Commentary

The Reinvention Of Media And The Content Tipping Point

Yahoo! announced it’s getting in on the original content production game with its Yahoo! Screen video content service, producing two new comedies. This comes on the heels of Microsoft announcing the availability of original content on its X-box and Amazon Prime doing deals to show years-old original HBO content.  What do these things have in common?  

A clear recognition by streaming companies that traditional content, similar to what was viewed as far back as the 1950s, is the key to more subscribers and revenue.  But it also illustrates the power that original content providers like HBO are going to have over this whole paradigm shift.

Let's start with semantics. Each was heralded as a move into "TV" by streaming services.  So TV isn't dead -- it's merely an expanding platform.  How long will it take for Amazon and Netflix to start selling set top boxes that look a lot like cable boxes to fuse onto your television?  The answer is, not very.  

Now let's get down to the business issues. The advantage streaming services have enjoyed over time is the ability to do favorable deals predicated on driving down the value of content to get more of it at a cheaper price. Amazon's negotiating tactics with publishing houses could be a teaching moment for Walmart and its dealings with clothing manufacturers. The Web giant was able to get as much content to sell as cheaply as it could in order to drive up its subscriber and device customer bases -- and it worked. As a result, Amazon was able to effectively drive big-box bookstores out of business and become a dominant provider of the published word.

I'm sure that hubris isn't limited to the executive suites at Amazon.  If you're the streaming and tech guys, you've been reading for decades that cable and the nets are dead and you've been anointed the future of content consumption.  You've convinced yourself that it must be true because a bunch of adolescents and adults are passing clips of some blockhead skateboarding off a roof or a clip from “SNL” around on YouTube. 

Only there's not the kind of huge money the networks and pay cable stations get from a Super Bowl, or even an episode of Game of Thrones in that video swapping game. So what do you do?  You turn to Hollywood production houses to do original content and you start to fill the huge gaps where the real consumer appetite exists -- for traditional dramatic content and sitcoms -- by doing rebroadcast deals for old content.  The market anoints you the victor because these two traditional media companies - the production houses and the cable nets - came to you for distribution.  Only you're not really winning...it's really the first crack in your veneer.

How can that be?  While you may have gotten a good deal now, you've been hooked on the drug of quality programming.  And quality programming is expensive.  The first program to break the million dollars per episode production barrier was Miami Vice, 30 years ago. Now it's routine for production of episodes of high-quality programming on cable to run in the $4 million to $5 million per episode range.

These cable companies -- HBO, FX, AMC, Showtime -- are not going to roll over the way five book publishing houses did and hand off their content at a discount.  They're going to get the streaming giants hooked, and then stick them up for higher costs for content.  When the production houses see that, they're going to do the same - hiking prices for talent and studios until the costs that the streaming companies are paying for content look an awful lot like what traditional television networks are paying.

And that's where the rubber hits the road.  Because once that tipping point happens, the streaming houses are suddenly the same thing they claimed to be the alternative to -- traditional media houses that have to push up subscription fees to cover production costs.  Suddenly, the entire thing looks ridiculous if you're a consumer, because now your option is to pay a huge monthly fee to a broadband company and a growing fee to a streaming house that sits on top of it.  

The victors will be the production houses and channels like HBO and Showtime (hello supposedly dead CBS) which are counting the dollars they get from knowing the  subscription model better. It really is where we're headed.

So what does it mean if you're the world of marketing?  It means you better figure out a model for more product placement, sponsorship fees and organic product mentions.  Because like the rest of the industry, we're going back to the 1950s -- when sponsorship was embedded in programming and the 30-second spot wasn't yet the standard.  Sure we'll still have ample opportunity to market that way, but with more original, subscriber-driven programming dominating the landscape, it's going to require the ability to embed marketing messages, even if you can still bookend traditional spots on either end of the programs.  

Think about it -- history really does repeat itself.

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