The iTV Doctor Interview: Viggle President, Chris Stephenson

Dear Readers:

The ACTIVITY in the second-screen interactive television space is exploding. But, as with all fast-growing technology, the BUSINESS of second-screen interactive television has some open questions. The following interview asks some of those questions, a few of which remain unanswered.

So we will continue the conversation at The TV of Tomorrow Show (June 12th-13th in San Francisco) in a panel with the working title, "Can the Second Screen Make a Buck?" That panel will feature the heavy hitters in the space: Chris Stephenson from Viggle, Cameron Johnson from IntoNow, David Jones from Shazam, Jason Forbes from zeebox, and Somrat Niyogi from Miso. We'll have guest appearances from Ashley Swartz of Furious Minds (and possibly one other industry personality) representing the ad agency side of the equation (they are, after all, the gatekeepers of ad revenue), and Jonathan Bokor (quotes below), as "The Voice of Reason." Jonathan will be equipped with a Chinese Gong which he will bang every time he hears either fuzzy logic (or outright BS) from the panelists.

Should be fun!

OK--let us proceed:

If you've been reading my columns over the past few months, particularly the reviews of second-screen platforms and content for the Super Bowl, the Grammys and the Oscars, you know I have a bit of a soft spot for one of the newest entries in the interactive television space: Viggle. So when I had an opportunity to chat with Viggle's president, Chris Stephenson, on the occasion of Viggle's three-month anniversary, I made my way down to New York City's Flatiron district and missed (it should be noted) an opportunity to see the Space Shuttle Enterprise flying over Manhattan, strapped to the back of a 747 (the Space Shuttle, not me).

Before that meeting, I was chatting with Jonathan Bokor about Viggle's rewards-driven business model. As the ex-GM of interactive TV at Canoe Ventures, with experience with Disney, NBC Universal, Tandberg and a handful of iTV start-ups, Jonathan had serious doubts about the program.

Here were the numbers we discussed--admittedly back-of-the-napkin analysis, but revealing nonetheless. I had just cashed in 7,500 Viggle points (accumulated by checking in to television programs, watching ads and participating in promotions and quizzes) for a $5.00 Starbucks gift card. On the basis of that transaction, a single point was worth $0.00067, or 0.067 cents.

Earlier in the week, NBC offered me 200 Viggle points to watch their Monday night telecast of "Smash." On the points value calculation, 200 points equaled $0.13, or thirteen cents. And if NBC made that same offer to 1,000 people like me, somebody was paying $130 to get us to watch "Smash." That's $130 per thousand.

"It's a deal that seems too rich for the viewer," Bokor said. "I don't see how they can scale their rewards program up to the critical mass they would need to sustain the business."

So I walked into Viggle's offices wondering how quickly they were burning through Robert FX Sillerman's investment (yeah, he's the guy who sold SFX Entertainment to Clear Channel for $4.4 billion in 2000). I reckoned they could sustain the launch at those numbers, but could they ever get anybody to pony up enough sponsorship cash to sustain a $130 CPM?

Interviewing Chris was exhausting. Why is it that these folks who live in the 140-character-tweet digital world turn into verbal fire hoses in person? I recorded a 90-minute interview that transcribed into double that amount of information. So in the interests of brevity, I'll skip his extended biographical discussion and use his official Web site bio before we get started:

"Chris Stephenson joined Function(x) in 2011 with seasoned experience in developing internationally recognized advertising, marketing, and entertainment campaigns. Most recently, Chris led marketing for Interscope Records, home of multi-platinum recording artists such as Lady Gaga, Eminem, and U2. Previously, Chris led global entertainment marketing at Microsoft. Earlier in his career, Chris led marketing and sales for House of Blues and also ran multiple award-winning international advertising campaigns and sponsor-driven programs, including the European Music Awards, for MTV and VH1."

iTV Doctor: Where did the idea of Viggle come from?

