Rant: Charge me or charge the advertisers — NOT BOTH

[Todd Terry]

Completely agree with ya, Nick.

In a similar vein, I don’t want to go to the movies, pay an exorbitant price for a ticket, mortgage the house for a tub of popcorn and a soda in a 55-gallon drum… and then have to watch frikkin’ commercials (and yes, this is hypocritically coming from a full-time commercial producer).

Pick one or the other.

T2

__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com

[Rich Rubasch]

Just wait. Once we have all signed up for Adobe’s subscription software, you’ll be in the middle of tweaking a photo and a Pringles ad will pop up. Bet on it.

Rich Rubasch
Tilt Media Inc.
Video Production, Post, Studio Sound Stage
Founder/President/Editor/Designer/Animator
https://www.tiltmedia.com

[Mark Suszko]

You’ll also have to update Flash. AGAIN. and AGAIN/

[Mads Nybo jørgensen]

I worked on a client round table video recently on OTT where one vendor had asked their customers whether: “They would pay extra not to have adverts?” – Not surprisingly an overwhelming majority said “yes!”.
However, when the feature was introduced, no one used it. They even dropped the cost to $0.01, and still no-one was willing to pay…
(https://advanced-television.com/2014/10/31/ott-2014-making-the-most-of-ott/)

[Nick Griffin] “after getting to see all of Armando Iannucci’s brilliant “The Thick Of It.””
That really summarizes the online market; if you have unique content and the consumer really wants it, then you are able to charge a premium to both the subscriber and the brands that want to be associated with it. Not much different to the DVD releases with adverts on the front.

As the battle on content is hotting up and the need to keep the viewer from cancelling your subscription, the online TV vendors will continue to tweak their offerings. With all the available data to the vendors, do not be surprised if in a near future that a Nick Griffin will automatically (unknowingly) be charged more with no advertising, where as a Todd Terry and a Mark Suszko will pay less in return for having to watch endless commercials on soap detergents and insurance companies.

On that note – my wife and I are enjoying the reboot of Ripper Street on Amazon Prime 🙂

All the Best
Mads

@madsvid, London, UK
Check out my other hangouts:
Twitter: @madsvid
https://mads-thinkingoutloud.blogspot.co.uk

[Mark Suszko]

I’ve been fascinated with 30-second spots since I was a kid, and so I generally don’t mind a few in-between segments of my shows. I remember my mom watching boring soap operas on the TV when I was maybe 5, and I couldn’t wait to see the commercials with Josephine the Plumber, which was much more interesting than the soap opera.

https://www.youtube.com/watch?v=_QdLAwBJiHI

I may study them to learn something about technique, or ignore them for a bathroom break, or to check my email, or skim past them where possible. I actually enjoy old commercials embedded in classic old programs, for the time capsule look at the past that they offer.

I enjoy a ton of trailers before seeing the movie at the cinema. I’m less enthused about commercials there, though. They had better be super-entertaining then, or I tend to hold a grudge against whatever the product was afterwards.

I am less upset when TV shows are interrupted for commercials because historically they are built around that, it’s part of their rhythm, but interrupting a movie for a commercial, well that’s just not cricket.

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[Gav Bott]

Is the standard cable TV model though right?
You pay for access and get advertised to.
It’s something that the consumer has lived with for ages – no wonder it’s showing up in the replacement really.
Not suggesting you have to like it or anything of course.

The Brit in Brisbane
The Pomme in Production – Brisbane Australia.

[Shane Ross]

Hey! That’s Robbie Benson! Voice of THE BEAST himself.

Shane
Little Frog Post
Read my blog, Little Frog in High Def

[Mark Suszko]

Another one on that page had Louise Lasser on it. Before Mary Hartman.

[Nick Griffin]

Good point, Gav. But I’ve always thought of cable as the equivalent of a hyper-efficient antenna that covers every set in my house. Cable gets hundreds of channels on which I’d see the same spots whether I had cable or not. The Hulu / CBS All Access thing to me feels — to continue the cable analogy — like I’m paying for commercial-free HBO and now they’ve unilaterally decided to include spots and STILL expect me to pay their monthly fee.

Time will tell if their business model will work. In a way this seems a less Draconian version of Adobe’s new pricing plan. Stop paying Adobe and you no longer have access to your files. Avid took a much smarter approach (IMHO) because if you stop paying you don’t lose anything, you freeze where you are and just don’t get the new features.

[Tim Wilson]

I agree…but I think it’s going to get a lot worse.

On cable/satellite, ads account for 40-50% of revenue. Subscriptions cover the rest.

So no matter how much you pay, without the business model changing, which includes subscription costs skyrocketing, streaming networks like CBS will STILL need to find 40%-ish of their revenue from advertising.

But of course, they’re getting a fraction of the money for online advertising that they are for “real” advertising, because there’s not yet a “real” audience for advertisers to reach, so subscriptions make up a bigger part of the picture, but there’s currently no way that enough people would pay enough money to stream traditional networks ad-free.

Here are some of the ways this works out in practice.

There was actually a lot more talk about this a couple of years ago when there was the whole carriage war with DirecTV, and newer numbers aren’t widely available, but in 2012, ESPN took in $6.1 billion in cable subscriber fees, and $3.3 billion from spots.

