TV's Revenue Revolution

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Note: For those of you getting this on RSS, sorry for posting it three times.

Diane Mermigas gives us this eye-opening article on TV advertising's most potent foe to date: (No, not apathy or Tivo.) Downloadable TV programs.

Yep, that's right: Those $1.99 commercial-free downloadable episodes of Lost. Folks are buying them, the numbers are growing, and the technology's use is spreading fast. But we aren't just talking about hip cats and early adopters with DVRs and video iPods driving the demand here. There's something a whole lot more compelling pushing this impending shift: Revenue.

TV networks can actually generate more money from the sale of these individual episodes via broadband than they currently do from selling advertising.

Hmmm... Now, where do you think the networks are going to go?

That's right: Where the money is.

But let's backtrack for a second and look at numbers affecting potential downloads. As Brandplay's Aaron Dignan points out:

LOST has 10+ million viewers every week. If at the end of a good cliffhanger episode they ran an ad that said, "wait until next week to find out, OR go to iTunes right now and find out for $1.99," they'd probably sell a hell of a lot of downloads.

Now, to put those numbers in perspective (downloads turning into $$$ revenue) check out this bit from Diane's article:

Wang makes some telling comparisons in his report "Waking the Sleeping Giants." Such hit primetime series as "Desperate Housewives," "CSI: Crime Scene Investigation," "Survivor" and "Lost" command about $440,000 per 30-second advertising spot, which implies a $26 cost-per-thousand rate. With a typical 17 million viewers and 13 minutes of commercial time per hour, one episode of such a hit series generates about $12 million in gross ad revenue, he said.

By comparison, even in the worst-case scenario -- with 20% of TV viewers opting for downloads, 100% of which overlap with existing programs -- downloaded episodes of such popular series can generate an estimated $15 million in revenue."

The main reason is that the $1.44 in download revenue per user (or 70% of the $1.99 per download) is greater than the estimated 57 cents in advertising revenue per user generated under the current model," Wang said.

I think the word you're looking for is "whoa."

Thanks to Brandplay's Aaron Dignan for the heads-up. Read his insightful post here. (Good to see you posting again, man.)

So the issue here may no even be about great advertising vs. weak advertising. It may instead be a question of technology changing the game's economic landscape.

Will broadband kill TV advertising? No. Of course not:

One, it'll be a while before we reach a technological tipping point.

Two, for this model to work, each download (or the inevitable monthly download fee "a la napster") has to be above a certain $$$ amount. Since the more TV we watch, the more expensive this could get, this system could quickly be cost prohibitive for folks who watch a whole lot of TV. In addition, exponential growth in broadband distribution could hit cable companies hard and send them crying uncle to their friends on Capitol hill. (We'll have to revisit this topic when we have more time because it gets kind of... big.)

Three, eliminate TV advertising, and you eliminate the need for pay-per-downloads. (duh.) iTV or iShows (or whatever they'll end up being called once they truly become mainstream) are very much the yin to TV advertising's yang.

So... TV advertising isn't going anywhere. That being said, get ready for some serious changes in the way television networks do business in the next couple of years. Networks, not advertisers are going to be in the driver's seat again, and if HBO is any indication of what that kind of creative freedom can generate, viewers could be in for a hell of a great ride.

Yep, the rules of the game are about to change. This isn't a prediction, it's a fact.

With the balance of power about to shift clearly in favor of TV networks, advertisers are going to have their work seriously cut out for them. Whether this turns into what the French would call un bordel monstre or pushes both networks and advertisers to reach new heights of content quality, it's is going to be fun to watch.

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