By Rachel Healy, senior manager, and Kim Chua, manager, at Value Partners London There has been much discussion about the level and rate of viewing migration from linear to VOD; the general consensus seems to be that the speed of the shift will be slow, and that the proportion of VOD viewing in the medium term (say fi ve years) will remain low at 6 – 8%, compared to c. 2% today. However, do these forecasts take into account step-change shifts in behaviour of Generation Z1, the ‘digital natives’? Value Partners runs an internship programme for aspiring TMT strategy consultants each summer. This year, we asked one of our interns to carry out primary research into their peer group’s current and future TV viewing patterns. We worked with her to design a 26-question survey which she distributed via Facebook. Although this is by no means a ‘representative sample’ of Gen Z – a sample of just 78 respondents, largely Oxbridge and users of Facebook – the results paint an interesting picture of the relationship this highly sought after demographic has with TV and how this will evolve as they leave university and move into the world of work.

1. PERSPECTIVE
1
There has been much discussion about the level and rate of viewing migration
from linear to VOD; the general consensus seems to be that the speed of the shift
will be slow, and that the proportion of VOD viewing in the medium term (say
five years) will remain low at 6 – 8%, compared to c. 2% today. However, do these
forecasts take into account step-change shifts in behaviour of Generation Z1
, the
‘digital natives’?
Value Partners runs an internship programme for aspiring TMT strategy consul-
tants each summer. This year, we asked one of our interns to carry out primary re-
search into their peer group’s current and futureTV viewing patterns. We worked
with her to design a 26-question survey which she distributed via Facebook.
Although this is by no means a ‘representative sample’ of Gen Z – a sample of
just 78 respondents, largely Oxbridge and users of Facebook – the results paint
an interesting picture of the relationship this highly sought after demographic
has with TV and how this will evolve as they leave university and move into the
world of work.
Key survey findings
Being “connected” is far more important than watching traditional TV
Generation Z truly is the internet generation. When asked what one device they could not do without, and
what applications they could not live without, internet access (via the PC) and calling / SMS (via their mobile
phone) topped the rankings. The TV lagged significantly, with watching TV deemed less important than Fa-
cebook.
• The PC was considered the most important device, chosen by 51% of respondents as their ‘must have’de-
vice; followed by the mobile phone at 43%; only 3% of respondents chose the TV as their most important
device
• Internet access was by far the most important application, with 83% ranking this within their top three;
mobile voice and SMS won 56% and 43% votes respectively; Facebook won 29% of votes – TV came in fifth
place with 17% of votes. Incidentally, no respondents ranked Twitter within their top three.
This contrasts with the overall UK population: research carried out for Ofcom indicates that 50% of the popu-
lation rate TV as the media activity that they would miss the most2
. Although it is true that Gen Z has always
watched less TV than the average person, recent trends show that this difference in behaviour is becoming
more marked
• 16 – 24 year olds watch an average of 2.5h per day, compared to the UK average of 3.8h per day (2009)
• Since 2006, UK average viewing has increased by 0.2h, whereas viewing for 16 – 24 year olds has reduced.3
Gen Z has embraced streaming content on-demand – streaming VOD is more popular than
using PVRs or downloading video
Where Gen Y was seduced by the personal video recorder (PVR), Gen Z is leapfrogging the PVR in favour of
streaming VOD. Our survey showed that, for Gen Z, streaming VOD is the most common mode of video con-
sumption after broadcast TV, more so than using PVRs, watching DVDs or downloading video. This behaviour
is even more marked during university term time, where only a third have a TV, but most have a PC. Looking
towards how they would access video content in the future, most look forward to an on-demand model. To
quote one respondent, their ideal world would be one where they could “stream HD video to any device I
choose (PC, TV, iPad, mobile …)”
Generation Z rejects traditional TV
1
Generation Z is
usually used to
denote those
who are born in
the 1990s
2
Ofcom
Communications
Market Report,
August 2010, p
21
3
Ofcom
Communications
Market Report,
August 2010,
p 160
Kim Chua
Engagement
Manager
Rachel Healy
Senior
Engagement
Manager
Stephanie Davin
Internship

