TV on the Internet – the main problem

So yesterday I looked at the broad area of online video … and the area that I think will drive this is professional content … ie, content made by the same people that are making the professional content we already get on TV.

And I think in the medium term – TV will be the driver. We hear a lot about ‘web only’ soaps and comedy shows but 99.9 times out of 100 there’s a reason why they’re web only. For every Beached Az there’s 1,000 ‘Random Place’s or PS Trixi’s (no, you probably don’t remember them) that fail bad.

So – the challenge as I see it is to utilise the web but not do it in a way that eats into existing broadcast revenue. The problem is, it’s bloody hard to pull off.

A show on broadcast TV that rates around 2m average audience over an hour can pull in around $1m in revenue, maybe more. And that’s based on 12 minutes of ad content.

Lets say you move that same show online. And the same amount of people watch it – 2 million.

The first problem is, there is no way you could serve 24 ’30s’ ads online. People just won’t stomach it. So you serve 5 ’30s’ ads. And the all people CPM is $60 (around 3 times what advertisers would pay on TV).

With those numbers, the revenue would be $600,000. Half of what you’re getting on TV. And a side issue would be, would advertisers pay those sorts of CPMs?  Look, even if they would – you’ve just lost half the revenue you used to make, but the audience is the same. My gut feeling would be this 50% dip in yield would remove all profit and probably mean the program would be broadcast at a loss if online.

Contrary to popular belief and the general trend of online so far, things that don’t make a profit struggle to sustain themselves.

Let’s look at a similar example for a first run 30m show that is pulling around 1m average audience metro. A show like this should generate around $400k in revenue for the network nationally. Probably more but let’s be conservative.

Let’s throw the same show online, and assume the entire audience follows and watches the show in its entirety.

For a 30 minute show my feeling is 3 x 30s is the most ads you could get away with. At a $60cpm and an audience of 1m the revenue for the show broadcast online would be $180k.

That’s a 55% revenue drop from TV to online – with the same audience figures.

Now, if I was a TV executive I wouldn’t be seeing much benefit here and I’d be looking to protect my broadcast interests at any cost.

So – let’s take a different tact. Let’s look at digital as ‘complimentary’ to broadcast. Not something that will lower yield but will add revenue and offer a better, ahem, user experience.

Personally, there’s no way shows online are going to pull audience in the 7 figure range. I’d say right now, the absolute best you could hope for in the next 3-5 years are shows online generating 200,000 full plays from online. I’m stressing ‘full’ as often figures that are presented to market are stream ‘starts’ and not shows watched in their entirety.

Let’s look at a show like Neighbours. From memory it rates around 800,000 or thereabouts each night in a metro sense.

If 10% of this broadcast audience number watched each episode online it would equate to 80,000 people. For this to be truly valuable to Ten it’d have to be 80,000 people who wouldn’t watch Neighbours at 6:30pm as they couldn’t due to whatever circumstance. It wouldn’t be of much value if it were people who used to watch it at 6:30pm but now watch it at 11pm online because it was available (ie, if it wasn’t online – they would continue to watch it at 6:30pm)

If Ten managed to generate 80,000 full plays of each Neighbours episode over a year, that would mean 80,000 views of 225 episodes (based on Neighbours running first run episodes 45 weeks of the year)

If each episode ran 3 ads at a $60cpm that would generate $14,400 per episode in revenue. Over a year this is $3.24m

If this is incremental it’s a significant gain … if it not incremental, it’s a loss effectively. Why? Because if these 80,000 people were watching the broadcast on TV and drop off, the opportunity cost is significant. These 80,000 people would have been generating around $32,000 in revenue per episode on broadcast TV … whereas online they only generate $14,400.

So whilst $3.24m looks like an impressive figure revenue wise, that revenue could ultimately cost the broadcast revenue stream $7.2m. Ultimate group gain = negative $7.2m

That is why it’s so important the online viewers are new eyeballs. Not existing fans who change their viewing appointment time. And this conundrum faces Yahoo!7, ninemsn, and Ten digital. It’s not as big an issue for Fairfax, News or Telstra. (although News and Telstra have interests in Pay TV)

There’s a way to avoid this in some instances (not all) – which I will explore tomorrow. But it involves a real shift in how the content creators sell their content.


