Watching the Watchers

A guy--let's call him Brad--longed for the company of his wife, so he took his iPod to bed. Confiding in an NBC researcher, Brad tells how he inserted his earplugs, nestled down beside his bride and got lost in an episode of "The Office" or another of his favorite TV shows downloaded from the iTunes store. His wife, meanwhile, was riveted by her favorite show playing on the bedroom TV. Yet another intimacy-challenged couple dialed up the heat on their relationship during the college basketball playoffs, say researchers for Verizon, the cellular-service giant. No fan of hoops, the wife snuggled up to her basketball-craving husband on the living-room couch, unfolded her cell phone and watched video clips streaming from Verizon's VCast service while he tuned in the game on CBS. "She thought it would be a good way to spend time together," says Ryan Hughes, Verizon's chief media programmer.

Exactly who we are and how and why we download and stream video are perhaps the most urgent questions in the tumultuous media universe these days. As television fare rapidly migrates from traditional household sets onto desktops, laptops, cell phones and iPods, everyone from network executives to the largest advertisers are anxiously probing, poking and polling the emerging multiplatform audience. ABC is in the midst of scrutinizing data from a two-month-long streaming test that ended in June. NBC just completed "Today's Media Consumer: Attitude, Behaviors and Trends," a survey of 1,000 digital consumers conducted from March through April. And countless independent researchers are hawking reams of fresh data. All are looking for clues to crafting strategies for growth and profits in the new age of television-to-go. "That's the goal," says Albert Chang, ABC's executive vice president of digital media. Adds Beth Comstock, president of NBC Universal Digital: "We have to place a lot of bets. A lot of different media companies are trying to keep up with and get ahead of the change--and without a clear indication whether there's money to be made in a certain area."

The brave new world of online video had its big-bang moment last October when Apple unveiled the video iPod model of its wildly successful gadget for music downloads. It ignited a frenzy of online-video experiments by media giants like ABC owner Disney and Fox parent News Corp. Some of television's biggest hits were made available at network Web sites, iTunes and others. The lineup includes ABC's "Lost," NBC's "The Office," Fox's "24" and "CSI" from CBS. Several also signed deals with wireless media services like VCast. "We look forward to ... seeing the impact of the [online] services on a full-season basis," says Peter Levinsohn, president of Fox Digital Media.

The media giants were intent on avoiding the fate of the music industry, which balked at embracing the Internet, enabling piracy to take hold. Even so, putting video online was a leap into the unknown. They could only guess at how consumers would respond to the new offerings. With online options available, for example, they didn't know whether television audiences would erode.

As execs digest the first wave of research, there are some surprises--incurable romantics like Brad seem to be well represented among consumers of Internet video, as NBC and Verizon are discovering. Other findings may appear to be obvious, but they are precious to companies planning the future of new media. No one is surprised, for example, that downloading and streaming has already gone mainstream among the young. Millennials--that computer-savvy generation age 10 to roughly 30--make up most of the online vid audience. "These are kids who've grown up with a mouse in hand," says Vickie Cohen, a top exec with researcher Frank N. Magid Associates. No exaggeration there. "It's part of my life," says Jennifer Butrico, a recent Seton Hall grad. "I'm more likely to turn to the Net, rather than waiting for news or a rerun of a show to come on television." Recently, Jennifer's mother phoned her at her job at Urban Femme, a South Orange, N.J., clothing boutique, to chat about Paris Hilton's appearance on David Letterman. Butrico, who had missed it, turned to her laptop and watched the clip. "It was so funny," she says. Online video also trumps television for Salawu Akin, a 31-year-old screenwriter in New York. "I prefer watching things on computer than television," he tells NEWSWEEK. "I have more control over the watching. I can pause it."

Most video downloaders and streamers are control freaks, in the best sense, and celebrate freedom from the tyranny of network schedulers. "The reason online video will be successful is that it allows viewers to break away from schedules," notes Brian Haven, a Forrester Research analyst.

But would they break away from television altogether? That's been the big unknown since iPod video launched. Television executives now say that so far the answer is no: Internet video doesn't cannibalize the massive television audience. On the contrary, they say, research shows that the audience is increasing as a result of the growing multiplatform approach. For example, fans who miss an episode of a favorite show often will catch up on an iPod, and most--eight of 10, says NBC, citing research--will continue to watch the series on television. Others discover shows on the iPod and then tune in the regular broadcast, the networks say.

That all sounds rosy, but it's also clear that some people are partaking of network content without getting near a TV. Kamaal Jones, a young Washington lawyer and sports fan, has cut back dramatically on watching ESPN on television. But he likes ESPN video, catching the latest highlights on his laptop periodically during the day. "There was a time when I'd wait to watch [the news show] 'SportsCenter.' Now I can go to and see exactly what I want and skip the rest."

Fans of streaming video, the research is confirming, are getting their fix at work. Well, duh. "Work usage is extremely high for news and sports," says Larry Kramer, CBS's digital boss. Employers absorbed $3.8 billion in lost productivity from employees watching the NCAA basketball tournament live online in March, estimates a Chicago consulting firm. Leslie Moonves, CEO of CBS, has joked that he'd happily abandon streaming next year if someone were to write CBS a check for $3.8 billion.

Perhaps the biggest surprise about video-to-go is that it doesn't go very far. Cell phones, iPods and other mobile devices are mostly used at home--65 to 70 percent of the time, says Alan Wurtzel, NBC's top researcher. Explains Hughes of Verizon: "As people walk around the house, grabbing a glass of water or doing chores, they flip open the phone." Last week a study for the Nature Conservancy described the trend as "videophilia"--"the new human tendency to focus on sedentary activities involving electronic media." In other words, except perhaps for clips streamed on Discovery .com, we're tuning out the outdoors.