TV Viewing Fragmenting Across Devices

Fully 87 percent of users age 13 or older say they have played video games of some kind for Xbox 360 and Wii, with 80 percent saying they have done so for PlayStation 3. Much of this is the result of traditional offline play, but nearly half of Xbox 360 and PlayStation 3 users say they play games online.

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But that might not be the most-important development in the gaming console space. The second-most popular use of consoles is for watching DVDs/Blu-Rays, most noticeably for PlayStation 3 but also for Xbox 360 (DVD playback is not a standard feature on the Wii.

PlayStation 3 users indicate that DVD/Blu-Ray viewing occupies 27 percent of their time with the console, about the same amount of time as users spend with offline gaming. DVD viewing occupies 11 percent of time on an Xbox 360

Video-on-demand and streaming services such as Netflix, MLB Network and ESPN3, account for 20 percent of Wii users’ time, 10 percent of Xbox 360 users’ time and 9 percent of PlayStation 3 users’ time.

In the second quarter of 2010, the average person watched more than 143 hours of television per month. What is perhaps new is the growing amount of time spent using gaming consoles for some of that viewing.

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Online Video Will Probably Follow the Early Steamship Model

Over-the-top video clearly resonates with consumers. The big challenge is figuring out a revenue model for the content owners and providers that supplies the content people want, at prices they are willing to pay.

Some might predict that the interim business model will essentially be the same as was adopted by sailing ships as the "age of steam" arrived. At first, sailing ships were outfitted with boilers, and used both methods of propulsion. Only later did virtually all ships convert to steam-only propulsion.

That's probably going to happen with entertainment video as well.

Verizon's "Flex View for FiOS" is one example, as is "TV Everywhere." FiOS subscribers can rent or purchase on-demand content and watch it on up to five devices.

Netflix takes a somewhat similar approach, allowing consumers to rent either DVDs or stream content, all as part of a single subscription.

One suspects that is going to be a dominant pattern, for the time being. Content owners and networks will not want to move too quickly to essentially cannibalize one existing revenue stream while trying to grow the new one.

Yankee Group :: Research Report