When the levee breaks on this golden age of TV, what does that look like?

Im not sure how commerical content is suffering more than they did with the advent of recorded TV. With dvrs all you need to do is time shift a show about 20 mins to watch it commercial free. I dont know how much OTA viewing has upticked due to cable cutting but it has to have jumped some what. Also with internet streaming there are many streams that lock commercials in and not everyone is savvy enough to cut those commercials. Frankly there is a shift but I dont think its the doomsday that some seem to suggest. Things change and advertisers adapt. Hell, product placement within the shows is becoming a lot more common and at times really in your face. They will adjust, they always do.

I think the new Star Trek series only being available online behind a paywall on CBS is the first sign of the big networks starting to do desperate things to stay profitable.

That’s the key word, right there. Cable channel bundling guarantees x amount per viewer per year whether it’s watched or not. ESPN in particular has been feasting at this table, but even the OTA networks have become used to retransmission fees from pay-TV providers. So, the revenue model was based on (1) guaranteed income simply from existing, plus (2) advertising sales, and (3) residuals from owned IPs for streaming, DVD, syndication (likely very little for ESPN, probably quite high for AMC or HBO).

I don’t think it will be a disaster, but the mandatory-bundling-cash balloon appears to have peaked and is now deflating over time. I wouldn’t expect it to turn around in the absence of some new technology that makes it compelling again. It’s only one factor of the revenue model, but a diminished viewr base will eventually affect ad revenues too.

And I think you missed the context on the Netflix thing. They make .11 per hour on their original content.

Wait, wait, that’s not what it says. I mean, I don’t want to go leaking shit, but the report explicitly says that they have no idea what the viewership or cost of the original content is.

And I guess my main problem with the premise is that, in the context of the broader media, a drop from $30 to $18, assuming that is the case, doesn’t seem that bad. Music industry revenues fell, what 60% in the last decade? Newspapers are probably even worse off. The BBC’s budget is being slashed while ever greater demands are being put on it and it is still one of the greatest cultural forces in the world. And, moreover, most of the international TV marketplace has survived and in some cases thrived on ad revenue alone, since forever, with a much smaller addressable market. There’s no reason the US TV industry couldn’t do the same with a 300m domestic marketplace.

if you’re an investor in a content creator, sure, it looks bad, and probably is bad. But as a consumer? It’s the best it’s been for ages, and the important bits seem to be sustainable. Do I care if CBS can’t get as much money for endless runs of NCIS? Hell no. I care if I can get someone, anyone, to give me Bojack Horseman.

Part of the problem is obviously also that while we’re in a golden age of television, much of what is produced is garbage that is uninteresting to most consumers. What makes an a la carte approach possible is being able to charge more per channel/program, but less overall because consumers will have fewer channels they subscribe to. I think this ultimately means some people pay more, some people pay less, and lots of programming disappears.

ESPN is the classic overpriced channel example. A breathtaking percentage of cable subscribers are effectively paying $10/mo for a channel they never watch.

Ultimately, I think we end up going this way regardless. If prices get raised significantly, there are plenty of alternative methods for procuring programming if you really want it – and that programming is delivered with easier access, equal or higher quality, and greater convenience than traditional streaming services.

I remember attending a meeting held by NAB (the National Association of Broadcasters) back in 1994 or so. They were lamenting that the just finished year had been a bad one for the TV industry, which was only averaging a 25% profit margin because of the recession. I haven’t followed things since then, but I suspect that the TV and cable industry remain highly profitable (and hugely overpriced). The looming crisis from cord cutters is likely a much-needed market correction.

You’re right. Here’s the relevant graf that supports what TW originally said:

But to me the thing that promises potential change is the italicized section.

Another key bit that comes later is when they predict–as many of us are starting to also see–that all the a la carte choices are going to get VERY expensive.

Check it: “Since consumers pay for everything in the end, we calculate that this redefinition of choice is going to turn out to be extremely expensive for consumers. We believe that if consumers knew now what they will know in 5 years, they would change their mind and go back to the big bundle, which costs them $0.25 per viewer hour.”

With an ad supported tier. What you’re missing in your analysis is the other half of the equation, the demand for those extremely targeted demographics. Madison Avenue isn’t going away, there’s way too much money involved.

Also, something like higher prices for season finales, etc. Maybe even moving some of that content to ppv specials which aren’t part of the normal packages. Think dlc.

Can someone define what “market cap” means in the context of this conversation? I (not being much of an investor beyond mutual funds) took it to be a measure of the profits that the companies were getting from a given market (“market share”), but I gather now that’s not the case. “Market capitalization” as defined by a quick Googling is the “value of outstanding (ie, currently existing) shares”.

So, when the report says that the “market cap” of all the big content providers fell by $57b, that means that their combined stock price dropped by that much, right?

