Chris Krewson

On video, online and otherwise.

Posted in Cable, Online video, TV, Uncategorized by ckrewson on April 6, 2010

If there’s one thing I’ve learned through the last 10 years I’ve spent working online, it’s this: Audience is a tricky business.

Clay Shirky tends to hit the nail on the head more often than not. His post on the demolition of the newspaper business model a year ago was a bombshell of clarity.

But in this post on the future of video, Shirky extends himself too far. Here’s why, in a roundabout (and, hopefully, Shirky-esque) way.

*   *   *

In 1947, John and Margaret Walson started a small business in Mahanoy City, Pa. Their business was selling and repairing televisions – at that point, these were hugely bulky devices with a handful of channels. It was tough to show off the wonder of TV in remote Mahanoy City, though. The town is located in a valley surrounded by mountains, roughly 90 miles from the closest broadcast antennas in Philadelphia.

In order to sell more TVs, John and Margaret made an investment: They built an antenna of their own, on top of a pole on one of those mountains. They ran a cable from that pole to their store, to demonstrate their product. And in order to allow their customers provide signals to their new TVs, the Walsons also allowed them to hook into their system.

It was one of the birthplaces of cable television, when people started to pay to watch “free” TV.


Years before the Walsons figured out how to sell TVs with no signal, young Bill Paley had a different problem: How to move a very different product. Cigars. He wasn’t by nature a cigar fan. His passion was radio.

As David Halberstam wrote in “The Powers That Be,” Paley tried an experiment one day in 1925 when his father and uncle left him in charge of the cigar shop. For $50 a week, the family cigar business sponsored a variety show on a local radio station. When dad and uncle returned and saw the expense, they had words with the younger Paley. Until they checked the books, and saw the impact on cigars sold.

Shortly thereafter, Bill Paley went into radio full-time – and then he created the Columbia Broadcasting System. Or CBS.

*   *   *

For years, the second story seemed to be more compelling. The chance to reach large numbers of people on a regular basis with a variety of programming, regularly interrupted with commercial advertisements, proved hugely profitable for network television stations and local broadcast affiliates.  The number of channels exploded, and content rushed in to fill the vacuum.

All of this was predicated on the idea that the sponsors of broadcast television paid big money to reach big audience to continue the transactional wonder Bill Paley saw in 1925: To move products. And a myth developed around building audience. Content is king, the thinking went. Build great content, have hustling salespeople work their magic, and watch the margins grow.

*   *   *

Mel Karmazin could be described as a mogul in the mold of Bill Paley. A radio salesperson himself, Karmazin went on to become an executive for Viacom, the corporate parent of Paley’s CBS. As Ken Auletta recounted, Karmazin visited Larry Page and Sergey Brin at Google HQ.

“Page and Brin extolled the value of being able to measure everything, including the effectiveness of advertising.

“This alarmed Karmazin, for it threatened how he sold advertising, which was based on salesmanship, emotion. Karmazin and the networks continued to charge steep rates because, Karmazin says, “advertisers don’t know what works and what doesn’t. That’s a great model.”

“But it’s a model, the Google executives told him, that is horribly inefficient.

“Karmazin, before departing, trained his eyes on his Google hosts and blurted, only half in jest, “You’re fucking with the magic!”

“Engineers don’t believe in magic. They question everything. Google fervently believes they are shaping a new media model that makes the process of selling and buying advertising more rational and transparent, and democratizes all media.”

*   *   *

Google – more specifically, YouTube – is a central point in Shirky’s latest post. The market has already decided, Shirky says.

“The most watched minute of video made in the last five years shows baby Charlie biting his brother’s finger. (Twice!) That minute has been watched by more people than the viewership of American Idol, Dancing With The Stars, and the Superbowl combined. (174 million views and counting.)”

Millions of people want to watch videos online for free; Google has already won.

Not so fast.

Yes, many people watched that video. But where are the advertisers? And why would they want to advertise again?

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There is one example of a newspaper company that took a leap into the world of convergence and thrived. And no, it’s not Tribune. It’s Scripps.

