Commentary
Online Video Creates New Complexities for TV Executives
- by Will Richmond , October 6, 2009
The first question all TV executives face is whether to put their full-length prime time programs online at all. In the last two years, all major broadcast networks have chosen to do so, while just a few cable TV networks have. Most cable networks have chosen to instead focus their online video efforts on sharing promotional clips and offering sneak previews of premier episodes.
As a result, Hulu and broadcast networks' own sites have become popular destinations for viewers looking to catch up on missed episodes, as well as easily sample new programs and browse older fare. According to comScore's data, in August '09, Hulu alone attracted 38.5 million unique viewers who consumed 488.2 million videos. On the other hand, viewers looking for full-length cable network episodes online are often frustrated to find little is available.
This online dichotomy is a direct result of broadcast networks' and cable networks' traditional business models. Broadcasters rely mainly on advertising, so online's ability to increase their reach is, in theory, a good thing for them. Cable networks also rely on advertising, but many also rely on hefty monthly payments from distributors, based on how many households they reach. Cable networks have understandably been reluctant to share their programs for free online, lest they risk the ire of their paying distributors.
But when assessing broadcasters' online distribution, it's important not to confuse heavy viewership with financial success. Because broadcasters and Hulu have chosen to include far fewer ads in their online episodes, by my estimates, they are likely only generating 20-25% of the revenue per viewer per program as they do when the same program is viewed on-air.
If all online viewership could be considered incremental to on-air viewership this would be fine. The problem is that at least some viewers are already substituting online for on-air, meaning that broadcasters are beginning to threaten their own revenues. This trend is virtually guaranteed to morph into outright cannibalization as more "convergence devices" such as Roku, Xbox, and Internet-enabled TVs find their way into consumers' homes. Eventually it will be as easy to watch Hulu-delivered programs on a consumer's widescreen TV as it is to watch them today through the cable or satellite set-top box. Faced with the choice, consumers will lean heavily toward the option with the fewest ads. This is especially true for the 75% or so of American homes that still don't have DVRs. Fixing the online to on-air revenue parity issue is a key challenge for broadcasters, though it is not yet clear how they will do so.
Meanwhile, cable networks, which have not yet really benefited from online video's popularity, could become major beneficiaries of a new initiative called TV Everywhere, which a number of distributors (e.g. Comcast, Time Warner Cable, DirecTV and Verizon) are launching. With TV Everywhere, distributors would "authenticate" viewers to access to cable programs online. The catch is that the viewer has to subscribe to a distributor's underlying video service. Today at least 90 million American homes are subscribers, so for them TV Everywhere would be purely a value-add. Still, many consumer groups are already complaining that TV Everywhere violates the Internet's "openness" ethos, where content flows freely to whomever desires it. Creating "walled gardens" of content, where access is restricted, is sure to spark increasingly adverse reactions from some corners.
A more pressing issue for TV Everywhere providers is getting all cable networks to make their choice programs available. Failing to do so would render TV Everywhere services incomplete, creating a "Swiss cheese" lineup full of frustrating holes to consumers.
On the surface it might seem that TV Everywhere offers only upside to cable networks, providing them with an on-ramp to online distribution while preserving their business models. But, as usual, nothing is simple in the TV industry. Some content providers, led by Disney in particular, have already made clear that they expect to be paid for any online delivery of their content. While video distributors argue this is tantamount to networks "getting paid twice for the same programs" (once in the home and once online), some network executives see it the other way around: if their programs are going to build new TV Everywhere value for distributors, then they deserve to be fairly compensated.
These are but a handful of the complexities online video is creating for broadcast and cable TV network executives. How they are addressed will have far-reaching impact on consumers and the networks themselves, well into the future.
Insightful analysis. While this addresses Broadcast and Cable complexities - it fails to mention the true "wild card", what about the creation of video specifically for internet distribution? To me, the fascinating thing to watch is not broadcasters repurposing "Gilligans Island" (and trying to get paid for it) but the creation of new channels and networks that bypass traditional outlets and play by their own rules. Unhampered by the FCC and skiddish traditional advertisers - this is the place for true innovation.
Superb. [wish it also came with the answers or crystal ball ;-) ]
Since, every show leaves good stuff on the cutting room floor, or in the drives as it may be, that's what we plan to put on the web. The deeper dive. If you want to see "The Show" you'll have to tune in.
The solution is for TV executives is to abandon the outdated notion that video viewing needs to take place on their sites. This carryover from television's CPM model can't work in a 250-million channel on-demand universe. Indeed, it is a misguided departure from the original sponsored-content model of fifty years ago.
But, as they say, the more things change, the more they remain the same.
So, given the public's insatiable appetite for bite-sized video content - "video snacking" - and the proven fact that video snackers care more about what they snack on than where they consume it, doesn't it make more sense for advertisers (the guys picking up the tab) to revisit the concept of hosting both content and viewers on their sites?
TV is an ad-supported medium, which, contrary to popular interpretation, means the content is there to support the advertiser, not the other way around.
Networks are already "getting paid twice for the same programs". As a matter of fact they are getting paid more than twice. They get paid via advertising dollars when broadcast. They get paid when the programme is syndicated. They get paid when the re-runs go to cable.
And that is just your domestic market. Guess what, when the shows are run in Australia they get paid again. And thet get paid when they are shown in every country in the world.
I just don't see why just because they can be shown on the Internet that there shouldn't be a residual payment (ad-revenue sharing for example). Of course on Hulu et. al. they get to keep the ad-revenue.
What part of getting paid back for underwriting hugely successful programmmes around the world don't people get?
In the same way the Internet's "openness ethos" is not violated by the fact that I pay an annual fee for the WSJ Online, I don't feel it would be violated by TV Everywhere only being made available to those who are paying the freight. i.e. the cable subscribers whose monthly payment to cable operators is the first link in the chain-of-content-creation that allows our current TV world to function.