Fox’s contract with Time Warner Cable expires at the end of this year. To make up for declining advertising revenue, Fox is demanding $1 per subscriber per month. That’s double what TWC pays CBS. Stand-off with Fox stations being pulled from TWC if no agreement is reached. Between Hulu, iTunes, Amazon Unbox, YouTube, etc, it’s obvious television is changing. In some ways this is similar to what happened to the music majors.
Like the music biz, the content owners are looking at declining revenues and demanding to make it up someplace else. Music streaming is an unsustainable business plan because the fees are so high. Similarly,TV advertising is down so content woners like Fox want to jack up the cable fees. It may work for awhile but these costs get passed down to the consumer and cable starts to look less and less attractive. You end up pushing your customers to the alternative.
Which isn’t all bad. If you have a business model for the alternative. I figured out over two years ago that ditching cable would save me a boatload of money every year. But I couldn’t part with news and sports. Now, two years later, I can get the HD versions of everything and I’m pretty sure I could figure out how to stream sports and news if I really wanted to.
Cable to me — and many people — is becoming a huge TCP/IP pipe. A slow one when compared to the rest of the world. As the broadcasters and cable channels jack up rates, the value of content on cable actually declines. Just give me a pipe — preferably a fast, Fios pipe — and I’ll get what I want. The MSOs are losing control of distribution. And when that happens, as the music biz shows, you’re in trouble. Sure, I’ll still need internet access, but I’ll handle the rest on my own.
The cable companies have hedged this issue by integrating back and buying content owners. But the content owners are in for a little turbulence themselves.
TV content isn’t like the music biz. For one, people consume mostly fresh content. The music industry relied on catalog sales too much. The old lions of the industry — Pink Floyd, The Who, the Beatles — drove a huge chunk of sales. Sure, there are a few DVD sets of I Love Lucy and MASH that get sold but most TV content consumed is fresh. Throw in live content, like sports, news, and talk shows, and television has more valuable content than the music industry could ever dream about.
So there’s value there. People will pay. Without cable, I would certainly subscribe to download (Amazon or iTunes) to a bunch of shows. And the economics are better. My purchase of a season of Mad Men is a multiple higher of what they would have made on me from the CPM on the advertising. That’s not the problem. Selling me a show I want to watch is easy. I’m already sold. I’ll take Mets and Jets streaming too. Done. But how did they get me to watch Mad Men? How did they launch the show, build word of mouth, build good buzz, reviews, ratings?
There’s a decades old system for creating hits. Same as the music biz. Control distribution, use lead-ins, market, use the right time-slots, stuff the unsold advertising with promos and use on-air bugs to plug upcoming shows, etc. What if there are no time-slots? No lead-ins? No annoying video bugs in the lower, right corner? Media doesn’t adapt to change easily. In an all download/streaming world, it’s pretty easy to see how the low-rated first two seasons of Seinfeld would never have lived long enough to make it to the cultural phenomenon it eventually became.
Right now, there’s football and American Idol at stake. For TWC, there’s big talk about setting price precedents and burdening consumers with ever-higher cable bills. For Fox, the PR babble is about how much their content is worth. And both sides are right. Viewers want their Idol and football but cable bills are rising much faster than inflation (thanks ESPN!). An impasse that will most get worked out one way or another, even if it means the unlikely case of Fox going dark for a few days. Point proved, deal made, everyone moves on.
But there are seismic shifts happening. Content a la carte is the fact. Whether Congress forces MSOs to unbundle cable and let me pick and choose my desired stations or I bypass the cable company and go straight to iTunes, hulu, youtube, or torrents; the bottom line is: distribution control is over. I’m in charge. Soon, content owners will find out exactly how valuable their content is to consumers. Some may be pleasantly surprised. Others will be devastated. But it will also occur just as they face the new reality that the music biz has faced for years — it’s really, really hard to break new hits without distribution control.
We can’t live without our television. We want it fresh, HD, and now. That’s the major plus. The content owners — with some muss and fuss — should be able to figure it out. I doubt ESPN remains the massive cash growth cow Disney has milked from it even with the smart move of Monday Night Football.
The MSOs have a lot more to lose. They’re going to be a dumb pipe. Throw in net neutrality and they become the water utility. I pay for it, it delivers me all I want, but I could care less about them — until the water stops flowing. Uptime becomes their metric, not content.
A la carte is here. Maybe it arrives slower than we expect. Maybe not. And then there’s the Apple tablet…
