There are clear signs that the content distributors (MSOs, Telcos, Wireless) are making careful little plans to limit the distribution of rich content (video being the main item) over the web. Witness AT&T’s desire to limit the flow of video over their mobile networks. Time Warner Cable is planning to go to tiered pricing for bandwidth in an attempt to charge more for video and music downloading. What may seem to be a cost capping exercise may actually be an attempt to exert control over who gets what content where. The FCC needs to be on the ball here to make sure things like net neutrality and equal access are not thrown asunder. A battle is quietly waging over how to restrict access to content. through the web. That’s the battle. The war is between free and paid.
At the core of the inherent conflict is the carriage fees that the distributors pay to the producers for the right to distribute their programs and the availability of these same programs for free over broadband networks. Why should Comcast pay Disney for the right to broadcast programs that are streamed over the web for free. That’s part of the reason Hulu demanded that Boxee not browse Hulu content. NBC and Fox were worried that their TV shows would be streamed onto TVs. Imagine that- TV shows on TV.
The Cable guys are now working with the Content guys to figure out how to charge people for the content whether they get it over cable networks or through the web. There seems to be some momentum behind putting in place content management systems that would tie licenses to consume content with personal identity. Imagine subscribing to a service offered by Time Warner that entitles you to view any Fox or NBC content you want when you want it whether you get it on cable or through the web. Even on your mobile phone. The reality is that someone has to pay for the content. Premium content isn’t cheap to produce. A TV episode can cost $5mm+ to produce. We all know that with DVRs and the Web, the 30 second TV spot is “dead man walking”. Technology is rendering traditional ads ineffective. Advertisers are starting to realize that they are paying for trees that fall in the forest.
One example of the problem is the emergence of ZillionTV. ZillionTV is supported by Disney, NBC, Universal, Sony Pictures Television, and Warner Bros. You can buy a new ZillionTV box for around $50 and get on demand access to network TV shows through your broadband connection- if you are willing to watch the commercials. This is akin to the old behavioral testing boxes in which as rat received a food pellet if it pressed a bar. If you watch the ad, you get the TV pellet. This is just one attempt by the content guys to fight the erosion of traditional TV advertising.
The reality of today’s video entertainment industry is that audience fragmentation is increasing. Viewership is dividing more and more as more choice of on demand content makes its way onto cable networks (600 channels and nothing to watch) and the web (6 million channels and hard to monetize). The fragmentation issue is not going away. The producers and distributors need to embrace new technology and policies to monetize the fragmented viewership and cross platform distribution. We have passed the point where a TV show can command a higher CPM on the web than it can on broadcast TV. Hulu has proven that even if it is having trouble selling more the 60% of its inventory.
The key to success in retaining viewers and monetizing same as TV converges with the web will be to employ technology to target and measure the response of advertising. The closer an ad matches one’s needs, the less it is an ad and the more it is content. With this technology will come a new level of transparency that will illuminate the actual viewership channels are receiving. The current ratings systems such as Nielsen’s are wholly inadequate to track the true viewership of the multitude of channels being broadcast and streamed over the web. When the actual viewership of some cable channels is know, there will be a major reaction on the part of advertisers. The convergence of broadcast TV and the web will enable this transparency and the Darwinism that will follow. The result will be fewer cable channels and more accurate measures of the effectiveness of advertising. Then, the fragmented audience will be mapped and matched with ad dollars.
Not only is the audience fragmented across channels but also across media. We have seen the teasers of a TV viewer watching a show on a TV set, moving to a computer and then a cell phone while never missing a second of the action. The technology to enable such as journey is nearly here. The policies and content management systems to enable the content to be delivered, tracked and monetized is being developed. My belief is that within a couple of years we could see viewers having access to a “right to use” content . That’s different than Today’s model of access to channels through your cable package, video subscription or pay per view ala Comcast, ITunes or Netflix. In all likelihood, the incumbent distributors and networks will be the gatekeepers of these “licenses”. The content guys will find it difficult to cut the Cable, Telco, and Wireless guys out of the equation given that they own the connections to the viewers. So, if you subscribe to Verizon FIOS entertainment package, broadband service and have a Verizon Wireless phone, you can watch whatever content included in your subscription on demand across all three screens. You get it when and where you want it and the producers and distributors of the content get paid. Seems like a fair deal to me. Of course we aren’t there yet.
There are lots of issues and technical hurdles to be worked out. The biggest challenge is implementing the multi-platform “right to use” licenses. Policies, business models and technical systems need to change. The content producers will worry about “analog dollars turning into digital pennies”. The distributors will fuss about how to maintain ARPU and what they have to pay for the distribution rights. The tension between these two camps has been there for decades and will continue. Given the velocity of change driven by new technology such as high speed broadband, streaming video, file sharing and social networking, change is inevitable. The old system of tethering content to specific devices and media will become obselete. The new paradigm will be linking people to content regardless of device, network, medium or location. At the end of the day, consumers should be considered along with the rights of the content producers and distributors to make money.
