Opening A Pandora's Boxee

by , May 20, 2009, 7:30 AM
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Staticky TV By shifting programming from television to the Web, TV networks are on a "slippery slope" that puts the combined $300 billion market valuation of the industry at risk, warns a new report.

Analyst Laura Martin of Soleil Securities points to the implosion of the music and newspaper businesses as cautionary examples of what happens when media companies "unbundle" content (selling individual songs via iTunes instead of albums) or give it away free online.

The same destructive trends are now threatening to undo the business models of CBS, NBC Universal, Disney/ABC, Fox and other TV networks through their own online TV initiatives such as the NBC-News Corp.-backed Hulu and CBS' TV.com.

Martin argues that by offering single episodes of shows such as "The Office" or "The Simpsons" on-demand online -- separate from cable, satellite or other pay TV packages -- they are letting consumers watch the hits without funding other programming.

"As we've seen with music, when the consumer is allowed to buy fewer tracks (about 20% of the album), thereby generating up to 60% less revenue than in the bundle," she wrote in the report titled "Content's $300B Gamble."

While online video CPMs have been 30% to 50% higher than for TV, each online episode carries only a quarter the number of advertising minutes as the on TV. Martin estimates that those figures add up to a 60% decrease in ad revenue when shows are moved from TV to the Web, unless the Internet actually expands viewership.

"Bottom line, the consumer is being retrained to view the TV as a lower price/value platform than the Web, which potentially threatens the TV platform's price umbrella," according to Martin.

To date, people haven't started canceling their cable TV subscriptions en masse in favor of Hulu or Web-to-TV services such as boxee. But Martin maintains that eventually a tipping point is reached where consumers find enough free professional material online that they'll stop paying $60 a month for 300 channels on TV.

Hulu CEO Jason Kilar has maintained that the site doesn't steal viewers from cable TV, as the number of pay TV subscribers continues to grow.

So what are the signposts to watch regarding TV's future as a viable industry?

The upfronts, for one. If broadcasters fall victim to price competition in the midst of one of the worst ad markets in 30 years, it suggests they won't stick to the "economic protection of the bundled TV offering," states the report.

The expansion of free TV programming is another indicator. With Disney recently agreeing to put ABC shows on Hulu, another entertainment giant has taken the step to make its content more widely available online. The more free shows available online, the harder to go back to the pay TV model.

Attempting to check the free TV movement is Time Warner's proposed "TV Everywhere" strategy that would give consumers access to Hulu, TV.com or other Web video hubs as long as they can be verified as subscribers of cable, satellite or telco services that offer the same content.

Martin seems to favor this approach, as it wouldn't devalue consumers' perception of professional content. Windowing -- the entertainment industry practice of making content available on certain platforms earlier than others -- could also be used to preserve the value of pay TV over free online distribution.

For its part, Hulu Tuesday announced the release of its latest ad featuring Alec Baldwin as an undercover alien with "an evil plot to destroy the world." Or at least an industry, in Martin's view.

10 comments on "Opening A Pandora's Boxee".

  1. Karyn Riegel from RG/A
    commented on: May 20, 2009 at 9:02 a.m.

    You hear this argument again and again, and its still stilted. Atomizing content into easy-to-purchase units didn't bring down the music industry, piracy did, and the bit torrents are burning up with freely available t-shows that anyone can copy and share online. ITunes represented one of the only the music industry could begin to recover a revenue stream. Hulu is very very smart, and the TV industry is smart to place its bets on a fluid, popular system in which they hold the reigns, not apple. But its going to take a lot more to save the industry that's about to collapse; cable providers and content producers need to look towards other revenue streams an creating new experiences that reflect the way that consumers watch TV today. Holding on to dying models is like grasping on hard to the rail of the titanic.

    *opinions expressed are my own and do not necessarily represent the POV of my employer.

  2. Kevin Lenard from Business Development Specialist
    commented on: May 20, 2009 at 9:22 a.m.

    Sometimes I feel like an Alec Baldwin alien myself, living amongst a species that walk zombie-like through an alternate universe, believing the past is present. Pandora's box got thrown WIDE open in 1989 when the Internet became functional. The old TV business model died that year, as did the music and newspaper industries (note I did not say 'news').

    All this talk of strategizing to keep the old TV business model 'alive' by maintaining the "value" of "professional content" is ZOMBIE-TALK! The old model has been dealt its coup de grace years ago, but has been kept moving along, seemingly unharmed, by its own multi-trillion dollar momentum and business-people's natural aversion to change. I 'lived' in the world of TV advertising and I can assure you, it is now amongst the walking dead.

    Here's the simple proof: no one, EVER, wanted to watch any TV ad more than a couple of times. We all need to wrap our heads around that simple human truth. Stop reading right now and think about that. NO ONE wants to see or hear any ad more than a couple of times. Really. Yet endless repetition is what the dinosaur TV business model is based upon (as is that of ALL ATL). The Internet is steadily, relentlessly, putting the 'repetition model' to death.

    Right now the dinosaurs are trying to find way to FORCE people to watch ads over and over online, but people will find a way to end this because it's part of the now dead "push" marketing model that no human being ever wanted to be subjected to. Like TV SHOWS, which we all (on average) watch once and MIGHT re-watch a couple of years later, people are happy to watch inventive, entertaining new ads once, but unless they are advertorial-like and involve a new technical device like a mobile phone handset with multiple uses (think how-to podcasts), people are NOT going to willingly re-watch ads.

