Tuesday, April 28, 2009

Do The Math...It's Still All About Content

I still don't have much to offer these days, so will offer up some major linkage...with some minor thoughtage.

There are Heritage Committee hearings going on this week, 'exceptional' hearings in fact, for the purpose of Canada's major broadcasters to appear and speak about the current TV 'crisis' and their requirements for their license renewals. John Doyle has a fun recap of the first couple of days HERE. And some of the big issues on the table are the networks' request to reduce their content obligations, and that they want to charge carriage fees. The CRTC did the math and released some numbers yesterday (from The Globe & Mail):

The proposal, in which networks such as CTV and Global want to collect 50 cents a month per subscriber from cable and satellite distributors, would bring in more than $352-million to the broadcasting sector, the Canadian Radio-television and Telecommunications Commission estimates in documents made public at licence-renewal hearings for the conventional networks.

The networks want compensation for their signals, similar to the fees cable channels collect, and argue the money is necessary to support local programming in Canada, particularly in small markets where several stations are slated to be closed this year, including Windsor, Ont., and Brandon, Man.

However, the fee idea has been a controversial one, since the cable and satellite carriers have vowed to pass those charges to consumers, rather than absorb them if they are approved by the CRTC. Cable companies such as Rogers Communications Inc. And Shaw Communications Inc. are fighting the proposal, saying the networks are overstating their financial woes amid a recession and downturn in ad revenue.

350 million! Nice. The networks are clamouring they need this cash infusion to support or at least maintain local programming (whatever that is exactly) in Canada. In fact, someone needs to clearly define what 'local' programming is...because earlier this month it was revealed in this Canadian Press article that the feds were considering a $150-million fund for the country's private broadcasters to help rescue local TV stations and their newscasts.

I presume this is an either/or scenario...as in, the feds will create a fund for the privates to access and support their local TV stations, OR the feds will implement a 'fee for carriage' collection system and direct the networks to use their portion for local TV stations and newscasts (although now I'm reading about a new Local Programming Improvement Fund, so maybe it is both). In either scenario however, the money is expected to come from or be collected by cable companies like Rogers and Shaw, and they don't want to potentially lose subscribers by raising cable bills, and thus are kicking up a fuss.

But millionaires arguing with millionaires isn't really my point. My point is found in the long list of comments posted on the above articles...especially the Globe piece. That's where you hear the same refrain over and over: that Canadian TV sucks; to let all the networks burn and die; and that they (the commenters) will just watch what they want to watch and when they want to watch it online...FOR FREE!

THAT's what really needs to be addressed...and fast.

To watch something there has to be something to watch. That something is called content. Content costs money to produce. Most often, quality entertaining content costs a LOT of money to produce. And the solution to that cost issue isn't user generated websites, at least not yet.

This well written article from Slate reveals how much money Google via YouTube lost last year.

According a recent report by analysts at the financial-services company Credit Suisse, Google will lose $470 million on the video-sharing site this year alone. To put it another way, the Boston Globe, which is on track to lose $85 million in 2009, is five times more profitable — or, rather, less unprofitable—than YouTube. All so you can watch this helium-voiced oddball whenever you want.

YouTube's troubles are surprisingly similar to those faced by newspapers. Just like your local daily, the company is struggling to sell enough in advertising to cover the enormous costs of storing and distributing its content. Newspapers have to pay to publish and deliver dead trees; YouTube has to pay for a gargantuan Internet connection to send videos to your computer and the millions of others who are demanding the most recent Dramatic Chipmunk mash-up. Google doesn't break out YouTube's profits and losses on its earnings statements, and of course it's possible that Credit Suisse's estimates are off. But if the analysts are at all close, YouTube, which Google bought in 2006, is in big trouble. As Benjamin Wayne, the CEO of the rival video-streaming company Fliqz, pointed out in a recent article for Silicon Alley Insider, not even Google can long sustain a company that's losing close to half a billion dollars a year.

