Downsizing and ratio of market shrinkage
Painful downsizing of TV incumbents is likely, as revenues will not rebound to pre crisis equivalents and online video watching becomes more prevalent. After decades of easy life, newspapers discovered that the percentage of costs spent in their news operations was a relatively small proportion of the total and for 10 years they have reduced other costs to keep alive. Eventually, the newsrooms have been affected by the cuts (too often beyond logic). Similarly, TV channels will have to zero in on all non-essential costs because they are doomed to do more with less. Revenues will be lower, so costs have to be reduced. The companies that streamline early will be in more control of their destiny, gaining time to focus on their core tasks.
Unfortunately at the end of the process, the size of the market will be reduced. The total money spent on digital classifieds is much smaller today than the amount previously collected by newspapers. Let’s not get deceived and think that the pie is just redistributed. It simply doesn’t work like that. A good part of the revenues will vanish, contributing, as with many industries in the past, to greater efficiency of the economic system, more precisely to the benefit of the users (I’m trying to see the bright side of things).
Payment needed
Rupert Murdoch said that putting together good content and offering it for free is bad business. Jeff Zucker, CEO of NBC Universal, put it very simply: we are “exchanging analog dollars for digital pennies”. If online advertising cannot offset the damage caused by the Internet to print, we can only imagine the suffering broadcasters will go through in a few years. Their video content is more expensive and advertising will clearly not be enough, at least from today’s perspective.
Advertising will evolve, but simple forms of payment also need to be explored, something editors have been talking about for a long time. A patent application issued in April regarding micropayments suggests Google will soon be able to process small payments starting from a penny, a good complement to its Checkout payment system. This is one of those developments a broadcaster has to follow and play with as soon as it becomes available.
Murdoch declared “we’d rather have fewer people come to the website and pay. It costs us a lot of money to put together good newspapers and good content. No news websites anywhere in the world are making large amounts of money” but the truth is that we may not have to choose between the two, high traffic or charging for content. The fact that mass media need to remain massive is a tautology. Media have it built into their genetic code. In his WSJ, Murdoch delivers both free and premium content, but a proper micropayment system instead of a subscription fee may be the answer for many websites.
When a media exec talks about charging for content, don’t be too critical
Given that across time and media, audience has always being a powerful indicator of the potential of a product, it’s only natural that at the onset, new projects overlook the need for revenue. From what I understand, the iPlayer doesn’t require proof of license of payment. Likewise, Hulu is Hulu is doing exactly what Murdoch complained about, delivering good and expensive merchandise for free. Those projects are honing skills to learn how to deliver the right merchandise the right way. But at some time, those and other sites need to extract some economic benefits from their audiences. When someone experiments with charging for content, my recommendation is that the industry support those steps, because it will mean that a TV business is trying to find its future economic model. All will benefit. Even if the formula doesn’t work, criticism is not beneficial. This could be one more lesson from the newspaper industry.
The crusade led by some, Murdoch included, to charge for content is reaping some fruit. Ofcom published recently a report that “more UK adults than before believe that file sharing through downloading shared copies of copyright music and films should be illegal (42%) than believe it should not be illegal (33%), and 25% are unsure. Young people 16-24 are more likely to say that such content should not be illegal (55%)”.
If video content is not easily available and/or easily payable, users will pirate it. Broadcasters have to realize that the price users are willing to pay for an episode will be a low, I repeat, a small amount of money, something similar to a micropayment. Premium and live content, such as a football match, will be a different story. Since Hulu is one of the players exploring how to charge for content, it is one case to earmark for Google alerts. (End of Part 4)
You are free to use this article in your publication as long as you credit the author Fernando Samaniego
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