounds to me like we're on the verge of a tipping point. Could this be a landmark year for online video content? Sure. It's much more likely that the actual landmark year is still a ways off—when online viewers of an event like March Madness nearly equal or outnumber television viewers. But for now… they're nearing 10% of the overall audience. And that's not a number you cannot underestimate. To anyone still covering their ears and saying that online broadcasts will never supplant the television as the number one medium for content, I say this: you must really enjoy ignoring data.
The shift is happening right before our eyes. It's kind of exciting. I imagine it's similar to how it must have felt to watch the television explode in popularity as the days of radio as a primary medium began to wane. The changing of the guard.
If you're interested in joining the revolution, and shirking your work responsibilities, join me and about 10 million others in watching some of this year's NCAA March Madness games on demand, which you can do here.