Skin in the online video game …

I love the term ‘skin in the game’. Apparently it was coined by noted investor Warren Buffet –

Anyway – it basically is meant to demonstrate that you’ll put your own money on the line to back your creation.

Yesterday I was writing about the conundrum facing broadcasters who are looking to migrate content to online. The issue is they will never generate the same yield through online that they currently are through broadcast.

One reason for this is the upfront investment required to secure really great TV content. It’s a competitive market here, so networks need to write big cheques to secure the content that will draw viewers. Often these are group deals – the content creators will sell packages of content to networks. This means they can leverage a hit to sell a show that might be a risk.

One area that might be viable online is looking to stream content that just isn’t available on FTA. Shows that aren’t generating their owners any revenue currently from this territory.

The question is – would anyone watch it? Who knows … anything is possible. Let’s assume they would.

What the online guys could do is try and negotiate revenue share deals with the content creators. ie – offer them, let’s say, 50% of the revenue generated from streams of ‘The Wonder Years’ or ‘Alf’ or ‘Friends’ etc.

Or local operators could enter into JVs with the bigger content creators. Groups like WB, BBC, Fox etc.

Would they be open to a revenue share? Who knows. Maybe – I guess it all depends on how it’s structured and sold.

One concern they might have is how this would impact DVD sales revenue. Another concern is whether it would result in a decrease in revenue they receive from Pay TV operators.

So the main factor is going to be how big the opportunity really is here? If allowing site x to broadcast every episode of Friends on demand is only going to generate $500k … but possibly at the expense of 50,000 DVD unit sales then I’d assume they’d be hesitant to get on board.

What no one wants to do is invest a huge amount in a video site – pay a lot upfront for content and then wait 5-10-15 years for it to become profitable, if ever.

That mistake was, and still is, made by a lot of prominent operators over the past 15 years.


12 responses to “Skin in the online video game …

  1. Hi Ben.

    I’ll let you know how big I think the opportunity is when my wife’s kids TV programme, which will air locally later this year, is a huge ratings success in the Australian kids TV market (I know I said I wouldn’t plug it – but I’m ever hopeful that it will go gang-busters so no harm in talking things up).

    She has the global online rights to the programme, while the investing networks both here and overseas retain the local broadcasting and some of the broadcasting sales rights. I think it is interesting that currently they’d rather retain merchandising rights, which has proven to be a money-winner in the kids market, than online rights. Assuming the programme gains traction on TV we will be trying to leverage the programme online of course.

  2. Ben, couldn’t agree more. Online is well placed to become the replacement of the 11:30PM TV spot running series with potential. Online provides the platform to flesh out the next “Hill Street Blues” as the networks are wielding the axe far to soon. Like a good wine, some shows need a bit of air before they blossom! Cheers

  3. So Kosy. I take it that you see online video sites stumping up the $$$ upfront to create the next Hill Street Blues? I agree that online is a GREAT place to trial the ‘quirkier’ programmes, but someone has to pay to turn the idea into video. What I can see is that online could be a great forum to find the next Spielberg, Lynch, Seinfeld etc. However, I suspect that this will all be “short format” and “short run” – maybe a single 5-10 minute concept video, which someone (traditionally a broadcaster but not necessarily so) turns into a series.

  4. i doubt the online players will invest heavily in really strong video content – ie helping fund programs before they’re made etc – as historically they have been mediocre at investing heavily in great content. most investment has been in technology … content seems secondary (ie lots of repurposing, feeds, AP type stuff)

    will be years before you get programming the quality/investment of underbelly etc

  5. I agree – historically loathe to invest in and create content, and unlikely to do so in the short to medium term.

    So, if you believe that ‘content is king’ , where does that leave online video? UGC? Catch-up viewing? On-demand of pre-existing content?

  6. I think the easiest/cheapest angle is grabbing repeat content and putting it online. ie- stuff most people have seen before.

    i am still doubtful that they will put first run, high rating broadcast content on the Internet as the risks to existing revenue are too great. i think there’s a lot of hope this will be done but i’d say there will be far less action than talk. who is going to be the person who advises to put a show like underbelly online in high quality and cops the blowback if/when broadcast ratings drop 20% and those revenues aren’t picked up online.

    i love the idea that “it’s great for the consumer” but not sure how “great for the consumer” things might be in 5 years when no one can afford to create great programming …. does that mean for the rest of our lives we’ll be watching Seinfeld and Kingswood Country reruns?