Stephenson: I met Bob Sillerman in January, 2011. He had just started up Function(x), and was exploring some concepts for taking interactive television to handheld devices. Bob was the majority shareholder of "American Idol," and he was frustrated that the show starts off the season with a rating of, for example, 10--which then drops to a 7 rating at the end of the season. If you sold an 8 in the upfronts, then that drop represents a huge loss of potential advertising revenue, perhaps as much as $200 million. He wanted to know why viewers don't keep watching. They obviously love the show. Why aren't they motivated to come back every week?

iTV Doctor: Obviously there is the quality of the show. We can all promote like crazy to get viewers to the first show of the season, but if the show stinks they're not coming back.

Stephenson: That's right. You can bring a horse to water but you can't make him drink. But we're talking about "American Idol"--an enormously popular show with a huge following. But for all that, people get busy. They have other priorities. They just forget. That's when we started looking at loyalty programs, created and executed on the second screen that a majority of viewers have in their hands while they're watching TV anyway.

iTV Doctor: They have the second screen in their hands and the TV is on; we don't know that they're watching. In many cases it's very pretty high-definition video wallpaper.

Stephenson: True, but the opportunity is just incredible. There is $350 billion spent every year on media and marketing: $75 billion on television, $30 billion on the Internet, but only $2 billion on mobile devices. Yet there are more mobile devices than there are people in this country. The rest of the media and marketing money is direct response, promotions and channel marketing. And most of it is analog.

Television viewers are the biggest single cohort in entertainment. We believe we can capture a large measure of that promotional money and make the connection between television viewing and handheld delivery. That's what WE call interactive television.

Our business is largely about the intermediation between that enormous television-viewing cohort and the cash register. Viggle provides a really simple way to get people to engage--with an exciting gamification layer in the living room around people's TV watching. It creates a bit of excitement with the members of the family, something that draws them into the social Web, and the shows even more. It gives the networks the opportunity to go to the next level of experience. It gives brands the opportunity to take the 30-second spot and bring it to life.

iTV Doctor: Where does loyalty come in?

Stephenson: We believe a loyalty program that keeps people engaged is part of the answer. We know that every household loves loyalty--the average household participates in 18 loyalty programs. And we know that people love free stuff!

The ultimate goal is to create the definitive loyalty program for TV. What we started with three months ago was a focused proposition: Watch TV, Get Rewards. It's a simple idea: check in to TV, get points for checking in, get bonus points for checking in to certain shows, and engage in ads and promotions and earn even more points. The more you engage, the more you earn.

Everybody gets it. Let me repeat: Everybody gets it.

iTV Doctor: My family won two free movie tickets by playing along with your quizzes during the Grammys and the Oscars.

Stephenson: And that's only the very thin edge of the wedge. What we've been adding as quickly as we can is even more engagement opportunities--like the "Viggle Live" events we did for the Oscars, the Super Bowl, and "To Kill a Mockingbird" on USA Network.

iTV Doctor: During the Oscars you obviously had the questions pre-written: "Who's going to win Best Director" and so forth. But somebody was monitoring the Oscar telecast and pushing that at exactly the right time--the final review of nominees just before they opened the envelope. But in that case you were not creating the content on the fly--you were managing it. Have you had an occasion when you've been creating content on the fly?

Stephenson: Yeah, absolutely. During the Grammys we wrote and asked questions about specific performances during the show.

iTV Doctor: And are all those questions written in this office?

Stephenson: We have fairly small teams allocated to each show. The managers and editors are here, but a lot of the content is crowdsourced to fans of all of the shows--REAL fans who understand the shows, the plotlines, the backstories of the characters. More and more producers are finding that fans are the lifeblood of the creative process. We pay them for their work, and they are pretty easy to find. And with those people generating content for Viggle Live, within 21 days we'll be covering 70 primetime shows a week!

iTV Doctor: I played a bit with Viggle during the NCAA March Madness basketball tournament. I hear a rumor that you're doing something with the NBA playoffs.

Stephenson: I can't say anything about the specifics, but I can say we are creating a next-generation fantasy sports game. We will announce that in June.

iTV Doctor: You said rewards are the first dimension. What's the second dimension?

