Stating the obvious: Great content requires funding

It seems like an obvious statement but great content requires funding. Without it, it’s difficult to create things people want to read, watch and spend time with.

Funding happens in numerous ways. Free to air TV networks pay content creators upfront for first run programming, they invest heavily in rights deals around sports broadcast, effectively taking a calculated punt on shows and events that advertising revenue as a result of ratings will ensure they at a minimum don’t lose on the investment. Pay TV stations do the same – secure programming through initial investment, or invest in original programming – and pay TV operators globally pay significant carriage fees to pay TV stations in order to carry their channel. For instance, ESPN in the US (and in Australia) receives a monthly fee per month for every house the channel is carried in.

Right now it seems like a good time to look back on the early history of ESPN. In the early 80’s the station found itself in the middle of an emerging content area in a rapidly developing yet embryonic media channel. Consumer demand was promising and ESPN was developing a stable and growing audience. However, ESPN was struggling to fund its current content and operating costs, let alone enhance and build its content suite, on a solely advertiser funded model.

That’s because ESPN was running was one stream of revenue – advertising. Just like 99.9% of websites today are – many of whom are facing the same problem … advertising revenues are proving inadequate in terms of funding the development of content.

What ESPN did at the time was radical. It went to the cable providers – such as John Malone’s TCI – and asked them to pay a fee to carry ESPN as part of their cable bundles. At the time ESPN asked for 25 cents. Malone was outraged. He threatened to start his own sports only competitor. Eventually he buckled. This allowed ESPN to further secure content – such as MLB and NFL football – and grow and evolve the product. ESPN’s plea to Malone was simple – this fee for carriage was essential for the survival of both companies. ESPN needed more revenue to continue to develop a compelling product, and Malone’s TCI relied wholly on having a suite of compelling content creators that people would pay to pipe into their homes.

I wonder whether we need to revisit what ESPN did here in 2012. The Internet’s most dominant companies seem to be companies not entirely different to what TCI’s core business was in the early 80’s – distributing content but not investing in it. Google, Facebook, Twitter etc – are not in the business of creating nor helping fund content. It raises the question – who is going to pay for content online? One thing seems to be clear – great content online needs more revenue streams than advertising.

Just as a side point, ESPN now receives almost $5 per month for each household it is piped into in the United States, and similar amounts in other cable markets, including Australia.

Here’s a radical proposition. Can you imagine Google, Facebook, YouTube or Twitter investing upfront in content creation? I don’t mean a few million here and there, I mean the sorts of multi billion dollar bets the large TV and cable companies place. Here are businesses that rely wholly on content created by others, but whom are unwilling to help pay for it.

And why is it that companies that do invest heavily in content on digital platforms – Yahoo, Newscorp, the NYT for example – are often laughed at by digital insiders as out of touch?

Cable and Pay TV has the jump on digital as its dual revenue stream of advertising plus fee for carriage offers content producers security upfront that great content can have its costs covered. It is what is creating shows like Mad Men, Game of Thrones and Dexter, as well as evolving coverage of NFL and major sporting events.

Until this happens, can anyone really see ‘marquee programming’ moving online? Under current digital approaches (revenue share at best 60-120 days after payments) could you ever see a show as strong as Sons of Anarchy or The Borgias being first run online? Doubtful.

Great content requires significant investment. Why is it that the highest valued digital companies, who all rely heavily on this content, refuse to invest in it?


2 responses to “Stating the obvious: Great content requires funding

  1. Ben,100% spot on – again.

    While you have focussed on ‘video content’ let’s also not forget the cost of original ‘text content’. An interesting exercise would be to look at how many journos News, Fairfax, APN, WAN etc. employ … estimate an annual salary and see how much the major publishers are paying to produce content.

    A further concern is that as consumers we seem quite content to remunerate the distribution channel (e.g. Apple taking 30% through iTunes), but scream blue murder if our news or TV programmes are not free 265/24/7.

  2. talkingdigital

    thanks John. I agree … it is weird no one seems to mind paying the ‘handler’ but resents paying the creator. Seems like creating content is frowned upon by investors a lot of the time (and the market) despite the health of the Internet relying almost solely on great content.

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