The future of television

Posted: April 5, 2008 at 6:07 pm in media, tv

I watched the season premiere of Battlestar Galactica this morning. This wouldn’t be surprising except that I don’t get the Sci-Fi channel, which broadcasts that show on Friday evenings. I watched it over at hulu.com, the video site started by NBC (which owns the Sci-Fi channel) after they pulled their content from iTunes last summer.

What’s interesting is that NBC lost money from me in this process. I had been paying $2 an episode to watch Battlestar Galactica last year on iTunes. On hulu.com, I watched it for free, except for a total of two minutes of advertisements, clumsily sprinkled throughout the episode. I can’t imagine that the advertising revenue they are getting is worth more than the cut of the $2 they got from iTunes. So how does this make sense? It doesn’t to me. And there are a few other questions about television that don’t make sense to me either.

Why doesn’t HBO have an online portal where I can see their shows? I want to see the final season of The Wire. I don’t even get basic cable, so it would cost me $40/month to get the “standard cable” package, and then another $15/month to get HBO on top of that. It doesn’t make sense for me when I just want to watch one show. I went to iTunes but The Wire was not available there, even though I would have gladly paid $2 an episode. Heck, I would have paid $5 an episode which is comparable to their DVD pricing of $50 for a season); after all, I pay $10 for a two hour movie, and an episode of The Wire is much better than most movies. But HBO had no way for me to give them money in exchange for watching a specific show as it is released (I have to wait for the DVD).

Why do all broadcast networks have an online video on demand service now? I love it as a consumer. If I forget to tape a show, or if two shows I want to watch are on simultaneously, I can just go to the network’s site a day later and watch the show I missed. Most sites even store four episodes so that I can catch up on a series if I lost track for a few weeks. NBC has the entire run of Friday Night Lights online to try to build viewership. While it’s tremendously convenient, I don’t know how it makes sense economically (NBC doesn’t even put advertising in their online episodes).

I suppose one possibility is that the networks are using online rebroadcast of their content as a way of gaining access to a highly profitable market segment, which would be people like me that have broadband video connections and the tech savvy to even want to watch a TV show online. The problem I see with this explanation is that they don’t have any way of targeting me currently. I don’t login to hulu.com or to the network sites. So unless they start delivering advertising interspersed with the show, they’re not making money, and given typical online advertising rates, I don’t know if they’d be profitable even then.

I have been waiting for years for the “a la carte” option of television to become a possibility, where I can pay for just the content that I want to see and nothing else. I wanted this as a cable subscriber – I hated paying for the entire cable package when I really wanted just four channels. I want this as somebody who follows specific shows – I got into television as a result of becoming a Buffy fanboy, and still have an instinctive revulsion for the idea of flopping on the couch and “seeing what’s on”. The funny thing is that I would be willing to pay more to get what I specifically wanted – while the cable company charges $40/month for 40 or 50 channels, I would pay $10/month happily for the 4 channels I actually wanted. I know the economics don’t work that way (the channels I want cost more because they are higher profile) but I hate the idea of paying for something I’m not using.

I was excited by the advent of iTunes video, as it seemed like I could finally pay for only what I wanted. I’ve been following The Shield and Battlestar Galactica on iTunes because those are shows on cable channels I don’t get. I would have happily paid for The Wire if given the option. But with various content producers like NBC pulling their content from iTunes so that they can go their own way, it does not appear as if iTunes will be the “a la carte” solution I had hoped.

I wonder how much of my disappointment is because I’m decidedly atypical in my television consumption. I used to use a VCR and now use a DVR to ensure that I only watch shows that I want to watch. So I record shows, and play them back at times convenient to me, generally skipping the commercials. I’m a nightmare for the traditional television advertising model in the sense that I both time-shift and skip commercials. My viewing habits ensure that I am an advertising money-loser, so the “a la carte” solution would seem to be the only way to make money from me.

But I’m guessing most people aren’t like me when it comes to television (the Nielsen ratings back up that assertion). Most people come home from work, flip on the TV and watch whatever’s on. They surf through the channels available to them, rather than focus on specific shows. And when they do focus on specific shows, they don’t set their Tivo – they make sure they’re home to watch it. A digital analogy would be that I’m one of the minority that uses an RSS reader to follow blogs, where most people just go to a site when surfing to see if there’s new content.

