TECH VIEW: The TV Business Model Is Doomed
By John C. Dvorak
The big television networks can still deliver the big audiences and can still afford to produce high-ticket entertainment. But viewing habits have shifted, and that means all the business models will have to change in conjunction with a pullback from traditional broadcasting.
Recent articles highlighting the one network that seems intent on maintaining the old model is the highly successful CBS (CBS), which still thinks like a major broadcaster used to think. This means denial about the viability of IPTV and new delivery mechanisms, streamed through the Xbox 360 from Microsoft Corp. (MSFT), the Roku box, Apple Inc's (AAPL) Apple TV and any number of digital accessories.
It all began with the DVR from TiVo Inc. (TIVO), which should have been destroyed the minute it was proposed. Too late now.
I wrote a column during the dot-com era describing how the then-new DVR was going to eventually destroy commercial television, because if you used it properly you could not only do "time-sifting" (watching when you want to watch) but also effortless commercial-skipping.
Skipping past the commercials is particularly easy with the DVR provided by content distributors such as Dish Network Corp. (DISH) It has a 30-second jump-forward button that turns an hour of viewing time into 40 minutes of commercial-free content. (There are generally 20 minutes of ads per 60-minute show.)
How is this good for the TV networks? I have no idea who advertises on the popular CBS comi-drama "NCIS" because I record the shows and bomb through them later, rather than waste 20 minutes watching commercials.
It saves me lots of time and makes the shows more enjoyable, but it cannot be much of a benefit to CBS, which needs to develop income from these advertisers.
The rule of thumb for TV is that you get about $1 per hour per viewer in revenue. A hot show like "NCIS" may have a minimum of 10 million viewers, which gives it an overall budget of $10 million or so per episode.
Nobody in network TV wants to see these sorts of numbers erode.
In the olden days, of course, you'd get a snack or go to the bathroom during the commercial interruption, and that may have had a similar effect on advertising, but was an inconsistent measure of avoidance.
At some point, the networks are going to have to bite the bullet and get that $1 per viewer directly from audiences. Would I pay $1 a week to watch "NCIS"? I know my wife would, since she's long since moved to a video-on-demand attitude, where she will pay money for a content stream.
Will you pay $25 for 25 hours of content? The convenience factor is important here. Having no commercials thrown at you is a huge benefit. I personally do not like 5-minute commercial breaks that ruin the flow of a story. For a 60-minute show with 20 minutes of commercials, will you pay $1 to gain 20 minutes of personal time?
I think this is the real selling point. The only thing we should be concerned about during our lifetimes is time itself. If you can reclaim an hour of precious time for $3 (based on $1 per 20 minutes), wouldn't you do it?
I'm not sure how the networks will be able to sell this sort of concept, but they are going to have to do something.
-John C. Dvorak; 415-439-6400;
AskNewswires@dowjones.com
