Free TV Next to Fall

Michael Hedges November 2, 2009 (follow on Twitter)

Every turn and twist for the media world in this century has seemed like a game-changer. Between playing ‘chicken’ or running from one idea to the next like a headless chicken the great new media business model is still hiding. Maybe we’re missing the obvious.

“The direction is clear for us,” said ProSiebenSat.1 CEO Thomas Ebeling at the annual Munich Medientage (October 28). “We must be independent of the advertising market.”

Mr. Ebeling wants 30% of the company’s revenue to come from outside the advertising stream, from user fees, by 2014. He gave no details. “For the future viability of the group, it is extremely important to develop a relationship with end users, such as on pay TV and video-on-demand,” he offered.

Television advertising in Germany will grow tepidly through 2013, said a recent PriceWaterhouseCoopers report. Still, ad spending on television in 2013 will be some €300 million below 2008 spending. No broadcaster is exempt from the shift.

The relationship between media and advertising is old and blurred. The press barons of the 1830’s in the US discovered ad revenues beyond their wildest dreams, well beyond the per copy charge for the ‘penny press.’ The ad people of that era had few options for their messages and lavished money on newspapers. Those wild, unbelievable profits led the press barons to ‘invent’ journalism, says Jack Shafer in Slate (October 28). Content became important after the money arrived.

More than a hundred years later, the ad people lavished their wealth on television as well as newspapers. Every year, wars only slightly interrupting, ad spending increased as advertising agencies and media buyers, a profession invented in the 1930’s, found more media (and other objects) on which to spend. Only in this century has ad spending not increased year after year. Yes, the bubble has burst.

It’s tempting to dismiss the economics of arguments by Mr. Murdoch and now Mr. Ebeling that free media – ad supported, free to the folks – will die away. People, they reason, will pay for entertainment and, maybe, news. All of that entertainment – from sports to television comedy and drama – has a cost. But, ask doubters, does it have a price? Apple proved with iTunes that music has a price substantially lower than music companies wanted.

There’s another side to the economic question. What happens if it works? Strategists at UK broadcaster ITV have toyed with the idea of a premium charge for hit shows and maybe a micro-payment for ‘catch-up’. If that model gains traction – and it certainly has everybody’s attention – doesn’t the relationship between media and advertising shift?

Nobody, so far, has suggested that advertising will disappear from commercial television. Mr. Ebeling is suggesting a 30% shift to consumer charges, however that might be accomplished. A US newspaper publisher – Jim Maroney of the Dallas Morning News – recently said he’d like to see 55% of revenue directly from the folks. And, of course, Rupert Murdoch wants everybody to pay (him) for everything.

Media buyers are reveling in ad rates pushed lower and lower by a zillion television channels and everything on the internet. Their clients, advertisers of all sorts, keep grumbling about accountability – marketing and advertising cost related directly to sales. To date, they have the upper hand.

If charging viewers for premium – I hate this word – content succeeds even modestly three things happen. First, all broadcasters and publishers will follow. (“Jim’s got a good idea over there in Dallas.”) Second, ad rates go up in and around that premium content. (“You don’t understand, we make more money directly from the viewers.”) Third, broadcasters and publishers invest more in premium content. (“Give me more of those hit shows.”)

Maybe this takes the media buyers’ hand from broadcasters’ throats. Maybe Mr. Murdoch is right. Maybe it will work.