mobile phones to boost TV ratings

Using mobile phones to boost TV ratings
To realize the benefits of interactive technology, broadcasters and mobile carriers must work on their own interaction.
Jacques R. Bughin
The McKinsey Quarterly, Web exclusive, June 2004
The advertising revenues of Europe's large free-to-air television broadcasters are beginning to recover after the declines of 2001 and 2002.1 But owing to the proliferation of niche cable and satellite television channels, those revenues are still spread too thinly. The broadcasters' road to revenue growth thus remains far from smooth.
One way to boost ratings and advertising sales would be to marry TV broadcasting with the Short Message Service. SMS, which enables mobile users to exchange text messages, is quickly becoming more and more popular despite high prices. A survey2 suggests that 42 percent or more of the mobile-phone users, and up to 70 percent of the teenagers, in a number of Europe's largest TV broadcast markets are interested in some form of interactivity between TV and their mobile phones.
At present, SMS-TV messaging accounts for less than 2 percent of the €22 billion in gross annual advertising revenues generated in the European TV broadcast market. But broadcasters could be underestimating the greatest strength of linking SMS to TV: SMS is an effective direct-marketing tool and can also increase ratings. McKinsey studies found that adding SMS interactivity to certain shows improved their viewers' loyalty. In some cases, the addition of SMS boosted the viewership of popular free-to-air television shows by up to 20 percent. Since advertising rates are directly linked to ratings, well-executed SMS-TV shows could at least preserve, and perhaps enhance, a broadcaster's bottom line.
An accidental success
SMS wasn't originally intended for consumers: in the early 1990s engineers used it to communicate with each other. But it soon became clear that text messages were an efficient way to tell customers, for example, about network outages or to remind them when payment was due. From there, customers quickly figured out how to send text messages themselves—before mobile operators had even decided how to charge for the service. "Text" duly became a verb.
The real SMS boom, however, started in 1999, when it became possible for the first time for content providers and users to send text messages across most provider networks. Stock quote services, bank account balances, train schedules—all could be sent to subscribers, while customers could transmit text messages to each other whether or not they used the same mobile carrier. Since then, mobile users, particularly those aged 16 to 30, have adopted SMS as their preferred chatting medium. From the technology's inception through March 2002, almost 30 billion3 SMS messages were sent in the world as a whole. By the end of 2003, mobile users were sending an average of 1 billion messages a day, and by 2006, Western Europe alone is expected to rack up that number of daily messages.4
Texting and TV
It didn't take long for mobile operators and broadcasters to cash in. The first and most obvious SMS-TV application involves inviting viewers of music contests and reality shows—many of whom just can't let go of their mobile handsets—to vote for their favorite song or contestant by sending a text message rather than dialing in from a landline telephone. Currently, 65 percent of the interactions between mobile phones and TVs entail voting during these types of programs. SMS-TV shopping has also captured the viewers' attention; in Germany, for instance, CDs and concert tickets can be bought with SMS text codes on Viva, a domestic music-TV channel. Viva's management claims that the service is more profitable than some established TV-shopping channels.
SMS-TV chat lines—a development reminiscent of Internet chatting—also show great promise. In Germany, RTL-teletext, which offers a TV broadcast message board, claims to host up to 220,000 text messages a day. Almost 70 percent of the broadcasters in Europe have now launched their own SMS chat lines and enjoy similar success.
SMS provides excellent indications of a show's popularity or potential, even though conversion rates (from viewer to active SMS participant) vary widely by application and by the content of individual shows. McKinsey studies demonstrate that if more than 5 percent of a show's viewers interact with it, its audience is extremely engaged—and more likely to tune in again, to tell friends about it, and even to spend money on show-related content or merchandise. Broadcasters can use their knowledge of SMS activity to accelerate their marketing efforts and to command higher prices for advertising slots.
The future is marketing
In 2003, the 900 million messages sent in the European SMS-TV market generated an estimated €400 million for broadcasters, mobile operators, and technology providers, or about 5 percent of the total SMS market included in our research.5 If the system's operational effectiveness were improved and if new shows, chat rooms, and shopping applications were developed, this market could easily be worth €750 million by the end of 2005. Broadcasters could capture one-third to one-half of that sum—€250 million to €375 million.
European broadcasters stand to benefit even more from direct-marketing opportunities created by well-executed SMS-TV shows. Viewers who use SMS-TV to vote for contestants on the hit Big Brother, for example, buy more show-related merchandise than do other viewers, and 70 percent of the teenagers who purchase Big Brother merchandise vote by text message, according to McKinsey estimates. The technology enables broadcasters to collect viewers' names, to compile a database of engaged customers in order to market more show-related and other merchandise, to offer them special privileges on pop artists' Web sites, and to advertise early previews of new episodes. FlyTxt, a UK-based mobile marketer, has been engaged by many broadcasters in Europe to store contact information for their SMS voters in a customer relationship database. Certain broadcasters claim conversion rates of up to 15 percent for their marketing programs.
Europe is clearly the world leader in SMS-TV, and the market is growing. Studies of more than 60 SMS-TV shows in Western Europe suggest that, depending on the show's format, 5 to 15 percent of the total audience is converted from viewer to active SMS participant. The results of traditional marketing campaigns pale by comparison: the best-targeted ones might yield participation rates of 3 to 8 percent, while click-through rates for Internet advertising average from 1 to 4 percent.
More viewers will mean more advertising revenue. In a recent survey, about 58 percent of advertisers said they would allocate a larger proportion of their ad budgets to channels with attractive ratings growth resulting from the use of SMS (Exhibit 1). In addition, 46 percent of those advertisers would bring new money to TV, either by reallocating the money from other media or simply by making new investments. Our studies show that SMS interactivity can encourage ratings growth of 50 to 100 percent for niche cable and satellite channels. Advertising provides 20 percent of the revenues of the average thematic pay broadcaster, which can reasonably expect one out of every five shows to be interactive. SMS interactivity can therefore boost the total revenues of a niche pay-TV broadcaster by 1.5 to 2.5 percent.