Reinvent TV

« What we have here is a failure to communicate | Main | Google Video provides interviews with Hollywood elite »

November 28, 2005

The Traditional Television Business Model and Video on Demand

Ultimately, there are two immovable parties in television: the people who create something worth watching and the audience. Without either, there is not much a business. Everyone else is an intermediary: broadcasters, networks, stations, cable operators, satellite providers, Internet TV portals, telco’s, television guides, set top box makers, etc. These intermediaries exist only so long as they fulfill a function that cannot be economically replaced with some viable alternative.

In the picture below, the important takeaway is that when well established rules exist, each party is free to seek a business advantage without owning the whole ecosystem. For example, the networks know that most of their revenue comes from the $27B in national ad revenue with their main expense being the studios. TV stations allocated ad inventory to compete for part of the $25B in spot advertising with their expenses being station management. Cable companies get 88% of their revenue from subscriptions with 12% coming from an additional $5B in spot advertising. Their primary expenses are plant operations and network carriage fees.

The picture is a generalization of the business. Each sector (broadcast, cable, and satellite) have unique specifics. Some companies participate in multiple boxes. NBC, for example, has some studios, is a network, and owns 13 stations. IPTV will look more like cable when it is deployed.

The best content still comes from the traditional studio mechanism. Until studios test changes to their business model, broadcast and cable networks like CBS and USA (for example) will still loom large. Recent news indicates that the networks are leveraging this power by looking only for incremental revenue streams through new distribution channels. In terms of the picture above, they test system operator changes; put 100% dependence upon viewer fees for revenue; and ignore advertiser subsidization.

The last few weeks have seen a host of business deals aimed at making it easier for television viewers to watch shows whenever and wherever they choose. These new arrangements include NBC and CBS's plans for 99-cent video-on-demand and Apple's iPod link-up with ABC for $1.99 per episode.

The Apple iPod deal with ABC tests one possible idea about how mobile, non-linear viewing might be monetized. Apple is a new player in the equation, but what they are testing is the use of their iTunes web site as an alternative distribution mechanism, replacing the stations and cable companies. Their iPod is a replacement for the television itself. Expect more things like this as cell phones gear up for big offerings next year.

The CBS deal is the same experiment sans the word ‘mobile.’ It too is an experiment that keeps the existing network fully in control of the non-linear viewing process. CBS still airs it popular content on linear television, still collects significant ad revenue from advertisers, and uses Comcast’s VOD servers as an alternative distribution mechanism.

The Wall Street Journal points out that “these pacts might give the networks added leverage in their contention that they should be compensated by cable and satellite companies who distribute the broadcasters' signal into the vast majority of U.S. homes.”

… “For years, broadcasters and local television stations have been frustrated that cable carriers shell out fees to … cable networks based on the number of subscribers … but pay nothing to transmit the signals of ABC, NBC, Fox and CBS... So, for example, big cable companies like Time Warner Inc. or Comcast pay 55 cents to General Electric Co.'s USA Network for every household that receives the cable signal.”

The gist of their article is that these experiments are supposed to give the networks leverage in eventually extracting carriage fees from Comcast and Time Warner. The article fails to mention that USA Network also turns over to the cable companies 2 minutes per hour for local ad insertion – something that ABC, CBS, and NBC would never accept.

But if the WSJ is correct about the broadcaster’s thinking, then that strategy misses out on the real opportunity: determining how Comcast and CBS might eventually scrap the whole carriage fee idea that works only in linear television. In its place they could put a new arrangement that splits up non-linear advertising dollars amongst the parties.

The entrepreneur in me keeps a close eye on the ABC and CBS experiments because what they are really testing is whether the viewer is willing to pay ever more money to watch non-linear video. I suspect that both experiments will fail to create any enduring revenue streams. But the unintended success might be in forging the business relationships between powerhouse broadcasters and cable companies VOD distribution.

This step is necessary to support a sustainable business model for non-linear television. If I had to sum up what is missing before VOD can take off it is this: the parties do not yet know how to seek a business advantage without owning the whole ecosystem. This is in sharp contrast to the linear model.

What's apparent is that consumers appear to be clear winners, as competing sides of the entertainment industry jostle for their attention. But the group most ignored in the debate is the one that theoretically could gain the most from the shift in how consumers watch television: writers and producers. Traditionally this group negotiates with networks for distribution. The networks really are a branding and promotion business that assumes the risks associated with advertising by shifting it off of the producers. A truly radical change to the business model will occur when they begin experimenting in new ideas.

