Archive for December, 2010

December 11, 2010

Cutting the cord & its impact on the TV industry

cutting the cord
cutting the cord – courtesy

There is a lot of talk of users cutting the cord and going over the top. There is speculation that cable subscribers will stop paying their cable bills since content is available online for free. How does this effect the TV industry?

You could argue that the content guys shot themselves and the cable guys in the foot by putting content on the web for free. This can be disastrous for the cable industry as in most cases the cable guys have to pay the network/content guys money to deliver their “premium” content to their subscribers. If the subscribers (subs) cut the cord and don’t pay their cable bills how do the cable guys in turn pay the content guys? In the US alone this is an $80b industry. (TV advertising is another $75-$80b industry.)

Now if subscribers indeed cut the cord one could argue that the content guys will still make some (but substantially less) revenue thru advertising – pre-rolls, post-rolls & mid-rolls. The cable industry however will collapse.

While we discussed 2 players in the value chain there is a third player that is as befuddled as the other two and that is the ISP. With online video beginning to take off, networks are beginning to get clogged. Current all-you-can eat pricing is not sufficient to meet the demands of large scale HD video consumption.  ISPs have to spend money to improve their infrastructure but with very little to no increase in their ARPU (Avg. Revenue Per User).

I suspect the days of completely free access to network shows online are numbered. While networks can block Google TV and the likes for sometime, eventually technology will beat these restrictions. For example there are already ways to beam content on your PC screen wirelessly to the TV. What will the content guys block then? Firefox? IE? Chrome?

In order to protect revenues content will have to be placed behind pay walls universally, regardless of the device it is accessed on. What people need to understand is that devices are just different means to access the web. You can’t start differentiating devices. The lines are blurring…and fast.

Verizon, Comcast and others are already experimenting with ways to give their paying subs access to content on multiple devices. This of course has to be synchronized with content being put behind pay walls to be effective. On other devices (non TV) there are no existing business models that are threatened and so both content and cable guys will rush to deliver content on these devices. Of course the device guys are now trying to figure out how to get a piece of the pie to help boost their falling margins.

The ISPs are moving away from all-you-can-eat plans to limited, pay as you go plans. Thus forcing the subscriber to choose between watching a show thru cable or via the web.

I suspect this will be the business model going forward…at least in the near future. Subscribers are used to paying for content. So before they get too used to free content it is a good idea to move to a paid model.

I may not be the most popular guy for saying this but I feel this will bring in some kind of order back to the breaking system. I am personally of the opinion that popular content should be broadcast, as this is the most efficient use of the medium. Niche content can and will most probably be multicast or unicast (IP based). You don’t want IP networks being completely clogged by video, disrupting delivery of other services.

All of this pay wall stuff does offer a great opportunity for new content players to leverage this potential void of free content. Publishers like the New York Times who didn’t have a way to reach audiences thru cable now use the web. Advertising revenues are a welcome addition to their financials.

Similarly content channels like Howcast that clipchef that host instructional videos and cookery shows respectively are available to an audience that never had access to these over TV. These are exclusively made for the web.

Other shows like Funny or Die, College Humor etc. are rapidly gaining a worldwide audience that they would find hard to attract by being on US cable alone.

As people discover more and more of these “free” shows, revenues for the publishers will improve through advertising and the quality of content will improve. Overtime this could threaten traditional cable shows and exercise further strain on existing business models for cable shows.

With the cost of production and distribution coming down significantly over the years more and more of these shows are going to pop-up. Many will become popular and viral and compete for eyeballs with these other cable shows. I am not just talking about amateurs but professionals like Cosmo Girl, Huffington Post, and Revision 3 etc.

The concept of prime time TV will change as soon as all these shows are available on demand on multiple screens. This will affect advertising rates. Additionally with IP based delivery targeted advertising will deliver more efficiency on dollars spent on advertising. User interaction and engagement will deliver new forms of revenue sources and increase loyalty and fan following.

Right now the TV industry is going thru absolute disruption and the sooner traditional players in the value chain adapt to this the better it will be for all concerned.

Stay tuned….