Who Will Pay for TV in the Future?
The times, they are a changing. And it looks like the latest major industry to get shaken up by Apple’s new wave of innovation is the traditional broadcast TV studios. TiVo created a problem for the TV industry by removing its primary source of revenue, commercials. Because with TiVo (or any DVR system) viewers can easily fastforward through any commercials they don’t want to see. This rather defeats the point of advertising, wouldn’t you agree? And this is really a bad thing for TV studios because as DVRs become more popular (and I see no reason why they would’t be) advertisers will stop buying commercials due to their ineffectiveness. What is a TV studio CEO to do? Here are his three main options:
1. Stop producing free content and charge for content
2. Prevent users from skipping commercials
3. Find new ways to advertise
While these options aren’t very good for the studios, they aren’t really all that good for consumers either. This is very different from the RIAA vs. Fair Use issue where consumers gain freedoms at the expense of industry’s control. Here both industry and consumers take it in the shorts. Here is why.
Under the current system TV is free to viewers because it is paid for by advertisers. The companies who advertise make that money back (ideally) via increased revenue from the ads you watch when you turn on your TV. And for many years this system has worked well. However wide spread use of DVRs means that consumers can skip advertisements all together. And if large portions of the viewing public no longer watch advertisements then businesses have no incentive to pay for TV shows to be produced.
Viewers pay for everything
There are two huge upsides to paying for programming—there won’t be any commercials, and the quality of shows will increase dramatically. Of course, this means the overall number of shows might decrease and that potentially good niche shows won’t survive while shows that pander to popular taste will thrive. But thats life. The downside to this method is that this approach is going to be really expensive for the consumer. First, the studios are going to have to charge more than $1.99 a show if they even want to break even. Remember, right now, traditional advertising subsidizes the programming found on iTunes. So if a studio wants to make money and its only source of income is its viewers, prices will go up.
As a consumer think about how this could effect your lives. Lets assume that you only watch 5 different TV shows per year and each show has 20 episodes. If the studios only charge $3 per show (a mere $1 increase in current prices), then it will cost you $300 per year to watch Lost, Law & Order, American Idol, Rome and The Sopranos. That’s assuming you get all of your news and weather from the internet because remember, in this model CNN and The Weather Channel cost extra.
But wait! What if the ala carte model is too expensive for your taste, and you would prefer to rent your programming. Great! Wonderful! How does $500 a month sound for all the TV you can watch? That’s reasonable, right? After all, cable or satelite cost around $50 a month, but that money doesn’t go to producing any shows, only maintaining the network. After all, HBO needs to pay the actor’s salariers, props, costumes, film, cameras and directors and that money has to come from somewhere.
Suddenly commercials don’t look so bad, do they?
Crippling DVRs
If the price tag on the first option is too steep then consider this one. Imagine forcing TiVo (and the rest) to prevent their products from skipping commercials. You would still be able to record your favorite programs for viewing later, you would just have to sit through the commercials later as well. This has the upside of being free (excluding the cost of the DVR and associated services) but the downside, of course, is that you can’t skip the commercials anymore. In other words, you can’t have your cake and eat it too.
And yet, in spite of the fact that this might be one of the better solutions, it still creates a huge amount of pubilc backlash. After all, the industry is forcing TiVo et al to change their service so the studios can stay in business. That kind of tactic might not sit well with some people, regardless of how much sense it might make. We, as consumers, would be prevented from using the newest and greatest technology because of the repercussions.
The “new” commercial
There is a way for companies to advertise without using commercials and that is with product placement. How this works is a main character either uses a sponsored product or some form of logo/advertisment is prominently displayed in the background. This approach has the advantage of being both cheap and commercial free, sort of. However, there are a lot of downsides to this approach. First, some products are hard to work into a TV show. Advertising a gun on the TV show ‘24’ shouldn’t be very difficult. Nor would it be hard to promote Viagra on a soap opera. But how do you work adult diapers into Lost? How do you work dishwasher detergent into American Idol? Or fabric softener into the evening news?
