TV as We Know It is Dead: Shift to Web-based Video Costs Producers 88% of Ad Revenues

Posted: May 17th, 2008 under journalism, music, newspaper crisis, television. Tags: , , , , , , , ,

Can you say “Doomed”?

Apparently, a report called “And Now for the News,” written by Craig Moffett of Bernstein Research, came out this week, and it’s got both Mark Cuban, owner of the Dallas Mavericks, and, not coincidentally, HDNet, and the pundits at Digital Media Wire all atwitter over the stark economic realities.

Cuban made billions of dollars in the internet video game, and, while he’s acted the fool at various Maverick games over the years, nobody has ever accused him of either being stupid or lacking passion. So when he starts winding up the air-raid siren, it gets my attention.

From Cuban’s blog:

Starting with the disappointing but expected news that journalism is no
longer a service consumers desire to pay for, he moves on to the
problems facing Internet video.

(snip)

Five years into the video-over-the-Internet revolution, we have learned
two things. First; consumers won’t pay for content on the web, so it
will have to be ad supported. And second; it won’t be ad supported.

Oh, shit. (*stomach lurches*)

On the web, early evidence suggests that consumers will tune out –
click away – if they are forced to watch more than 30 seconds or so of
advertising up front, and maybe another 90 seconds of advertising over
the next thirty minutes. Hulu.com, for example, which has already been
lionized by many as the future of TV, serves two minutes of advertising
for every 22 minutes of programming(i.e. the programming duration of a
typical half hour show from television). Assuming identical CPMs for
web video and TV, and after accounting for lost affiliate fees, a 30
minute program on the web with two minutes of advertising yields
approximately 1/8th as much revenue per viewer.

Are content producers prepared to reduce production costs…by 88%?

In fact, the actual economics of web-based video are far, far worse than this.

Sweetie, can you get me a hemlock cocktail, please? Easy on the ice. And see if there are any razor blades in the junk drawer?

88%? Are you freakin’ kidding me? That kind of revenue restructuring would be in line with what newspapers have experienced since classified ads migrated to the web (i.e. the “Craigslist effect”). And yeah, I know, there are some shellshocked newspaper reporters/editors who will nod wearily, taking schadenfreude satisfaction that the arrogant pacotillos in local TV are about to take the bollocking that print has taken these last 10 years.


Over at Digital Media Wire, Paul Sweeting
explains the problem that video producers here in Hollywood face, seeing as how they’re making the same goddam mistakes that music labels made when the internet came calling:


There’s no reason to believe that video producers’ experience will be
any different. Like it or not, the web simply isn’t very kind to
publishers, packagers and distributors. It rewards enablers. Search is
an enabling technology–perhaps the ultimate enabling technology. And
as Google shareholders can tell you, it’s been rewarded. The challenge
for publishers is not to figure out how to force the web to reward
them. It’s to figure out how to capture the value created by enabling
technology.




In that sense, Cuban is right. It may not make sense for the networks
simply to make their schedules available for free on the Internet. That
doesn’t really create any new value; it mostly just drains value from
linear platforms.




What the networks need is to figure out how to capture the value
created by enabling consumers to access, select, aggregate, transform,
embed and share content–in a word, to use it. Anything else is just TV with buffering.


For scripted TV entertainment, well, I’m not sure what the survival strategy is yet. I do know that there is not much love in the ad world for a CPM rate hike for online video that would bridge that 88% gap. There’s just too much other product out there screaming for attention … not to mention the fact that the scripted TV content (and movie content, for that matter) is a melting sandcastle to the surging broadband tide. Trying to make back a $160 million budget from some exotic cocktail of online subscription, advertising and branded sponsorship … well, let’s just say that I’m glad I’m not writing the checks on that one. I don’t know how you can possibly monetize the budgets that Hollywood is used to.

And folks, we know – dammit, we know all too well – how the media megalopalies react to revenue reductions. For a time, they throw money at the problem. And then come the cutbacks. “We have to do more with less.”

It comes down to our old friends, supply and demand. If there is
demand for the kind of spectacle that you get in Iron Man or Raiders 4,
or whatever, there will be someone out there that will supply it …
but at the price point that the people on the demand side set.

Kiss those expense-account lunches at The Ivy goodbye. All the little perks that pampered writers, directors, producers and stars have gotten used to over the years. There is going to be a lot of screaming and whining hereabouts in the next decade or so.

I think that my clients over in newspapers have actually got a significant advantage in this arena. The future of video is going to be like the future of news: disaggregated and hyperlocal. Papers can do this. Papers ARE doing this.

I can’t figure out how to take a 2 1/2 hour piece of video – hell, video of any length, from a blipvert to the entire back catalog of the Museum of Radio and TV – and make it pay off a $320 million opening weekend return.

But I can teach you how to monetize short clips shot by reporters that go along with local news stories. That’s do-able.
One last thing: in the comments was this gem, sure to be included in my next series of trainings for newspapers migrating to video on the web:

I’ve never seen ABC.com and the rest put an RSS, Email, or text message subscribe/alert button on their video pages. Instead they want us all to *remember* show schedules, come back, and sit through ads. They’re blowing a huge chance to have a relationship with the audience. The sad truth is that TV networks don’t want a relationship. They want us all to sit around the glowing box together on *their* schedule as if it were 1966.

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