Stephenson: You've already seen the start of that--creating new content to enhance the television-viewing experience. Better TV. A network show might be in the can, but the digital content that accompanies that show is vibrant and dynamic. It's a living thing that responds to the viewers. The social-TV aspect of Viggle, the ongoing commentary of the viewers, creates a feedback/feedforward system that we all will use to increase engagement and keep bringing those viewers back. In fact, with strong fan-based shows like "Vampire Diaries" (which is already enhanced with Viggle Live), the fans never really leave the show. They engage with the show all week long, and each episode just gives them all more to talk about.

iTV Doctor: If you reward the viewers for watching, and create new content based on their feedback, what's the third dimension?

Stephenson: That's the Big Kahuna--we create a community around each show, starting with Top Fans. That's where we avoid the audience drop we mentioned before. You might have a little conflict about watching "Fringe" tonight. But your friends are going to be there. And you're part of the process. You might be the guy who is the expert in interdimensional travel (you gotta be a "Fringe" fan to get that one). And if you're not there tonight, not only will you miss the SHOW, but your friends will miss YOU.

iTV Doctor: That's an interesting draw: a little responsibility to your group. Turns the concept of "loyalty" on its ear.

Stephenson: Our vision is to be the place people go first while they're watching television. We know people love TV and they love free stuff. People don't want to have to navigate 30 different apps. They may love lots of shows, but they don't want an app for each of them. If one app brought everything together for them at one place, that works. Twitter is not about TV, neither is Facebook. They're about so many other things. We want to become the platform to TV viewing.

In order to do that, it's not about us just being us; we want to be a platform for everyone else. An important part of the next stage of the strategy is an open API to allow networks to host their own apps in our environment.

iTV Doctor: OK--I gotta ask the question. What about that $130 CPM?

Stephenson: Well, your math is correct, but your assumptions are not. For a start, you are talking about CPE not CPM, whereby that would be a cost-per-completed-engagement (and CPE is always a lot higher than CPM because its a confirmed action). Second, we don't actually sell points in this way to networks--it's a strategic and integrated promotional relationship.

We have a whole strategy for points management. We started with gift cards because the consumer was very motivated (and they were easy to fulfill). At a high level, there are many ways to burn a point (there are discounts applied to those gift cards, so a dollar is not a dollar). Some of the points go towards promotional rates and coupons, and there is always a degree of non-redemption. We're adding more opportunities to use your points to engage in and go more deeply into the content.

iTV Doctor: So NBC is NOT paying $130 for a thousand people to watch "Smash?"

Stephenson: Nope. The cash value of the points is based on a number of variables. For example, some of the brands in the rewards catalog--they are our advertisers and sponsors and the cost of the gift cards is combined with the overall sponsorship deal. Effectively what happens over time is there is a focused number of rewards in the catalog from major advertisers, so the actual "cost" of the points becomes a non-issue.

iTV Doctor: One last thing: you keep using the word "gamification." I always assumed it meant "playing with television," which works for me. But you're taking it deeper.

Stephenson: It's about engaging more deeply with television. We get emails from people who respond to our promotion of new shows and they are happy to discover something new. We know we can get more people to go to shows, and we know we can get them to keep coming back. That's what Viggle Live is all about. More fun. More stickiness. Gamification is about creating features that keep people engaged longer. Everything we're doing is about bringing the viewer deeper into the television experience. The rewards, the content, the community and the immediacy.

iTV Doctor: Will we see Viggle at the TV of Tomorrow Show on June 12th and 13th in San Francisco?

Stephenson: Wouldn't miss it.

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The iTV Doctor is Rick Howe, who provides interactive video consulting services to programmers, advertisers and technology providers. He is the recipient of a CTAM Tami Award for retention marketing and this year was inducted into The Cable Pioneers. He is also the co-author of a patent for the use of multiscreen mosaics in EPG's. Endorsed by top cable and satellite distributors, "Dr" Howe still makes house calls, and the first visit is always free. His services include product development, distribution strategy and the development of low-cost interactive applications for rapid deployment across all platforms.

Have a question for the iTV Doctor? Email him at itvdoctor@itvt.com