7 responses to “TV on the Internet – the main problem

  1. Ben, really interesting post. I think you have summed the issues up nicely.

    Does this then open up the door for online publishers with streaming models to become TV content providers?

    There is huge upside for the digital publishers that don’t have a TV interest. This may mean we will see a Fairfax or Telstra talking directly to the US television studios.

    With the NBN in place and a media center device plugged straight to the home plasma it could be Telstra or Vodafone providing us with Desperate Housewives or Grey’s Anatomy.

  2. Spot on Ben. I couldn’t agree more. The same eyeballs at a cheaper CPM means less funds to produce quality video productions.

    My wife is an independent kids TV producer, and her latest animation (I’m not going to shamelessly plug it) left little change out of $10m for 26 half-hours. Those are the sort of costs required to produce quality content.

    While the Internet does a great job at unearthing new talent (who invariably focus on short form as it’s easier), it is a two-year slog requiring millions of dollars just to provide a high-quality 13 hours of kids TV. You get what you pay for in this world.

  3. Interesting angle Paul. However, the US studios don’t talk to the local broadcasters, production houses or independent producers. I can’t see why they would all of a sudden talk to local digital publishers with zero track-record in video production.

  4. Hi John – i am talking about the pre produced series that come out of the states ready to be broadcast. If the studio is happy with the distribution and more importantly the money they are being paid for the content by the publisher then whats to stop a Telstra or the like becoming a serious player in TV via the web.

  5. Sorry – get you now Paul.

    There is nothing to stop them – apart from paying for the rights to that existing content. Most content is “geo-blocked” regarding online. That is, there a geographic based distribution deals all around the world. Long before any TV content is made, who gets what rights (TV, cable, out-of-home, cinema, online, DVD, merchandising, live performance etc) and in what regions is decided on as part of the millions of dollars of funding. Basically, it is all about ‘recoupment’ of the initial investment and then hopefully some profit. Either the likes of Telstra have to invest the money up-front or buy the distribution rights later.

    The big issue is that most broadcast is based on a limited number of runs (maybe three FTA and seven STV). Given that online is a streamed or downloaded medium these deals need to be restructured – there are all sorts of attempts happening now.

    The other issue is that for ‘additional runs’ the actors, writers ets. normally get paid a ‘residual’. That is, every “re-sale” they get part of it. No actor or writer will give this right up, and it all factors into the price.

    The ‘heritage’ of “Free-To-Air” is that it is an expensive-to-make medium which is recouped by advertising income (or subscription costs). The ‘heritage’ of online is nearly everything is free. Until the day that actoirs, writers, cinematographers, producers, etc work for peanuts there will always be this disconnect, unless the ad revenue for onlne video becomes significant or there are PPV sites.

    I hope this adds some valuable background.


  6. talkingdigital

    hi john,

    really interesting comments and they relate to a post i’ve got set to go live late tomorrow.

    do you think the likes of fd, news, telstra could get in the game to access the content required to drive users online en masse to video?

    also – what impact would on demand content online have in terms of DVD sales? is the upside enough to justify the risk? or do you keep the current situation with broadcast and sub deals and reasonably robust DVD unit sales?

  7. Hi Ben, and thanks.

    I think they can – but these things tend to be decided by the size of the wallet , and to-date the FD, NDM, Telstra wallets haven’t been bulging!

    As I said before, these deals tend to be done up-front as part of the commissioning process. In order to be a player they would have to become part of commissioning, otherwise they are just another player. I’m talking about NEW content here and not re-runs of course.

    I suspect ‘on-demand’ won’t impact DVD sales. DVD sales tend to be “keepsakes” or “gifts”. Streaming and downloading tend to be about immediacy and currency – and in many cases, seeing US shows before they are seen here.

    Hope this helps.

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