In the brave new connected world, we sometimes get so carried away by what the technology allows us to do that we forget the basics:
What we are trying to achieve in the first place, and the underlying economics that allow us to do it.
So let me trot out one of the oldest clichés in our industry: content is king. We are not entranced by television or online video because it takes a huge amount of clever engineering to get it to us. We watch because we enjoy what we see.
What do we enjoy watching? Cute cat videos on YouTube are amusing for maybe 45 seconds. A sneezing panda will make you laugh once.
But hundreds of millions of people watch the Champions League Final or the Superbowl. Dramas like The Night Manager or Game of Thrones are compelling and engrossing. With a world in turmoil, we turn to television news to see and understand what is happening.
All of these have one thing in common: they are expensive to make happen. The annual news-gathering budget for an international organisation like the BBC is measured in hundreds of millions of dollars. Drama budgets vary from maybe less than $500k an hour for a returning, modern-day drama to 40 times that for an effects-laden episode like a big Game of Thrones battle.
Sport is doubly expensive. First, the sports rights holders want to maximise their income, and the biggest events cost a huge amount: an English Premier League match costs more than a million pounds for the UK rights alone.
Second, we expect rich and detailed coverage of our sports. That football match will have at least 24 cameras on the pitch, each one recorded individually and available for instant replay and analysis. Crews on site are huge; new and very large outside broadcast trucks have to be built to support the production.
All these production costs, whether writers and actors, visual effects artists, journalists or sports rights, have to be paid for. In broadcasting, we know how to do this. We sell advertising around the programme, and maybe sponsorship. We might get a bit more from subscriptions: that football match is probably only available on a pay-TV channel.
What happens when we put the content “online”? We still have to raise the revenue to pay the high costs of production. The most obvious route is to place advertising around it, but consumers have proved surprisingly resistant to advertising supported content. Advertisers, too, proved surprisingly resistant to paying for it. They had paid for spots around the broadcast, they said, so why should they pay extra for online viewing.
The result is that two business models have evolved for video on demand (VoD). The first is that you pay by the programme: transactional video on demand or TVoD. This is the Apple model, where if you want to watch a movie or a television programme you buy or rent it.
The second is subscription video on demand, or SVoD, the Netflix model. You contract to pay a regular monthly sum and you can watch whatever you want from the catalogue.
TVoD gives you tight control over spending if you are a consumer, and clear matching of revenues to content costs if you are a service provider. SVoD gives the consumer the freedom to binge watch if they want, and provides an assured income for the service provider.
In both cases you can add advertising around the content too, and with highly targeted dynamic advertising insertion this can also be a solid income stream.
Either way, as consumers move from broadcast to online consumption, you have to get the revenues right or you will not be able to afford the content that will make you king.
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