• by Tig Tillinghast , November 22, 2002

Certain types of companies have always been easier to convince to test the online waters. It shouldn’t be surprising that these companies are the ones that were first able to sell their wares online. Most of those firms’ products were various forms of intellectual property. It’s easy to deliver writing, art, software, research and other IP stuff than it is to have to take some physical product and sent it via mail. These companies that had the most direct evidence of making money online were the ones who primed the online advertising pump.

But there remains a secluded category of IP that spends billions of dollars in advertising, yet fails to allow its wares to be delivered electronically. The category is one slightly competitive to the online media: it’s television. Even pay-per-view television deliberately avoids using the Internet as a delivery channel.

Obsession with Controlling Schedules

TV can easily be put online. People would even pay for some types of programming. But the industry fears, and correctly so, that the new media would take away its ironclad control of the schedule.

The schedule allows television networks to be the kingmakers. They determine who runs when and where, jockeying different programming together to try to create attractive mixes for the audiences they think they can best sell to advertisers. They have a limited supply of decent content, and they try to make it go as far as possible by placing it strategically among lesser shows and up against competitors with slightly worse content.

The competitive game is much like a presidential race. It doesn’t matter how close the loser comes to the winner in a state – the winner takes all the electoral votes. For the TV programmer, the best-case scenario is that all of his shows are only slightly better than the corresponding line-ups on other networks. This keeps the expenses down for creating good content and wins the largest audience.

For media consumers, it means that television is practically the last medium left that fails to allow the user to determine these major choices. You don’t get the opportunity to choose what you’re going to see and when. That Star Trek: Next Generation is a repeat you’ve seen? Well, tough, you can’t choose to see a different one. This inflexibility is so 1900s.

The $200 CPM that Isn’t Good Enough

If users could pay $0.20 to see a different episode, that would translate into a $200 CPM for the broadcaster even before the ad revenue was added in.

So why would they fail to exploit this? I’m afraid the answer is that they fear the end result wouldn’t be television at all. The Internet would, and perhaps will, completely supplant TV.

In broadcast, the market safety of the major players comes from FCC licenses that they own, effectively giving them monopolies over some broadcast spectrum. The cable networks also have effective monopolies. If they used the Internet to distribute their content, they’d be competing with any jerk who could write a syndication contract.

Today, these contracts give certain broadcast or cable channels the exclusive rights to run reruns in a particular market. It is the exclusivity that prevents an Internet company from creating its own UPN network, allowing time shifting and pay-per-view.

The Upshot

There are two main conclusions to draw from the situation. First, an Internet “TV network” will pop up someday soon, but it will have to gather content from sources not currently writing regionally exclusive contracts. HBO could start something like this. Some of the independent studios could gather together to create a coop that might serve this function.

And, finally, once TV does break into digital distribution, this will be a major spending category – larger than books, magazines, software and even pornography – for the online advertising business.