YouTube's problems point to a larger difficulty for many Web startups: "User generated content" is proving to be a financial albatross. Two years ago, Time magazine named "you" its Person of the Year for doing your small part in fueling the Web 2.0 revolution. The magazine argued that by collecting and distributing the creations of millions of individuals, the Web is upending the way we learn about what's going on in the world around us. There's no doubt this is true; you experienced the presidential inauguration through millions of pictures captured by ordinary people, and a lot of what you learn these days comes from articles put together by the anonymous hordes who power Wikipedia. Yet even though they've changed the way we live, sites that collect and share content produced by all of us haven't done the one thing many tech evangelists said they'd do — make a ton of money. Or, in many cases, any money.

But the article goes onto say that another site, Hulu, is doing okay collecting higher ad revenue by being more selective in choosing its content...professionally produced content.

For all the frenzy surrounding citizen-produced media, the content that seems to do best online is the same stuff that did well offline — content produced by professionals. My colleague Jack Shafer recently listed the many services that people are willing to pay for online. They include music from iTunes, game videos from MLB.TV, reviews from Consumer Reports, and articles from the Wall Street Journal — and nothing made on some dude's cell phone.

Or look at Hulu, the video site that shows TV shows and movies. It attracts far less traffic than YouTube does (and thus pays far less for bandwidth). But because advertisers are willing to pay much more to be featured on its videos, Hulu is on track to match YouTube's revenues and with much lower overhead.

Which brings me to this cbc.ca article that criticizes Canadian TV networks for being slow to get on the online bandwagon...and warning us that Hulu is working really hard to break into Canada (Hulu can only be seen in the U.S., for now)

While Hulu buys television programs from content providers, and then sells its own ads to make money, Canadian television networks such as CTVglobemedia and Global TV have chosen to stream their own episodes of shows such as The Daily Show with Jon Stewart and Heroes with their own revenue-generating ads.

But the truth is they're (the networks) probably not the right guys to deliver that content," Tauschek said, noting that a lot of infrastructure is needed to stream high-definition content to thousands of people. "Should they have embraced something like Hulu by now? They probably should have, but at least they recognized that they have to somehow get on the bandwagon."

The latest numbers show CTVglobemedia achieved 0.8 per cent of the market share for online videos and Global TV had just 0.1 per cent for their efforts.

"I think the fact is that they're not really pushing it too hard," Tauschek said, suggesting that they are really just testing the waters. He added that they may be concerned about eroding viewership on TV, irking their cable and satellite partners and whether or not they have the streaming capacity to support higher online viewership.

But Tauschek said Hulu is "working feverishly" to make its service available in Canada and other Western countries. He thinks they'll be successful and Canadian television networks should take heed.

"They really ought to embrace it because if they don't … they run the risk of the same thing happening to them that happened to the record labels," he said, adding that when the music industry fought the internet, it led to an increase in piracy and a loss of revenues for their industry.

(Note that the programs the article cites as examples of what CTV and Global stream are in fact American shows that the nets simulcast with ad substitution) So we need to get on the online bandwagon...or more specifically, the cable companies need to...and they are, sort of.

The cable and satellite television companies stand to lose revenues once consumers can get a wide range of TV with high image quality over the internet for free.

Rogers seems to have recognized the looming storm. At CRTC hearings in March on the regulation of new media, Rogers proposed an online video platform similar to Hulu as a means of ensuring Canadian broadcasting content has a home on the internet. The proposed service would require a Rogers' cable subscription for access, although Rogers' head of regulatory affairs, Ken Engelhart, said the company was open to partnering with other cable providers on the service.

And I don't think this is such a bad thing. It makes the most sense for cable providers to be creating some kind of Hulu-like site in Canada, as long as they license content worth watching for an appropriate amount of money.

Yes, Ivan (pronounced Yee-vonne)...from this National Post article, 'the conventional TV regulatory regime "no longer works" ', but I don't know that it's 'tilted to the advantage of cable and satellite companies that are recording "record" profits' either.