This approach forces the writers to craft their scripts around certain products. And that will result in some really bad TV. You would have dialog that sounded like:
Bob: “Jack, go get my Nike Cross Trainers and meet me out front so we can drive my ‘06 Honda Accord that I just purchased for $25,980 with no money down for a limited time low APR.”
Jack: “Alright, and on the way to the crime scene we can stop by McDonalds for a tasty quarter pounder with cheese, now only $2.49 or two for $4.”
(I don’t think any of us want to experience that kind of torture.)
There is also the issue of advertising in period shows. How do you advertise Coke in a show set in ancient Rome? How do you advertise cars in 17th century London? So, you either have to involve time machines in the plots or just not produce those types of programs, neither of which are very attractive options.
And this brings us back to my original point of who will pay for advertising in the future? Maybe the best solution will be a combination of approaches. Stream the news, weather, sports and PBS free of charge with commercials. Then offer viewers a choice, they can either stream video (commercials included) or to download the entire show for a price. Now, for this to work something must be done about the rising use of DVRs. What that solution might be though I do not know. Good thing I’m not a studio CEO.
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The old radio shows (and modern-day PBS) feature sponsors whose mini-ads open and close the shows. In the radio days there might be one or two commercial breaks, but certainly nothing like the 8 minutes worth of commercials we have to endure for a modern TV show. Then again, look at how TV operates in Germany and elsewhere: the show runs without commercials and then for eight minutes or so, there are ads. Or look at the Brits: their ads feature ongoing stories as a way to hook viewers. See, there are many different models for advertisers to use, none of which involve the watcher shelling out money!
I don’t get the comment regarding HBO. Last time I checked, it was a premium channel without advertising, which means my cable fees DO pay for the actor’s salariers, props, costumes, film, cameras and directors. In point of fact, it IS paid content.
Perhaps a way to monitor viewing habits is in order. I pay for cable, but spend an inordinate amount of time watching Discovery, A&E, and Bravo. Perhaps most of my money should go to the channels and shows I do watch, just as someone else would probably subsidize ESPN.
The thing is, TV is increasingly NOT free. Here in Monterey CA we get 3 channels via the airwaves.. 2 english and 1 spanish. Yet there are ads on nearly every channel (besides ones like HBO) which are primarily available only via cable or satellite access.
Basic cable here is about $16 a month before taxes and other charges, containing 31 channels.. of those, 11 are general interest and the remaining 20 are shopping, tourism, listings, public access and government access channels. So that’s over $16 per month for 8 more channels than free, that you’re likely to watch. The price for more channels goes up steeply after that, topping out at around $100 per month for full cable with 5 pay-channels (again, HBO, etc.).
So that range is hardly free, and it will only increase with TV broadcast towers going down all over the U.S.
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Another point which has been echo by Aurora is that there are more options than the three you’ve outlined.
If they’re determined to keep using the advertising model, ads can be presented in many other ways which already in other countries sometimes get better ratings than the shows. Advertising doesn’t have to be invasive to be successful.
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“there won’t be any commercials, and the quality of shows will increase dramatically”
That’s a pretty optimistic opinion. The quality of a show, any kind of entertainment or news is determined by the people involved, their success in collaboration, and the freedom to craft well. Money and its source can certainly be a factor but it’s not the deciding one.
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Another outcome that I doubt a lot of people might consider.. is that through all of this - as long as the big fat rich media corps don’t strangle the net and anything like it - people might determine that the VALUE of television is just less. The industry as a whole will simply not be so rich anymore with shows being worth less. Everyone making the shows will just get paid less, so they won’t cost much for people to watch.. In other words, the market would open.. much as it already has for other recorded and live performances.
It’s a natural progression that the industry obviously doesn’t want, since they’re making such ludicrous profits right now and they only want to make more. There can never be enough profit in their mindset. That kind of reckless ambition can only last for so long though.