Beyond the “a la carte” subscription model, there are a few other possibilities for how television gets made in the future. One possibility is a donation culture, where customers donate money to get the next book or record produced. I’m not sure that scales to the amount of money necessary to get a television episode produced, though.

Another intriguing possibility that may be what the networks are thinking is using content as a loss leader. ValleyWag had a recent article suggesting that “Recorded music is no longer a product, but advertising”, where artists should give their music away as advertising for things they can actually sell, like t-shirts and concert tickets. Perhaps television episodes could now be used to increase the power of the brand, with the actual money being made from DVD sales and other merchandising. Again, this seems unlikely with the much greater money necessary to make television than music.

Another possibility that occurred to me after posting is that networks may still consider the TV show aired in its normal time slot as the franchise. The video on demand on their sites and sites like hulu.com are merely designed as ways to bolster the original broadcast. This way, if I miss an episode, I can catch up and not feel like I missed a key plot point. Or I can watch a few episodes online and start watching a show that I might not have otherwise (this is how I started watching Friday Night Lights). The network assumes that I will then start watching the broadcast version so they can get their advertising revenue that way. But this assumption is headed towards breakdown as people become more comfortable with technology options like DVRs and video over the internet, which is inevitable as the net generation grows older.

I don’t really have answers. I’m not sure I’m even asking the right questions. But it’s an interesting topic, and I wanted to write about it while the hulu.com/iTunes discrepancy was still fresh in my brain.

3 Responses to “The future of television”

  1. chuck Says:

    i just read an article in the March 2008 issue of The Atlantic today about this very subject. “The Revolution will Be Televised” talks about NBC pulling its content from iTunes with the statistic that NBC was responsible for 40 percent of iTunes video sales, but earned only $15 million from those sales. They realized they were digging their own grave by allowing iTunes to be the provider, and they need to set up their own channels.

    nbc.com does run ads with its epsiodes. After watching a season’s worth of 30 Rock via nbc.com, I have learned that “Exploding Verizon Data Service is Awesome.”

  2. lila Says:

    as more and more people get DVRs, that “see what’s on” mentality will be less and less of the market. i’m interested to see where things go.

  3. CableTechTalk Says:

    I’m not sure you’re really clear on the whole idea of competing business models. Ever since the Web got really rolling, there are have some companies that offered content for a fee and those with advertising-supported businesses. There’s no right or wrong, there’s only business models that work and those that don’t.

    Most Web content has moved from subscription fees to advertising. With iTunes, you can download the programming, watch it offline and perhaps enjoy higher resolution.

    Why do you assume NBC loses money if you watch a show online instead of buying it? I just zipped over to check out Battlestar Galactica and the episode had pre-roll advertising. I watch last week’s 30 Rock online today and it had ads as well. Why doesn’t this makes sense economically?

    HBO does not yet have an online portal for their shows. They’ve announced one, but it will only be available to HBO subscribers, just as HBO On Demand is only available to HBO subscribers. As you say, you could rent previous seasons of The Wire on DVD, but new episodes aren’t available. (I believe they did put In Treatment on YouTube.) That’s HBO’s decision. They’re a premium service and I suspect that they don’t want to do anything to cut into that revenue stream.

    You’d like to subscribe to only the channels you want, but your notions of what that would cost are off. You’d like to pay 10 bucks a month for 4 channels. A recent Yankee Group study says you’d pay $5-10 per channels, which makes your bill $20-40 bucks, right back up where you started.

    You’re not alone. Forrester Research did a study last year that asked people to put together packages for a desired price. Respondents chose a simulated bundle with an average of 26 channels, but were only willing to spend $24.08 a month, less than $1 a channel, half of what they pay now. At that rate, programmers wouldn’t make enough money back on subscription fees and advertisers wouldn’t reach enough people to justify ad spending.

    You do correctly point out that models are evolving. Content is available on a wide variety of platforms. Programmers can make money in a variety of ways. New choices come out all the time. Unfortunately, you’d like to buy the programming you want and nothing more, you’d like to get it in a timely and efficient manner and you’d like to pay a low price, I don’t think you can get all those things at once.

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