This is one of those "how to boil a frog" stories-you know, try to put a frog into boiling water, and he’ll jump a mile-but place him a nice cool bath and gradually increase the heat, and you get him every time. Now imagine the subscriber TV space is trying to get consumers to pay for content that over-the-air broadcasters have been providing free for decades. I’m old enough to remember the pre-cable days (yes that really dates me) when hoards of door-to-door sales folks were unleashed on neighborhoods with the promised nirvana of pay-TV. No more commercials, was the mantra and not four, but a whopping 30 channels of programming including full-run movies-every night, all for less than one dollar a day. For the record, John Walson started one of the first cable systems in the US at a cost of a $100 hook-up fees and just $2/month.
Well the cool sweet water of cable was simply too much for us frogs (uh… consumers) to resist. Fast forward to today’s subscriber TV market and you have the boiling water of an ARPU (average revenue per user) of closer to $79, not 30-channels but 130 (too much of a good thing?) And, we still have to sit through commercials - in fact, much more than in pre-1972 regulated TV era (but that’s not cable’s fault.)
What this move to subscriber TV did, among other things, was change the dynamic of TV program funding. The original over-the-air (OTA) broadcast networks were built on the economics of free. That is, free TV programming paid for by advertisers. The system worked - people were entertained and informed through a very narrow pipe of the three major networks plus local affiliates. There was plenty of choice, (i.e. 1972, Thursday night prime time: The Mod Squad, The Waltons or Flip Wilson) and a regulated system that included protection for children (caps on sex and violence) and limits on time dedicated to TV ads.
But the biggest change for content providers was the move away from advertisers to an affiliate fee-based system, fed by the boiling water of subscriber monthly fees from pay-TV. Just how big is this? Well, Business Week covered this space last Spring and recons the number is somewhere around $32B / year. Here’s how Bill Gruley put it in his abovethecrowd.com blog last April. "Over the past 30 years, these fees have become the lifeblood of the TV content business - affecting how the major aggregators think and operate, and also affecting how content is produced, financed, and packaged."
Enter the age of the Internet and IPTV. The so-called over-the-top delivery of video provides a different viewing experience, essentially removing the traditional broadcaster from the content-viewer equation. The only problem is, content providers are hooked on the $32B entitlement. This is the real reason why Silicon Valley icons like Apple and Google had problems signing up content providers to their respective IPTV solutions. The promise of click-through ad-based revenue simply doesn’t match the enormous revenue generated by Affiliate fees. In fact, past IPTV deals with Netflix, Hulu and others exempted them from paying these Affiliate fees, prompting the big boys, like Comcast to recently cry foul-as Netflix and Hulu subscribers grew, while concerns over cord-cutting began to materialize.
And that’s the whole point. IPTV offers the return to Ad-based TV programming, now on the viewer’s terms. Unlimited choice via video streaming with the promise of well crafted ads, tailored to a specific demographic. The advertisers now know exactly who they are talking to, and specifically what message I want to see-to motivate a transaction. In fact, a transaction I can initiate right on the screen, as I continue to view the program-if I wish.
The problem is how to get programmers to the party? Can they be weaned from the monthly cable / satellite revenue? I say, it’s time to take back TV and jump out of this boiling pot of water-that we ourselves are fueling. How about a mass appeal for national Cord-Cutting month? Help programmers kick the Affiliate fee habit… Cold Turkey. Let’s reclaim our TV and show the network bosses who’s really in charge. Cut your cord and send a message to the entrenched media that you want TV delivered over the top, …the alternative, 130 channels and still nothing to watch. So what do we really have to lose? Who knows, maybe united, we can change the world-or at least this small part of it… - Steve Sechrist