    It's well past time to learn how to ride this new animal as quickly as possible, versus trying to reseal the yawning opening of Pandora's box 20 years after the lid's was destroyed by Tim Berners-Lee. Personal computing devices, the WWW and broadband wireless have handed control of how humans are willing to be force-fed advertising back to the masses. To the TV industry I say figure out the new challenge and how to monetize things in the future of 'pull', stop trying to stuff all of mankind back into your 'push' marketing model.

    Just a thought. http://advertisingbusinessmodelredefined.blogspot.com/

  3. Lindsay Renwick from Lindsay Renwick
    commented on: May 20, 2009 at 9:49 a.m.

    Preach it, Kevin!

  4. Robert Witwiski from Company
    commented on: May 20, 2009 at 10:54 a.m.

    To: Karyn R

    Piracy? Please - you can't "pirate" something that is not tangible. You can't "steal" a digital copy of something. Once a song goes digital, you can make a million copies of it in seconds. Therefore the value gets reduced to nothing because the music (good) is no longer scarce. Basic economics. Piracy as you call it was the best thing that ever happened to the music industry. It brought artists a free avenue to promote themselves. It gave rise to more musicians and concert ticket sales than ever before. Napster deserves an apology and a thank you card.

    To TV execs: Online TV - either give users what they want and how they want it or fail miserably. Just because it's available online doesn't mean I want to watch it online. My friends watch on their lap tops, but I watch TV on a TV. Besides, cable subscriptions are actually growing more than they ever have. Wheee whee wheeeeehhhh

  5. Robert Witwiski from Company
    commented on: May 20, 2009 at 10:54 a.m.

    oh yeah - WELL PUT KEVIN

  6. Monica Bower from TERiX Computer Service
    commented on: May 20, 2009 at 11:25 a.m.

    Kevin hits the nail so hard it went through the floor.

    Repetition is a metric only because it can be tracked more readily than how clever or how stupid your ad is. And it matters because most people don't remember an ad until they've seen it ten times on TV or a hundred times online - if ever.

    The reality is, a memorable ad is memorable the first time; a stupid or irrelevant ad may never be memorable (though I have to say, those life alert ads are pretty memorable without being in any way relevant).

    But online, I can buy your widget when I see your ad; on TV, something else is involved before I can complete a transaction.

    People 'watch' TV but nobody 'watches' the Internet. people USE the internet. Imagine if you were bombarded by prerecorded audio ads every time you tried to use the phone and you see the difficulty of transitioning TV ads to the internet.

  7. Harold Cabezas from Cabezas Communications
    commented on: May 20, 2009 at 1:33 p.m.

    Extremely well-said, Kevin!!

    Yes, TV will change whether they like it or not because, as Kevin pointed out, just because we were force-fed ads for decades does not mean that is what was ideal, it is what was generally available; due to the costs associated with broadcasting to the masses, we (the public) were at the mercy of Hollywood/Madison Avenue/Michigan Avenue/Wall Street.

    Now with the explosion of social media technology over the Internet, Mobile, and Gaming platforms, we can and are enjoying (& creating!) media in a way we should have always-at our complete discretion.

    LOL, if they think the last twenty years (since the inception of the WWW) were something, wait until they encounter the next five years!! ;O)

  8. Langston Richardson from Cisco
    commented on: May 20, 2009 at 5:55 p.m.

    Seems like the box has flown open and it's in full swing mode.

    The empowered consumer, armed with opinions formed by peer groups and heated discussions, and researched information is driving a new business that has brand marketers finding new ways to match the smaller consumer reach that can no longer be grouped into the masses.

    Old businesses try to hold the old order but like sands at the mercy of the shifting tides, the castles build by old media companies will need to adjust. Why buy a package of 15 items at a higher price whn I only want 3 items? CPGs face the demands of the market and adjust all of the time.

    Because we in our business have this nostalgia of the Mad Men era, we write more about this shift away from one media buy/media fits all.

  9. Mark McLaughlin
    commented on: May 21, 2009 at 1:07 p.m.

    I cannot believe an analyst could be so ill informed and myopic. The hard trend from analog to digital is irrepressible and irreversible. Pushing backwards against the power of digitally empowered consumers who enjoy infinite choice on-demand in their everyday lives has destroyed bloated media companies in the music and print industries. The TV industry and it's mega-corporations are to be applauded for trying to figure out how to embrace these hard trends successfully as opposed to pushing back in denial of the new world they operate within. Of all the reasons that an analyst might pick to challenge the valuation of big TV-centric media companies, this one is a ridiculous choice.

  10. Toyin Dawodu from Saigant Technologies, Inc.
    commented on: May 21, 2009 at 7:31 p.m.

    I think Martin is right, once consumers find enough professional content delivered to their Television without the cable company, the days of the network TV and cable are numbered. That is what we are trying to achieve with our set top box at www.difron.com, we want to provide the consumer with an alternative to forced subscription of 100-300 channels they do not watch. The cable business model is a dying breed, and the likes of Hulu may not even be able to save them because, majority of consumers still prefer to watch video on their television. So companies that can deliver internet video streams will be in an excellent position in the future.

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