As online video viewership continues to grow, broadcast and cable TV network executives are facing unprecedented complexities in their businesses. While creating hit programs is still at the heart of
the TV industry, questions of how these programs are delivered to viewers and how they are monetized are increasingly moving to center stage.
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.