Want to know how to “kill” the traditional TV industry? It’s easy. Come up with a cash flow of roughly $70 billion. That’s it. Pure and simple.
The thing about it, that so many people out there seem to not grasp (which frustrates me to no end, I must say), is it takes about that much money to maintain the rough production costs (and profits) for all the shows we love to watch. See, we all know that there’s some perfect blend between Live TV broadcasting and an all-streaming/on-demand library (neither end of the spectrum are “correct”), but we don’t know how to get there. Meanwhile, everyone wants to talk about killing/disruption the TV ecosystem. So let’s talk about the cold hard facts of this world:
TV Shows Are Expensive to Make. While new technologies across the spectrum certainly reduce many aspects of production, if you want a Game of Thrones, House of Cards, Mad Men, Breaking Bad, etc type of show, you need sets, lighting, etc. We *cannot* get around that statement in any way. So regardless of the surge in lower cost reality shows, if you enjoy quality dramas/comedies for 44/22 minutes at a time, you need a budget. Unless you can get all the actors, directors, writers, key grips, etc to take a big salary haircut, this will not change.
Advertising Pays The Bulk of it. Other than fine shows from HBO, Showtime, Netflix, and a handful of others, the wide array of money that covers costs of TV shows comes from the $70(+) billion ad industry. There is no model, from subscription to a la carte to anything else that can easily replace this cash flow as far as I am aware, but if so, I’m sure we’d all love to hear about it.
victoryag.org Advertising Models Are Based on Live/Near-Live Viewing. Another tough, but true, fact about the existing ecosystem is the revenue is predicated on live audiences. While I love catch-up and streaming as much as anyone, it does not contribute to the bill-paying. For this to change/shift/be disrupted, the massive amounts of people, and money, all have to come up with an entirely new model for their world. Again, even if we know there’s a desire/trend toward a decrease in live viewership, nobody, anywhere, has come up with a successful alternate structure here.
So the TL;DR version of the above: TV Shows Cost a Lot Of Money, and the Only Way to Pay for them is Advertising, and the Only Way Advertisers Spend Money is on Live Viewing.
If you want/expect the above statement to change, get ready for more ads in your streaming – lots of them. Like 8 of every 30 minutes worth. That’s what it takes.
While we’re at it, I just want to add two topics regarding the discussion around TV disruption:
Pay-TV Operators Have an Arbitrarily Bad Rep. It’s easy to blame Comcast, ATamp;T, etc for anything and everything, but they should not be pointed to as “the problem” of television. Yes, they have their part to play, but when you consider the fact that someone has to send people into homes to repair lines, answer customer service calls, etc, there is always going to be an easy enemy. And as much as our cable bills have risen dramatically over the past two decades, the cost the operators are paying for content have risen *more* dramatically, and those costs are not entirely being passed along to consumers. I’m not defending anything about Pay-TV providers, but I’m also not in agreement that they are “bad” and everyone else is “good”.
Most Startups Are Clueless About the TV Industry. Yes, that probably sounds harsh, but considering the quantity of companies who spring out of nowhere and want to disrupt or change things, it amazes me how few of them actually take the time to learn enough about the world and business they are getting into (read Mike Wolf’s solid piece on this here). This is important because the “TV Industry” is actually an amalgam of many industries, from service providers, content production, distribution, studios, data, etc. It’s easy to say “TV Industry” but in reality, we shouldn’t say it at all – it’s isn’t “an” industry, it’s many. My tip to startups: pick one specific sub-industry you want to get into/go after/change/kill/whatever, and go learn how it *really* works.
So there you have it, your simple recipe for how to disrupt the simple world of television. Good luck with that.
Great summary of the video business and good recommendation to start-ups in that space.
Pingback: the intersection: Ad Supported Video's Potential Impact on Pay TV Providers
Hi,
Great article. Two questions:
1) why hasn’t anyone tried offering streaming customers the option pay a premium for no/few ads or accept 8/30 minutes of ads on vod? If people prefer streaming, then maybe they’ll pay?
2) isn’t broadcast uh inherently a less expensive distribution medium than internet for video?
Thanks for your insights!
This reminds me a little of Bob Garfield’s Chaos Scenario. No doubt great content is expensive and no one wants to lose the next Game of Thrones, but I don’ think we can assume this momentum will maintain the status quo.
Here are a couple thoughts:
–$70 billion is a big number but Google has created $50 billion in revenue from an ad format and a buying model that didn’t exist 10 years ago.
–”Live ads” can be put in a time shifted show as soon as we stop assuming the ads are part of a broadcast stream. TVs are already smarter than just showing the video and how the video is broadcast (or perhaps served is a better word) can separate the content from the advertising.
The user experience of how we get our TV shows is broken. Someone will solve the “200 channels and nothing on” or “how do I find The Voice?” problem and with it, the idea that the content and the ads are linked in a single broadcast stream will be broken. And with that all kinds of chaos will ensue.