Internet Video Subscriptions

Since Shawn Fanning launched the original Napster about a decade ago, CD music sales dropped by 50%. Unfortunately, legitimate digital downloads recaptured less than half the total. Given steadily compounding improvements in computer, storage, and network bandwidth, videocentric media companies have been apprehensively awaiting the new media tsunami on their own shores. Many industry executives conclude it is now arriving. It appears their response is to (1) charge new incremental monthly fees and (2) increase existing ones. In short, after a decade to prepare, it looks like the industry's most imaginative solution is to raise prices.

For example, executives of the companies owning want the Web site to charge a fee for "premium versions." It seems their notion of a premium service is one that includes satisfying access to the most popular TV shows. Presumably, the basic service would provide only unpopular shows and maybe sharply restricted access to popular ones. Similarly, both cable and broadcast networks want increased monthly fees from CATV and satellite operators. There's little concern that such increases will compel operators to pass along the fees to subscribers.



Unfortunately, other media companies are simultaneously concluding that their content merits a monthly fee as well. For example, The New York Times will start charging non-subscribers for unlimited online access next year. The Wall Street Journal already requires an incremental fee for an e-book version. Similarly, some Internet radio stations charge for access beyond a monthly quota of listening time. Finally, it's reported that some producers want an extra fee from "TV Everywhere," even though the service is only supposed to be limited to existing CATV and satellite subscribers.

There are two reasons to be doubtful about the success of plans that rely primarily upon raising prices. First, as author Matt Ragas put it, "We all love the information highway, but we don't want to pay a toll every five miles." Second, incumbent media companies may be overvaluing their own content.

Ragas' remark led me to examine my own subscriptions, which are summarized in the accompanying table. Already I pay over $245 monthly for telephone, Internet, and video entertainment. Other services under consideration would advance the total to nearly $300. Once tabulated, the analysis makes me look for ways to cut, instead of add, services.

Phil's Monthly Subscriptions (Feb 2010) 

Naturally, I'll focus on the bigger numbers first, which come from the cable and wireless providers. However, if The Wall Street Journal's editorial viewpoint prevails, the carriers will likely increase ISP fees even higher. That leaves consumers with thinner wallets to buy additional services from anyone else, including The Wall Street Journal. Even if cable and wireless charges don't increase, consumers may calculate that they're already paying too much.

As for content value, the box office success of last October's "Paranormal Activity" might serve as a reminder to media producers that we characteristically undervalue the works of people who are not like us. Although the movie had a production budget of only $15,000 and was set in a single San Diego home, by the end of January it had grossed about $180 million.

Much as Internet publishing annihilated the value of the printing press, low-cost video cameras combined with digital editing and an abundance of people seeking film careers necessitates an introspective reassessment of Hollywood's self-worth. In short, conventional TV and Hollywood studio production budgets are extravagant. They were enabled by a lengthy era of scarcity imposed by high costs for filming and editing facilities as well as personnel with arcane skills. Importantly, today's equipment costs are much lower and digital technology considerably simplifies previously esoteric skills. "Paranormal Activity" is more than an isolated echo of "The Blair Witch Project," which was a similarly successful movie low-budget indie movie produced about ten years ago with little-known actors. Years from now we'll look back to see it as data point in a connect-the-dots trend line pointing toward a future of content abundance.

5 comments about "Internet Video Subscriptions".
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  1. Jonathan Mirow from BroadbandVideo, Inc., March 2, 2010 at 4:30 p.m.