One way is public funding: In the UK and Australia there are ad-free TV and radio stations funded by government subsidy. In the UK viewers pay a TV licence, whereas in Australia it is funded from general government revenue (taxes). These are mainstream channels with respectable market share, producing drama, documentary and live to air news and current affairs to very high standards.
However, I feel it is likely that free-to-air broadcasts will disappear quite rapidly. While delivery of content today is by VHF/UHF and cable, it won’t be long before most content is delivered by broadband. Which means it will be asynchronous (watch when you like) rather than live to air.
In this model, advertisers will have many opportunities to insert advertising - either in “windows” within the frame containing the broadcast, or as pop-ups, or in borders framing the content…
Thirdly, and more radically, could we see a change in advertising altogether? Most advertising is annoying because it is not very well targeted. I am not interested (for a good few years yet i hope) in adult diapers, or fast food, or in fact 95% of the products and services advertised on TV. But suppose I was offered only information on products that I was potentially interested in? I might watch a clever ad for a new car, or a new iPod. I like some ads - in fact i love watching the ads which win awards around the world. If I was offered high quality, entertaining, advertisements for products i might be interested in, i might even watch them
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Who do you work for then?
How on earth did you come up with $3 being a reasonable fee to watch an episode?
Sure, iTunes does not fund a show completely - but this is because it doesn’t sell that many episodes yet. The majority of viewers still watch the shows on commercial TV.
Take a look at how much revenue a TV channel gets per viewer - it works out at about 50c per viewer for an episode. If you had 100,000 viewers then the channel pulls in about $50k from advertisers.
Naturally, if 100,000 viewers paid Apple 50c each, iTunes would pull in the same amount. Remember too that part of that 50k goes to the studios, and part goes to the TV channel. iTunes has a cheaper delivery method than a TV channel.
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The other thing to note is that at the moment many people don’t watch ads. And often the ads are targeted at specific viewers. For instance, a tampon ad, baby powder ad, even a car ad at the moment, etc are of no value to me. One method for addressing ad revenue would be to target me with ads relevant to me. Force me to watch one advertisement per commercial break, but make it something there’s a chance I’d actually buy.
In the end, for the advertiser, they only have 10% of the show’s viewers watching their specific ad, but that 10% is far more likely to follow up that ad. For us, the viewers, we sit through 1/10th the amount of ads, but atleast what we watch may interest us. In the end, the advertiser pays the same amount, so the same financial result occurs. It’s an all round win.
In the near future when everyone are hooked to broadband, have digital ATSC or DVB televisions on their walls, buying and renting HD movies, etc. advertising as we know it will be gone.
Not that their content will change dramatically. Bad commercials, unfortunately, will still be with us even in the future.
What will be different is the method of delivery - dynamic and personalized. In the Tom Cruise movie, The Minority Report, each person was flashed their targeted ads based on their profile - in this case their retinal signature pointing to your virtual profile.
Content broadcast via the airwaves (ATSC or DVB-T) will start using their digital descriptors to embed information about what you are watching and your advanced TV set will customized the ads you are likely to watch.
What if you timeshift your shows, you asked? Well the digital codes or descriptors in the recorded content will be accessed by your HD player, connect to a central server, feeds you “current” not stale commercials. Again, for your eyes only.
Same goes with pre-recorded discs. Even a year after your purchase, you will be served fresh, watchable ads. How about that?
If you still want to do away with ads altogether, in the near future VOD or video-on-demand is a reality. Fiber optic broadband delivery will be the “end game”. Near limitless bandwidth to all will make this happen. That is already happening with Verizon FIOS and AT&T’s fiber project.
VOD will be ad-free since you “buy” the content. How much? Only time will tell.
If you are an envisionist, it helps to come out of your paradigm box. Current methodologies will be outdated and new ones invented.