Flush with newspaper dollars (many funneled through the themed special sections that were a stock of metro newspapers in the 1980s and 1990s; Business, Health & Science, Sports, Features, Life, what have you) Scripps started a cable channel called “Home and Garden Television” in 1994. A few years later, the family that published the Rocky Mountain News also bought a controlling stake in the Food Network.

Of course, we all know what happened to the Rocky. The Food Network and HGTV (and Fine Living, and the Travel Channel) live on, fueled by the fusion of the innovations of Bill Paley and John Walson. They earn money for each subscriber to a cable, satellite or telco company, and they make money on advertising, as well.

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One of the tentpole events that draws audiences (and advertisers) are the Academy Awards. This year, 3 million of them missed the first few minutes of the show, because ABC (which televises the awards) was fighting with Cablevision (the cable network with that many subscribers) over how much its previously free signal was worth.

My colleague Cynthia Littleton wrote about this for Variety a month ago,  but here’s the nut:

“At a time when the nets and their local affiliate stations are facing rising costs, declining viewership and plummeting ad rates, they’re suddenly eyeing a possible $1 billion-$2 billion windfall over the next few years…. For nearly 20 years, the networks and their affil[iate]s have been negotiating deals with cable operators under the Federal Communications Commission rules known as “retransmission consent.” That wonkish term causes many in the TV biz to tune out on the details, but it certainly got people’s attention over the New Year’s holiday when News Corp. went to the mat in its highly publicized contract wrangling with Time Warner Cable for the retrans rights to Fox O&O stations in nine major markets.

“Time Warner Cable, the nation’s second-largest cable operator, wound up agreeing to pay significantly more cash than it ever has before to carry the Fox-owned stations, and this deal has single-handedly raised the bar on negotiations for broadcasters and cable operators throughout the country. (Retrans pacts typically run three to six years, and many Big Four affil deals are up for renewal in the next two years.)”

*   *   *

That “content is king” argument comes with a large caveat — those who control the pipes through which the content flows are taking a larger interest in creating that content. Exhibit A is Comcast’s move to take over NBC Universal. Subscribers to cable are very aware of regular increases in their bills.

Another is the record box office year in 2009, and new record-breaking movie grosses.  Some of that is the recession. Some of that is the premium upcharge that movie theaters press upon 3D viewers of $3-5 per person. By releasing movies in 3D, studios also gain an important advantage – the movies are almost piracy-proof, and there’s very little danger of them showing up online.

So despite YouTube and the millions of people who want to watch ‘Charlie Bit My Finger,’ more people are paying more money than ever to watch video in their homes and in movie theaters. This phenomenon has very little to do with complex systems collapsing, and everything to do with sophisticated multimedia networks attempting to maximize revenue.

And that’s not going to end anytime soon.

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One last example, which may sum up how much things have changed and will not change: The Super Bowl.

If, as Craig Newmark shrewdly realized, advertising is content, then the Super Bowl is the one event people watch as much for the advertising as for the game. But here’s the crucial thing about the Super Bowl: It will never happen on YouTube.  Every part of the event is owned by the NFL, which closely controls access to the event and charges whichever network won a bidding war a hefty premium to televise it.  Advertising in the Super Bowl costs a lot, but there’s no better way to reach a huge domestic audience.

There are limitations here, of course.  If you like the pair of pants that Dockers advertises, it’s up to you to find the store nearest you that carries your size. The same logic applies for every car, Web hosting service or beer commercial you see. Until Apple takes the next logical step and enables ads like that on the iPad.

So the future of video will be more complex, not less. Technology companies are hard at work developing a way for you to watch those 3D movies – as well as sporting events and video games – on specially-designed TV sets.  Those won’t be cheap. Cable, satellite and telcos also already charge more to add an HD signal, or another room added to your digital cable suite. Oh, and if you want to save it to your DVR? Yeah, that’s another fee.

It’s wrong to say that the complex model of video is collapsing. It’s more correct to say it’s evolving.

You’ll be able to watch whatever you want, wherever and whenever you want. But it won’t be free.