    Well presented - but, the core facts remain: people will pay subscription rates for financial information (WSJ) and porn. With few exceptions, that's the rule. EVERY other previous attempt has (and will continue) to fail. Why? Because there are multiple sources for almost all digitizable content -legal and illegal. Most youthful internet users don't make any distinction between the two. If people can't watch a program on Hulu that they want, the first thing they'll do is a search to see if it's available anyplace else - which it most likely is; either as a rip from Hulu or an off-air or DVD rip, thus no pay. Seriously, not rocket science here - if people are presented with a choice of free or paid, they'll take free almost everytime, even at the sacrifice of quality (either in encoding or delivery). Once you give something away it's almost impossible to backtrack and charge - the music industry is a prime example of this. Why do you think the video industry will be any different? Hulu slit their own throat (in a digital / pay scenario) the minute they opened as a free service. If they begin to charge they'll be lucky to retain 10% ot their audience, which is why I reiterate: a paid Hulu is a dead Hulu.

  2. Richard L from LW, March 2, 2010 at 4:39 p.m.

    "industry's most imaginative solution is to raise prices."

    What about VOD, iTunes a la carte, Hulu, TV Anywhere, In Canada we have Rogers OnDemand online, the entire Olympic games were shown on demand on CTV's website and Bell gave their mobile subscribers free access through mobile devices.

    But why isn't it reducing your bill? There is an economic structure that almost everyone involved has a vested interest in protecting. Is that wrong?

    Piracy devestated the music industry because it didn't disrupt the way people consumed music - in fact it probably enhanced it through portability. Piracy is not as big of a threat in video because it is not as easy as sitting in front of the couch and turning on the TV. This means there is less desperation to react by the industry. But they are.

    This cable bypass story is so overplayed. its the coming tsunami that will talked about for a decade and one day we'll realize things evolved...gradually (as it had been for 5+ years already).

    And for every Blair Witch there is an Avatar which throws the theory out the window. If people want to continue to watch movies in theaters then your "long tail" theory doesn't work. The tail can only get so long before the theater operators run out of screens or tell the studios or independents to send them something that can fill a theater for more than 2 days.

    As for your bill. It looks like you probably aren't on basic cable only. The iPhone is not the choice of someone looking to cut their bill. Think of the parts of that bill and how they have evolved and added value in recent years: broadband - what is that worth...the entire world of information available at your desk and in your hand (though slightly slower) through your iPhone?? free (and commercial free) internet radio through broadband and iPhone? unlimited long distance calling for $6? Virtual on-demand viewing of video via Tivo plus the ability to skip commercials?

    And where are your existing magazine and newspaper subscriptions? oh yeah, broadband made those redundant. Pandora for $1? What is it worth to avoid the 18 minutes an hour of commercial radio ads?

    To me that $245 could be seen as an incredible value...

  3. Paula Lynn from Who Else Unlimited, March 2, 2010 at 4:56 p.m.

    For the average person/family which does not include those who are reading MediaPost, $15 an hour is considered a decent wage. That's $2400 per month gross. Once the basics are paid: shelter, electric, car/transportation, food, phone, basic TV, hopefully computer service, etc., how much do you really think is left for all the above mentioned services? Do you know how much it cost for public transportation (in most cities no school buses) for a high school student? There is no room for iPhone, TiVo, Rhapsody, Hulu, subscriptions to anything and so on. Paid on line entertainment is probably dead entertainment. On this occasion, I have to agree with JM with additional reasons.

  4. David H. Deans, March 2, 2010 at 6:46 p.m.

    Big-media companies will experiment with charging fees for online video, thereby accelerating the growing consumption of alternative sources of content from small independent producers. We've seen this trend before. Indie music producers have the inept big record labels to thank for their success. Frankly, this scenario of further fragmenting the once captive mass-media audience seems inevitable. Personally, I think pay-walls are wonderful -- plus, I hope they raise their prices and push more unhappy customers to the creative new content producers and distributors. Bring it on!

  5. Albert Lin from Bigcommerce, March 3, 2010 at 8:18 p.m.

    If they gathered some data about their users, they could make the advertising model work by targeting ads at least a little better than they're doing now (no discernible targeting at all, plus I see the same ad in every slot during a show).

    They're thinking like a broadcaster when they have the addressability of a website. They're leaving so much money on the table it's silly.

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