Wible's Weekly - Creepy TV - Sensors Set to Revolutionize Media? - Janney/MediaEntertainment-Tony Wible

We are seeing development of new technologies that stand to revolutionize media longer term but could be difficult to implement. Intel is developing a set top box that will use a camera to generate recommendations. According to a December patent application, Verizon wants to go a step further by using a webcam or heat cam to recognize "an ambient action" to air relevant commercials. MSFT's next Xbox will reportedly require constant use of their Kinect sensor and their new entertainment studio is already developing content around interactive TV content. Sensors could drive greater media consumption and may revolutionize media pricing models and/or ad measurement. While this all sounds interesting we believe privacy concerns and the creepiness factor may be a significant hurdle that could kill these initiatives. This disruption from sensors may be many years away but is worth exploring as the first devices and platforms start to come to market over the next year. We believe any real momentum in this business may be five to ten years away.

• Justification – Providers will pitch these products as enhancements that improve TV functionality, enable social interactions, argue that other smart devices have similar technology, and/or will force their use by tying it to another killer application. We still have our reservations about consumer adoption but would note that consumer acceptance may be shifting with the increased sharing of personal video/photos on publicly accessible social sites and with the increased adoption of smart devices.
• New Pricing Models – Sensors could allow content pricing to be indexed to viewers - the ultimate goal for any content company. It may also allow advertising to shift towards cost per action models if the technology incorporates interactive elements and/or is able to gauge audience sized and reaction. Lastly, there is the potential for advertising power to shift towards the MVPDs as ad insertion happens much closer to the consumer, using MVPD equipment. If this were the case, MVPDs may have another element of discussion during carriage negotiations.
• Ad Measurement and Personalization – Sensors have the potential to usher in a new era for ad measurement and delivery. They could provide more accurate counts of actual viewers and commercial engagement, which will likely become a bigger topic with the rise of second screen use during commercials. More importantly they could be used to personalize content and ads (a technique used on the Internet today). Identifying viewers and their video consumption patterns would change content discovery and would enable distributors to deliver more relevant content, which has the potential to increase consumption. Ambient behavior can also be detected to drive relevant commercials (e.g. a commercial for a particular beverage/snack when viewers are consuming food). We believe mass customization of advertising will require internet connected set top devices and local storage capacity to download and store multiple ad spots.

• Privacy Concerns – Consumers are wary of privacy intrusions and there is a creepiness factor with sensors monitoring your every move. The downside of personalization is the loss of anonymity in your own home. Laws would likely emerge to assure there are opt-out mechanisms and protections for children in particular. One has to convince consumers that the benefits are worth the loss of privacy. This seems like a very difficult proposition, but there a massive opportunity if a company can pull this off.

Tony Wible joined Janney Montgomery Scott in 2008 and is a Managing Director covering the Media and Entertainment sector after spending the previous 10 years at Citigroup Investment Research—most recently covering the Broadcasting and Entertainment Services industries.
Tony can be reached at twible@janney.com.

Janney Montgomery Scott LLC, is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corp. Disclosures may be reviewed at Wible's Weekly.

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