  7. Again, I believe you are right TD (if I may call you that). I suspect that for quite some many years broadcast and subscription TV will remain the lynchpins of ‘quality’ video content. Television is a “video only” medium – we will see some interactivity, but I think it will limited in comparison to online. I can’t see TV becoming online, and I can’t see online becoming TV. I think if each sticks to their knitting and excel at their strengths, and embrace ‘cross-pollination’ wherever it makes humanistic and commercial sense then both media will be winners. If each tries to cannabalise the other it could get messy with no winners.

  8. talkingdigital

    john – do you think that with digital (generally) there is a want to disguise evolution as revolution. ie – digital will eat other media and will become dominant … whereas historically there aren’t many examples of one medium consuming another … generally they evolve and then compliment the other. you’re right – the idea of online becoming TV, or TV becoming online is probably way off.

    it still strikes me as weird that some of the networks and their online partners are willingly open to losing broadcast revenue (or at least claiming they are) to move programming online. the argument ‘if we don’t do it, someone else will’. I’m not sure it’s as simple an equation as that … the barriers are too high.

    maybe fear is what drives decisions in the digital media world. A fear of missing out.


  9. oops … of course TD is Ben.

    I like the term “disguise evolution as revolution” … others just call it plain old hype!

    Each new medium was going to destroy its predecessor and none have. Online is a delivery medium just as television and print are. Each have their strengths and weaknesses. What IS happening is that the income models of each are under serious challenge.

    Online IS the cheapest medium by far. But this poses a few questions.

    How cheap would TV be if they didn’t have to pay licence fees to the govt? The same applies to radio which pays a licence fee.

    With online CPMs at record low levels (and I know CPM is just one of many measures but it is a measure used in each medium) is online creating a “race to the bottom”?

    Are there parallels with “free access” ISPs (remember them – fun while they lasted) who were going to offset access costs with ad revenues? They sent each other broke.

    The one constant I can see is that consumers like good content – so much so that they will pay for it, for example, $5-$10 for their favourite magazine.

    My hunch is that Murdoch’s micro-payment scheme will see the light of day in some form, and that will be the next shift in the internet. Mind you … I’m probably wrong !

  10. John & Ben, Yes, I view online in a complimentary nature to TV and other media. Ben kicked things off with the “surplus” content networks access via studio deals….so utilising online to make these deals more efficient and possibly even online aiding in polishing an uncut diamond was my reference to “Hill Street Blues”. I like the US experience whereby NFL is broadcast and college football is streamed online….nice combo and the time frames suit this so you can watch college footy on the bosses time and NFL with a beer in ya hand at home!

  11. Hi Kosy. The thing is, the gross majority of programmes aren’t “surplus” from studio deals. Sales are bundled and you do end up with programmes that you wouldn’t normally have bought – these tend to end up on midnight to dawn. Or as you say, they could be put online. However, the reason they go M2D is that they can’t garner the revenue in peak or daytime, and I suspect would get even less revenue online – but, hey, any revenue is good revenue especially at the moment.

    Also, the sales are for broadcast and not for online (in the main) which is a separate deal. Further, they are for a limited/specified number of runs. Take Two And A Half Men … Nine would HAVE to have exhausted their contracted amount and be paying extra for additional runs.

    The NFL deal you mention is a segmented deal. College football own and sell their rights separate to the NFL. They couldn’t get a broadcast deal so went online – way better than nothing at all, and as you say ends up as a nice (but accidental) combination. Lots of these online deals are on a revenue share basis as well – no up-front guarantee. Just as well they don’t have “anti-siphoning” in the US!

  12. talkingdigital

    maybe you’ll get digital competing with the fta digital channels and foxtel for the ‘rest’ of the programming … ie, the stuff that can’t command decent money and is more about filling time than anything else.

    problem is – if you make a lot of this content on demand my belief is it will gather limited audience. the reason i watch a lot of the stuff on foxtel is becasue it’s on and i am bored there and watching it requires little effort or thought. i doubt i’d go online and watch the same programming … I’d want something I REALLY want to watch … not an ALF rerun.

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