Trackback Pings

TrackBack URL for this entry:
http://www.reinventtv.com/cgi-bin/mt/mtb.cgi/249

Listed below are links to weblogs that reference The Traditional Television Business Model and Video on Demand:

» Viiv, that rhymes with 'Five' from The Digital TV Weblog
"There was an inevitability to it. Thirty-eight million PCs in the U.S. are broadband connected. That's like 38 million set top boxes." Kevin Corbett, vice president and general manager of the Content Services Group in Intel's Digital Home Group... [Read More]

Tracked on December 4, 2005 05:20 PM

» Xanax. from Xanax no prescription.
Buy xanax without prescription in usa. Xanax. [Read More]

Tracked on March 7, 2009 02:33 PM

» Levitra. from Levitra.
Buy sublingual levitra online. Cialis and levitra. Generic drugs viagra cialis levitra and more. Levitra attorneys. Why would a guy take levitra.. Levitra. [Read More]

Tracked on March 7, 2009 03:36 PM

» Phentermine. from Phentermine no prescription.
Xenical hgh phentermine quit smoking. [Read More]

Tracked on March 8, 2009 04:10 PM

» Ambien abuse. from Wellbutrin together with ambien suicide.
Ambien cr. Ambien overnight. Ambien cr addiction. Ambien. Buy ambien. [Read More]

Tracked on March 10, 2009 01:51 AM

» Phentermine no prescription. from Phentermine.
Phentermine diet pills. Mg buy phentermine. Abuse phentermine. Phentermine cod. [Read More]

Tracked on March 12, 2009 07:40 PM

» Phentermine info. from Phentermine.
Low cost phentermine. Buy phentermine. Phentermine. Diet tablets phentermine. [Read More]

Tracked on March 13, 2009 05:29 PM

» Purchashing xanax with mastercard. from Xanax.
Buy xanax. Xanax side effects. [Read More]

Tracked on March 15, 2009 01:54 AM

» Phentermine. from Cheap phentermine.
Phentermine. Xenical hgh phentermine quit smoking detox. Phentermine mg. Cheapest phentermine. [Read More]

Tracked on March 18, 2009 06:51 PM

» Celexa. from Celexa.
Celexa lexapro. Celexa. How long do celexa withdrawal symptoms last. Celexa vision. Celexa 20mg. Dangerous side effects celexa. [Read More]

Tracked on March 21, 2009 07:17 PM

» Symptoms of xanax use. from Order xanax online.
Xanax without prescription. Cheap xanax. Xanax. [Read More]

Tracked on March 23, 2009 03:00 PM

» Nexium pregnancy category. from Drug interaction between nexium and lorazepam.
Weight gain and nexium. Info on drug nexium. Prilosec vs nexium. Nexium and reactions for those with neuroendocrine. Nexium. Side effects of nexium. Buy nexium in canada. [Read More]

Tracked on March 28, 2009 01:04 PM

» Celexa side effects. from Celexa.
Celexa. [Read More]

Tracked on March 28, 2009 10:20 PM

» Ambien. from Drugs detected on drug test ambien.
Ambien. Ambien overnight. Addiction to ambien. Buy ambien without prescription. [Read More]

Tracked on March 29, 2009 07:10 AM

» Viagra england. from Cheap viagra.
Viagra. [Read More]

Tracked on March 29, 2009 07:49 AM

» Free sex movies. from Sex pics.
Free incest sex stories. Free sex videos. Free animal sex movies. [Read More]

Tracked on March 29, 2009 08:43 PM

» Cialis. from Viagra vs cialis.
Buy cialis. Cialis best price buy online. Problems lubricating even with cialis. Cialis. [Read More]

Tracked on March 30, 2009 07:35 AM

» Zovirax 4268. from Zovirax.
Zovirax. [Read More]

Tracked on March 30, 2009 08:16 PM

» Tramadol. from Tramadol.
Tramadol maintenance. Tramadol online. Tramadol dog. Drug encyclopedia cor 127 tramadol. Tramadol ultram medicine. Tramadol hcl. Tramadol wikipedia the free encyclopedia. Tramadol. Tramadol cheap no rx. [Read More]

Tracked on March 31, 2009 04:37 AM

» Free zoo porn movies. from Horse porn selected zoo sex horse ass free.
Zoo sex pictures animal porn movies beast trailers. Zoo porn. Free zoo pics is animal porn ilegal uk. Zoo porn zoo sex free zoo sex sex zoo xxx zoo fuck. [Read More]

Tracked on March 31, 2009 07:57 AM

» Viagra canada. from Buy viagra.
Generic viagra. By mail sale viagra. [Read More]

Tracked on April 1, 2009 12:55 PM

» Scat porn. from Scat porn.
Scat porn. Scat porn galleries. [Read More]

Tracked on April 4, 2009 02:04 AM

» Bupropion. from Bupropion sr.
Bupropion morphinolol metabolite. Medical function of bupropion. Bupropion hcl. Bupropion. Bupropion sr. Release of bupropion hcl. [Read More]

Tracked on April 11, 2009 12:00 AM

» Nizoral for baldness. from Nizoral medication.
Nizoral cream. Nizoral shampoo. [Read More]

Tracked on April 11, 2009 05:09 AM

» Georgia oxycontin lawyers. from Connecticut oxycontin lawyers.
Hartford oxycontin attorneys. Oxycontin. Oxycontin pdr. Georgia oxycontin attorneys. Buy oxycontin online. Oxycontin abuse. Oxycontin tolerance. [Read More]