Note that this combination represented 57% of Disney’s operation income, and generated more profit for Disney than every other part of the company combined! And the key was the COMBINATION of subscriptions and spots.

The fact that they were only taking in $3.3 billion in ads vs. $6.1 billion in subscriber fees represents the delta between the relatively smaller value of ESPN’s audience to their advertisers, and the larger importance of ESPN’s programming to its audience….but, even in a world where ESPN allows subscriptions, ain’t no way they walk away from the 30% or more of their revenue that ads represent.

Cable news is close to the other end of the spectrum. I found this handy graphic. Again, from 2012 when all the carriage fights were happening….but there you go. 39% of revenue from ads.

Disney argued that if people had to pay for ESPN without bundling, it would cost $15/month — and that was 2012. Look at the massive sports programming contracts, to say nothing of Disney’s need to bolster profits across every division. Subscriber fees are indeed up, but content cost has skyrocketed.

Beyond ESPN, in addition to needing to cover content creation and acquisition costs, vendors are having to hedge against declining overall revenues from cord-cutting.

Which is currently a myth. It’s just not happening in a way that’s moving the needle. That’s another story, and one I’d written 6000 words on, and figured I was only halfway done, before I gave up.

But the fear is still real, and driving business practice. They need to prepare for online programming to deliver 100% of the revenue they’ve been getting from traditional ads AND entirely replace the money they were getting from subscription fees.

CBS is figuring that if you’re subscribing to their online service, they’re not getting paid for you by cable/satellite operators. So they need to cover the money they assume they’re losing from you as a non-cable subscriber AND the money they get from advertisers — again, in that roughly 60-40% mix of subscription vs. ad revenue.

The additional problem is that digital revenues are a fraction of what traditional cable / satellite / OTA rates are. As well they should be, because the streaming audience is a fraction the size too.

NBC president Jeff Zucker observed that they were trading traditional dollars for digital dimes…now down to digital pennies. Literally single digit percentages.

In the case of CBS, the only way they get to $6/month is leaving out stuff like football….but if they were going to recover the same revenue that they would on TV, they’d need to get 40%-ish on ads ABOVE the subscription rates. Which they’re surely not. So subscription fees are a bigger percentage, but no way they can go high enough for CBS (or Hulu or whoever) to go ad free.

Sticking with CBS, if you wanted to go ad-free, the price would have to poke right up against HBO money. So CBS has to ask itself, would the SAME NUMBER of people be interested in CBS minus football and other premium content at $9 vs. $6? No, of course not. So, without cable and bundling, they have to use ad revenue to offset what the “true” cost of programming would be, because they can’t compete at the “true” cost.

The thing is, people keep calling bundling a dodge, and in some ways it may be…but in practice, in most ways, for most people, it’s just not. A la carte is only going to happen when it’s worth it to CABLE providers, and there’s no way that’s going to happen until programming providers are sure they can make more from YOU than make from cable operators….and with the value of advertising so much lower on streaming, I guarantee that you will see MORE ads on streaming programming as time goes by, and it will be increasingly unskippable.

The fact is that subscribing to content with commercials in it has been the case for well over 100 years with newspapers and magazines. It’s been the case for CATV since day one, too, and not just for retransmitted OTA channels. Most channels will never create HB0-style centers of gravity, even if they have larger viewerships, advertising is critical to their ability to even get in the game.

I think that there ARE people as devoted to NCIS, Blue Bloods, Big Bang Theory or what have you as there are devoted to Games of Thrones or House of Cards. But the business model for paying for the former group relies on a combination of subscriptions and ads. The leverage it will take to turn the crank to make you pay that much more for programming without ads doesn’t currently exist.

Hulu is kind of interesting, because it functions as a kind of bundling deal. You get a lower price by having networks band together. The problem is that those networks also splitting the revenue pie, so, over time, this is a REVERSE benefit to them.

I see two inevitable results for Hulu: it falls apart as individual providers want more of their own dough, or it charges a lot more and functionally becomes a cable provider, gathering more and more bundled channels to support a value proposition that actually makes everyone money….which right now, Hulu is not.

To drive Netflix-like attachment, Hulu needs to create original, streaming-only programming that’s compelling enough to extract incremental dollars — but Hulu’s content providers are years away from doing that, if ever, because they’d rather recover those dollars across tens of millions of viewers on cable, without sharing the dough with anyone….and it’s a boatload more dough than they’re going to get from streaming for decades to come.

The longer version of this story that I’d started on included lots of charts, and quotes from providers, details of the paltry showing of supporting for legislature supporting unbundling, and a look at the ACTUAL, currently virtually microscopic economic impact of cord-cutting. It also includes the revenue that local sports is driving, which is far beyond what national sports is driving, because there are so many high-value markets.

None of that even BEGAN to account for the rock bottom necessity of advertising to support a streaming distribution model, every bit as much as the cable model.

Not that there’s no reason to rant. There is. I love commercials so much that I’m more likely to use the backwards-skip button to watch good commercials two or three times than I am to rewatch the last few seconds of programming content, even with sports. However, I nearly jump out of my skin if I can’t skip the stuff I don’t want to watch.

So I’m with you, believe me. But I also don’t see any likelihood that it will go away, and if anything that it won’t increase.