Continuing the theme from the previous post somewhat, let’s take a quick look into one aspect of the future of television: downloadable episodes. In this post, I consider just the financial side of things; on the technological side, it has been semi-proven that widescale deployment of IP-TV / VoD services is not possible without P2P distribution – something that adds an interesting twist to the delivery side, but more about that later.
Let’s assume that in the future, even more so than now, people want to see their favorite TV episodes wherever, whenever, so on-demand delivery over the Internet of all their broadcast content is made possible by the TV companies. The question is: how much should an episode cost? Nothing? A buck apiece?
To answer that, we need to take a look at how much money is currently being made by the TV companies by advertising.
A 30-second spot goes for around half a million dollars in most popular TV series. As there are 18 minutes of ads per one hour of programming, we can assume the broadcasters take in about 9 million dollars per hour per channel. Not bad. When you divide that by the viewership – say 22 million, which was the season average for Desperate Housewives – you get a per-viewer advertising revenue of about 40 cents.
People don’t exactly love ads, right? So if you wanted to offer those episodes for online download without any ads, a price like 50 cents apiece would cover not only the loss from advertising revenue but also cover the hardware and connectivity costs. 50 cents per episode is something that a consumer might well be willing to pay to be able watch an episode online while being saved from ads altogether.
On the other hand, it’s been shown that consumers prefer free ad-supported online video to paid ad-free content – which brings about an amazing opportunity as video ads online can be targeted far, far better than on broadcast television, making ads much more valuable both to advertisers and to the consumers. As recording episodes and skipping ads on broadcast TV is already trivial with the TiVos of the world, the episode that is placed for download can be completely DRM- and usage restriction-free; just require registration and create a personalized episode for users based on their profile. Plus people would certainly be no less willing to watch ads that are more relevant to them.
It’s such a clear-cut win-win case that it’s difficult to understand why it’s not being adopted. We need to get rid of the DRM-infested, low-quality content that is offered now and offer consumers high-quality (even offering HDTV-quality episodes, something relatively few people around the world can receive otherwise), freely downloadable episodes created on-the-fly with personalized advertising.
It’d be beautiful. I mean everybody wins, so what could go wrong? I welcome any credible refutations to this business model so it could be developed further.