The reality is we have too many channels. And too many of those channels just repeat what is on other channels (owned by the same conglomerates). And advertising dollars have been falling because viewership has been shrinking. And plugging more commercials into programs to adjust for the decline just turns off viewers who are seeing quality content become compromised. Furthermore, the major broadcasters have dug the hole they're in by expanding too quickly and thus fracturing viewers, buying up all those specialty channels that already receive 'fee for carriage', and relying too long on an outdated financing model....NOT from supporting local stations and homegrown production. The pittance they throw at Canadian programs is but a drip in the bucket.

In fact, instead of reducing Canadian content, the nets should be producing more homegrown programming. And not just more programs, but better ones. For too long Canadian shows have been treated or perceived with the same respect (or lack thereof) as user generated YouTube videos. Sure, we (as the creators) have to step up our game and deliver the goods...but we need the money and support and promotion and distribution to ever have a chance of delivering successfully. I really hope the CRTC takes this into consideration as they deliberate on how to move forward from here.

It's still all about content. None of these entities...networks, cable and satellite providers, online viewing sites...generate any profits or even exist without content, especially quality content. And that's what consumers want and seem willing to pay for. But money is needed to pay the professionals to produce that content, whether it's to be viewed online or via conventional television. Ad revenue was pretty much the entire financing model for a long time, but it isn't anymore. Or it isn't until online ad revenue catches up.

That day will come I believe, but until that day there needs to be tollbooths of sorts set up on the internet and TV pipelines, collecting some amount to help pay for what you view on TV and online. And it needs to be for homegrown Canadian quality content...NOT American or foreign content. Otherwise the networks and broadcasters and cable providers will just use programming from elsewhere to stay fluid...and the small production community as it exists here will simply disappear.

Quality content still drives the bus. But it can't be 'free'. It has to come at a price.


jimhenshaw said...

Nice summary of the current lay of the land, Will.

And you're saying exactly what savvy marketing people have been saying for years (apparently with the Canadian nets failing to take heed)-- "People can tell the difference between professionally made material and crap and they won't pay for crap."

So, if you want to make money online or on TV, the solution would appear to be simple -- make something good and make it well.

Couple of things, I question, however...

If online service has to come at a price, how come Hulu is doing so well for free?

I think the reason is simply that they're offering professional content and transfering the decades old TV commercial model to the web. If the content is well made and the viewer has no way of skipping the commercials, the ad money will be there to support the system.

Not sure if the "we have too many channels" line is yours or Fecan's but I heard Len Asper say exactly the same thing today at the hearings along with a plea to geo-lock American signals out of the country...

...and grant carriage fees

...and reduce content requirements

It seems clear CTV and Global are not only disinclined to create Cancon and local programming, they don't want to have to compete with anybody either.

Since Hulu geo-locks itself from Canada in order to protect the rights CTV, Global and others have purchased from their suppliers, one wonders what would happen if they simply created a non-geo-locked section with all the programming we didn't purchase.

The Canadian broadcast model isn't broken. It just never really existed except as a rebroadcaster -- and nobody needs those anymore.

Corey said...

Rogers Cable is pushing back against the broadcasters, CTV and Global. Found in an interesting article in the Globe and mail...

"... If Canada's biggest television networks want to charge cable and satellite carriers for their signals, CTV and Global must be willing to surrender their guaranteed placement on the dial – and potentially be dropped from service as any smaller cable channel could be, says Rogers Communications Inc. ”It's fee-for-carriage or mandatory carriage – but not both,” Rogers vice-chairman Phil Lind told the Canadian Radio-television and Telecommunications Commission Tuesday. “Under that scenario, these stations can be dropped ... I don't think anyone wants to see that...”

"...Staunchly opposed to the fee proposal as “charging for something that is already free,” Rogers believes the guaranteed carriage and right to insert Canadian commercials into the U.S shows the networks offer, is already a significant concession to the broadcasters.

“My God, it's ridiculous,” Mr. Lind said...

The gloves are off.

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