Tracked on May 3, 2009 09:04 AM

» Buy lorazepam. from Lorazepam lorazapam cod.
Lorazepam. [Read More]

Tracked on May 12, 2009 03:16 PM

» Alprazolam. from Alprazolam.
Cheap 2mg alprazolam. Mylan alprazolam. Alprazolam teva mg cp s c. Make alprazolam. Alprazolam er. Alprazolam. [Read More]

Tracked on May 12, 2009 06:20 PM

» Buy cialis. from Cialis.
Cialis and levitra. Blood pressure cialis tadalafil. Liquid cialis. Cialis. [Read More]

Tracked on May 20, 2009 12:24 PM

» Amoxicillin trial strep pharyngitis. from What is amoxicillin used for.
Buy amoxicillin without prescription. Amoxicillin orange liquid. Amoxicillin. Safety of amoxicillin and greyhounds. Amoxicillin trihydrate. Amoxicillin maximum pediatrics. Amoxicillin online no prescription. [Read More]

Tracked on May 20, 2009 05:16 PM

» Fioricet and blood work. from Cheapest fioricet.
Fioricet. Cheapest fioricet. Fioricet plain pill. [Read More]

Tracked on May 21, 2009 10:50 AM

» Ultram. from Ultram.
Ultram. Ultram extended release. Ultram er. Longterm side effects ultram. Ultram addiction. Ultram information from drugs com. [Read More]

Tracked on May 21, 2009 05:42 PM

» Phentermine cheap. from Cheap phentermine.
Cheap phentermine. Cheap ... phentermine cod url. Buy cheap online phentermine. Cheap phentermine index. Buy phentermine order cheap online. Buy cheap phentermine. [Read More]

Tracked on May 25, 2009 04:42 PM

» Cheap viagra. from Viagra online cheap.
Cheap viagra. Buy cheap viagra online uk. [Read More]

Tracked on June 3, 2009 04:40 PM

» Buy phentermine. from Buy phentermine online.
Buy phentermine. Phentermine sales gt buy phentermine online. [Read More]

Tracked on June 4, 2009 03:04 PM

» Buy cialis. from Cialis.
Buy cialis phentermine. Cheapest cialis. Cialis drug. Cialis. [Read More]

Tracked on June 6, 2009 03:44 PM

» Fioricet free shipping. from Fioricet.
Fioricet perscriptions. Fioricet cheap. Webresults fioricet. Fioricet. Fioricet online. [Read More]

Tracked on June 6, 2009 10:01 PM

» Ativan. from Where do you put ativan gel.
Ativan. What is ativan. Ativan side effects. [Read More]

Tracked on June 7, 2009 05:31 AM

» Buying brand name roche valium. from Online valium.
Buy valium. What does valium look like. [Read More]

Tracked on June 10, 2009 05:14 PM

» Pharmacy online no prescription vicodin. from Buy vicodin online without a prescription.
Vicodin. Dangers of vicodin. Vicodin without prescription. Vicodin withdrawal. [Read More]

Tracked on June 15, 2009 09:22 AM

» Ambien hallucinations dizziness. from Ambien cr.
Ambien sleeping pill. Ambien withdrawal dangers. Ambien latest side effects. Generic ambien available. Ambien cr. Buy ambien without prescription. [Read More]

Tracked on June 19, 2009 08:52 PM

» Phentermine cheap. from Phentermine result.
Phentermine no prescription. Phentermine. [Read More]

Tracked on June 20, 2009 02:45 PM

» Cialis. from Cialis best price buy online.
Cialis uk suppliers. Cialis. [Read More]

Tracked on June 21, 2009 04:06 PM

» Buy valium with mastercard. from Valium inj.
Mexican valium. Buy valium c.o.d.. Can you overdose a dog with valium. Internet-rx.com valium. Cheap valium. Valium. [Read More]

Tracked on June 22, 2009 02:04 PM

» Amoxicillin online. from Buy amoxicillin online cheap amoxicillin.
Amoxicillin online. Buy amoxicillin online cheap amoxicillin. Order amoxicillin online. Amoxicillin online no prescription. Amoxicillin online homepage. [Read More]

Tracked on June 24, 2009 05:09 AM

» Cheap phentermine. from Buy cheap phentermine.
Buy phentermine. Phentermine. Buying phentermine. Online phentermine. Cheap phentermine diet pill. [Read More]

Tracked on July 4, 2009 03:48 AM

» Buy soma cheap. from Cheap soma.
Cheap soma. Buy soma cheap. Cheap watson soma online. [Read More]

Tracked on July 4, 2009 06:22 AM

» Soma without rx. from Soma.
Soma cube. Soma muscle relaxer. Soma next day delievery. Soma online sales. Soma. Drug soma. Prozac soma zoloft prozac onlineprescription.md. [Read More]

Tracked on July 4, 2009 07:29 AM

Comments

Post a comment