• by Ashkan Karbasfrooshan , Op-Ed Contributor, June 18, 2012

When Discovery Communications bought Revision3, it both validated the promise of online video and killed any talk of it “killing cable.” Nonetheless, audiences are increasingly turning to the web for video content, legitimately or pirated.

But I Don’t Wanna be a Pirate!

As the Take My Money HBO site argued: “We pirate ‘Game of Thrones,’ we use our friend's HBOGO login to watch ‘True Blood’… Please HBO, offer a standalone HBOGO streaming service and Take My Money!”

True, “Game of Thrones” was far and away the most pirated TV show this season. But when I interviewed Three Doors Down in my previous lifetime, they told me that “Kryptonite” was one of the most pirated songs of 2001 on Napster, but that helped make their album a success, amongst the top sellers. In other words, for today’s generation of big media managers and executives (who -- sit down folks -- have probably “downloaded without full authorization in their youth”), piracy is a fact of life.

In any case, Twitter jumped on the meme, “concluding” (scientifically, no doubt) that the average person was willing to pay $12 a month, or about $145 a year, for HBO as a stand-alone service.

History Repeats Itself (But Some Do Learn From History)

To this day, folks on Twitter seem to be on a hunger strike waiting for HBO to give in. In an exchange I had with fellow online video entrepreneur Rob Sandie, he argued: “we used to buy albums for $10 and now buy singles for $1.” You got me, Rob: yes, consumer habits and shopping patterns change (I don’t store meat in ice, between walls, but use a fridge like the rest of the modern world, too, but I don’t build my own fridge. I buy what’s available). 

Either way, I think if we ever see anything resembling à la carte pricing, you won’t be paying $10 for all of HBO, but only, possibly, $10 for a show (and likely a season). Why? The cost of creating quality programming – and filling a new season’s slate – is far more than people think. So judging by what consumers are willing to pay, then it’s likely that they’ll only shell out dollars for the existing hit shows. This means that a producer like HBO won’t have the wherewithal to launch – let alone fund – new shows. Hollywood is after all a hits-driven business, which means it’s also a failure business.

But even if HBO could afford to charge “only” $12 per consumer for all of its programming, TechCrunch’s Ryan Lawyer wondered: “is that something HBO would be interested in? And is it really leaving money on the table? HBO currently has about 29 million subscribers, and reportedly receives around $7 or $8 per subscriber per month. So HBO could, theoretically, get more per subscriber than it’s currently making.” Rightly, he concluded that once you include infrastructure, sales, marketing, and support costs required to pull it off, HBO would lose out. The marketing muscle that Comcast, Time Warner and other access companies flex for HBO alone is priceless.

I’d add that once music went the way of singles, Apple benefitted most. The record labels replaced one headache (piracy) with another (Apple). Yes, it’s better, but in the “this death by injection is so much better than that guillotine way.” Today, artists make more money through concerts than record sales, but the real question there is “is that due to growing concerts revenue or falling album sales.” In other words, maybe Hollywood’s learned from the recording industry and prefers to put up with some piracy to control the genie’s flow out of the bottle.

And now from the department of ‘We’d all be Zillionaires if Hindsight Mattered’

Of course, with users watching more video content than ever online you’d think that there’s an opportunity there, somewhere. But it won’t emanate from big media companies, because they will rightfully remain defensive. As HBR points out:

“If the newspaper companies had been nimble, well-managed organizations (news alert: monopolies usually aren't) trying to follow Clay Christensen's playbook for dealing with disruptive innovation, they would have set up separate ventures aimed at exploiting new digital advertising opportunities. Norway's Schibsted did just that in 1999, and has remained a classified-advertising power. In the U.S., two newspaper chains bought the job site CareerBuilder in 2000 (a third joined them in 2002), and have built it into a successful online/print hybrid.”

That is all great, and some would argue that despite the challenges, conflicting agendas and egos, Big Media’s foray via Hulu, Vevo, Epic et al. are signs that they are doing something instead of sitting on the fences, but the notion that the imminent future of Hollywood is a la carte pricing is as ridiculous as the suggestion that in the future everything is an app and the web shall, go away.

Don’t Blame the apple (the one you eat, but also the one from Cupertino) for Gravity

This past weekend, the New York Times’ David Carr wrote: “But I’ve come to understand that it doesn’t matter what I think is right and wrong (…) The market is as the market does.” He was talking about Arianna Huffington realizing there was an opportunity; and Big Media’s apathy towards online video will create opportunities for online video entrepreneurs like Sandie, myself and many others.

As I like to say, “You may not like the fact that the apple falls from the tree and hits you on the head, but that’s gravity – and you can’t blame the tree, the apple or gravity.”