May 06, 2008
Ala Carting of Video on the Net: What Meaneth?
Writes Mark Cuban this week: Ala Carting of Video on the Net - Will it lead to disaster?
He tells us about a report by Craig Moffett of Bernstein Research entitled "And Now for the News...The Emperor Has No Clothes."
From the Report:
Ironically, we are headed down the same self-destructive road for other kinds of traditional media,as well. Five years into the video-over-the-Internet revolution, we have learned two things. First; consumers won't pay for content on the web, so it will have to be ad supported. And second; it won't be ad supported.
In the cable TV network world, half of all revenues come from affiliate (carriage) fees paid by the Comcasts and DirecTVs of the world. The other half comes from advertising. But in the TV world, a typical half hour show supports an ad load of about 8 minutes.
On the web, early evidence suggests that consumers will tune out – click away – if they are forced to watch more than 30 seconds or so of advertising up front, and maybe another 90 seconds of advertising over the next thirty minutes. Hulu.com, for example, which has already been lionized by many as the future of TV, serves two minutes of advertising for every 22 minutes of programming(i.e. the programming duration of a typical half hour show from television). Assuming identical CPMs for web video and TV, and after accounting for lost affiliate fees, a 30 minute program on the web with two minutes of advertising yields approximately 1/8th as much revenue per viewer.
Are content producers prepared to reduce production costs...by 88%?
In fact, the actual economics of web-based video are far, far worse than this. Our 88% decline ignores the corrosive impact of à la carte on traditional video economics. In the public debate in Washington, the phrase à la carte refers to the idea that a few strong networks demand the carriage of a host of weaker ones, effectively subsidizing a much larger family of channels.
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