2. PERSPECTIVE
2
• 21% of our respondents currently stream video ‘always’ or ‘most of the time’. This compares to 54% wa-
tching linear TV, 15% using the PVR, 7% watching DVDs and 4% downloading video
• 51% of our respondents said that they stream video more during university term time; 68% said that
using a PVR was more an ‘at home’behaviour
• 49% of respondents thought their video watching patterns post university would be more akin to term
time behaviour, compared to 22% who thought they might revert to home behaviour
• When asked the open question on how they wanted to watch video in five years time, c.40% of responden-
ts’vision for the future including on demand viewing. No one mentioned a PVR.
Recommendations via social networking will be increasingly important in driving ratings
Audiences have always been influenced by their peer group about what to watch. For Gen Z, social networking
sites are a natural place for this to occur.
• 46% of our respondents decided what to watch based on friends’ recommendations via online social
networking
• 35% were members of TV fan sites or had a TV show as a ‘like’on their Facebook page.
This is good news for content creators and broadcasters – it is a near-instantaneous audience insight chan-
nel, and also opens up the opportunity to influence programme popularity through engaging with ‘opinion
leaders’and through maintaining compelling fan pages on Facebook.
Of course, using social networks to help boost programme popularity presupposes that certain other ‘hygiene
factors’are in place – the top three motivating factors for Gen Z choosing what content to watch were i) how
good the content is – which affects whether it is recommended; ii) whether it is available for free, and iii) the
picture quality.
Gen Z is open to paying for selected VOD content
Our survey indicates that Gen Z are fairly open to paying small amounts (we suggested c. £0.50) to watch TV
content, particularly if this enables them to avoid advertising and guarantee a good picture quality.
• 11% had paid for movies or TV content online in the past
• Genres respondents were willing to pay for were films (91%), sport (36%), drama / soaps (30%) and come-
dy (30%)
• 64% cited ‘you can watch in better quality’and 59% cited ‘you can skip ads’as reasons for paying.

3. PERSPECTIVE
3
Additionally, willingness to pay for VOD came out a number of times when respondents were asked about
their vision for watching video in five years time – although the dream scenario for most was free, high qua-
lity VOD without advertising, some were more pragmatic - for example one respondent said he wanted to be
able to “stream a whole series online ... even if for a small fee, without having to wait for it to be broadcast on
terrestrial TV”. Another wanted to “stream drama / comedy from secure websites at a low cost”.
Looking to the future of TV, Gen Z is excited about ever-more immersive experiences
We asked respondents to tell us, in their own words, what they wanted from video content in five years time
– assuming anything was possible. What surprised us was the number of responses about technical advan-
ces enhancing the viewing experience – they looked forward to being able to “... watch in 3D without glasses”,
“... be in the action, e.g. virtual reality”; “… be able to smell the odours of the broadcasted scene”; and have TVs
“installed in sunglasses, dream capsules”.
These responses are particularly significant as they were completely unprompted – the preceding survey
questions did not reference any of these ideas.
Implications for media players
Keeping the attention of Gen Z
TV has to vie for the attention of Gen Z with an increasing range of interactive communication and enter-
tainment forms – social networking is just the latest of these. Content creators and broadcasters will have to
innovate to maintain viewing levels. This innovation could be in the programming formats; for example, one
respondent suggested that they wanted to “interact with storylines in drama, ie you choose the action and see
how it evolves the storyline” – which begins to blur where TV crosses over to games. Additionally, technology
advances such as 3D and virtual reality could help to hold the attention of Gen Z.
Reaching Gen Z through VOD advertising
Currently, brands seeking to target the 16 – 24 demographic through a TV campaign pay a premium CPT, as this
is a highly sought-after audience, and difficult to reach. However, as Gen Z increasingly deserts linear TV, and
multi-tasks their way through advertising breaks making what advertising they do see less effective, we expect
brands to look for other ways of reaching this demographic. This is likely to include new forms of advertising
such as branded entertainment, product placement, interactive campaigns – and VOD advertising.
VOD CPTs currently command a significant premium to linear CPTs, largely because of their scarcity value.
As the level of inventory increases, providers of VOD will need to develop improved targeting to maintain a
premium CPT.
Opportunity for micropayments
Gen Z has not yet established a pay TV habit; could they be the consumers to reject the bundled pay TV sub-
scription in favour of a more self-directed, self selecting a la carte approach using micropayments? Whether
the micropayments model can succeed in becoming a significant revenue stream would depend on whether
VOD providers can develop sufficiently attractive services, in terms of content, price point and functionality,
to attract a paying audience.

4. PERSPECTIVE
4
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For more information on the issues
raised in this note please contact
rachel.healy@valuepartners.com,
kim.chua@valuepartners.com
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