So, advertisements will be with us even in the digital future - only more clever delivery. TV was never free but it sure felt like so thanks to crappy ads so stop skipping those funny ads. Somebody has to pay for those American Idol episodes besides Coca-Cola.
“VOD will be ad-free since you “buy” the content.”
I think that’s still not stepping outside the box.
I’ll be able to have VOD whether I pay to watch it, or agree to watch ads instead.
There may even be a setup which allows you to watch anything for free, and when the first ad comes on and you press “fast forward” it’ll offer you
-“pay just $0.99 to skip all the ads while you watch this episode today,
-“or pay just $1.99 to remove ads from this episode forever.
(a movie would be closer to DVD rental rates)
-eg: “pay just $4 to skip all the ads while you watch this movie today”
VOD as marketed today is not the “true” video-on-demand as we would want it. Take digital cable. Their VOD offerings is only an enhanced PPV (pay-per-view). The content that you get is not “demand”-driven but “pushed” to you and me. They are concurrent to their PPV content at any given moment.
Now, say a flash overcame you and you wanted to watch a rare episode of Gilligan’s Island - perhaps when the engineer was crafting a helicopter - whatever. Can you order this from your cable provider right now? In a true VOD system you will and that’s the big innovation that will shift today’s video paradigm into a whole new model from ad delivery to content creation to marketing.
This future VOD system is prohibitively expensive and only the largest, debt-free of all providers will afford such largesse. The video rental business will have already succumbed, even the mail-order models. Cable and telcos will have merged into a monopoly. It is only this scenario that will afford a true VOD. Otherwise no one will do it without an incentive from their government of guaranteed “free of competition”.
I agree, future VOD providers will experiment with tiered pricing as G.A. mentioned above but exact pricing can’t be determined. Only an approximation from historical trends.
Though I am skeptical that consumers will order a Pixar movie with a sprinkling of ads here and there if, for not much more, they can watch the movie ad-free. That’s what I meant that VODs in the future will be ad-free. The ads are not directly attached or embedded with the movie as it is in the present (movie theaters, DVDs, VHS, and yes time-shifted TVs shows). The ads are not physically nor virtually on the central VOD servers. You will get them directly from the ad agencies via your broadband connection and played alongside your “free” content.
Then again, perhaps my vision is too far-fetched for media providers to digest. They will always return to their comfortable box thinking, “all is well so why change?” I’m afraid that is the reason we’ll be stuck with them in their boxes for much longer time.
But change will come and those who are not ready will be absorbed. Case in point, just look at what’s happening with old/new AT&T. It is only a matter of time until ol’ Ma Bell will become ONE again and then start playing the “end game”.
This is going to sound like I work for an ad agency (and I don’t), but as much as we complain about advertisements, we (as a capitalist society) actually want and need ads.
What we don’t want, as others have pointed out in this board, is ads that are irrelevant to us (although certain kinds of ads… say, for a windshield repair service… are run so that on the day we suddenly get a cracked windsheild, we’ll remember that shop’s name). But generally people want to see ads that are relative to them. If you suddenly banished all ads, what would happen to your marketplace awareness? Anything new developed (electronics, autos, food, whatever) would be off your radar. And while you may purposely seek out ads and information for major purposes like a car, most people wouldn’t seek out new food products or whatever. Would most people know about a new restaurant that opened in their town if they never ran an ad?
The other major issue with eliminating commercials in trade for product placements (or other options) is that the argument generally focuses on national brands. It’s easy to find a placement for Coke. What is your local taco restaurant supposed to do when they’re not a national chain? What happens to their ads and their customers when the ad model only really serves national clients? Half of commercials in any given program are served from the local station. If the local economy suffers because there’s no longer a place to advertise, what are all your home town entrepreneurs supposed to do?
Turn the situation around. Let’s say you open a shop that serves a good size area. You need to get customers as quickly as possible, and TV ads have been a way to do that. No one’s looking for you because you haven’t existed before. If all your poential clients are blocking your advertisement attempts, what are you supposed to do?