Basically, yeah. Shares outstanding times share price. It’s valuation, and it trickles down into “How much are we going to spend on content” at some point. It’s ESPN telling Keith Olbermann they like his show, but they can’t afford to renew his contract.

Yep - essentially, they’ve been devalued.
edit - too slow, what Triggercut said

Well, this might be central to what TV evolves into, but I still don’t know what it looks like.

Try this premise out: Netflix isn’t the egalitarian platform that conventional wisdom suggested it was. It isn’t poor people cable TV, because to use Netflix, you need a decent broadband connection and some not inexpensive peripheral hardware.

Recast the Netflix audience: they’re tech-savvy, media-savvy affluent 25-49s with disposable income that advertisers drool over. In fact, it’s the target demo that is the most attractive to advertisers across the board.

That beautiful demographic is migrating rapidly to Netflix, where they’re being trained…

  1. To wait for network content and watch network content within the convenience of on-demand that Netflix provides, and
  2. To expect zero commercials

That’s the quandary for advertisers and networks. How do they get that demographic back?

Well, maybe that’s not the question. If you’re a network, your question is, “How do we continue to make money off that demographic?” Maybe it’s without advertisers? Maybe, as Denny suggests, it’s paywalled network-specific platforms, like Star Trek’s new thing on CBS. Maybe you start to jack price quotes for content delivery to Netflix through the roof. The content platforms like Hulu, Netflix, and Amazon make up that shortfall in advertising by having to pay your network more for the content you provide.

And if you’re a network, you’re totally cool with that. You keep showing your shows on the mothership to declining ratings, but it’s still pretty much the only way for advertisers to get the kind of reach that TV has, so they keep paying you. That’s a revenue stream. You jack up your prices to Netflix to show episodes of Gotham or NCIS or Walking Dead. That’s another revenue stream of an entirely different nature. And…you start paywalling content behind an app and on a network-based platform. 3.99 or 4.99 per month, watch anywhere on any device, all the shows we have on our network on demand, with only two commercial interruptions! Bingo, there’s another revenue stream. You’ve got the diversified revenue streams that make investors go goggy-eyed, and you recover valuation.

That’s a hypothetical, but it makes a network happy.

If you’re a consumer like us, that hypothetical means you’re going to pay more for Netflix, and there might be less content you want on it. You may have to pay for other a la carte content in addition. Maybe you grab HBO Now and some other content platform package. If you’re a full-on cord cutter, it isn’t hard to believe that to get access to even close to the content you’re at now, you’re going to have to spend what you were once paying for basic cable or expanded basic–which is the factor that drove you to cord-cutting in the first place. That’s the nightmare, I think.

(Oh, and if you’re an advertiser? Good effin’ luck. Experience says that advertising is like water seeping in on an old roof–it’ll find a way, somehow. But if you’re an ad exec, your job is really tough right now.)

If you’re a consumer like us, that hypothetical means you’re going to pay more for Netflix, and there might be less content you want on it. You may have to pay for other a la carte content in addition. Maybe you grab HBO Now and some other content platform package. If you’re a full-on cord cutter, it isn’t hard to believe that to get access to even close to the content you’re at now, you’re going to have to spend what you were once paying for basic cable or expanded basic–which is the factor that drove you to cord-cutting in the first place. That’s the nightmare, I think.

Except that the new world is massively more convenient than the old one, especially in the US with its lack of free OTA channel guides, shitty cable boxes and so on. I mean, you’re basically describing how it works in the UK, where every channel has its own app. But even in this hellishly balkanised media landscape I can watch whatever I want, whenever and wherever I want. In many cases I can even legally download shows and watch them offline on the plane or in the underground. If that ultimately means paying the same price as before (either directly or in ads), so be it. The service is vastly improved.

I hope that’s what comes to pass!

I guess right now I just feel like I’m blatantly ripping off the content providers for an exceptional amount of stuff that I’m getting for the price I pay for it…and I expect them to hit back, and hard.

Isn’t there a movement by advertisers to move from stand alone 30 second adds to product placement (both blatant product placements that people like Colbert have been doing for years) as well as including products prominently in shows, used by characters? Or maybe that’s just drug manufacturers? It doesn’t matter if the show is over the air or streamed, or if you have add block on, you’ll still see this:

Yeah, you see natives advertising all the time. The voice has Pepsi cups, Elan had a Samsung phone, subway was on community, house of cards loved Microsoft. That will help somewhat. I think part of the problem is that advertisers are not playing enough for online ads. They are targeted ads, or least are capable of it. It should be selling me what I want, not just crappy credit cards.
Obviously, Privacy advocates would hate it, but target ads should be worth more to the company, and would be worth more to me, as opposed to generic ads on tv.

Isn’t what’s driving people away from linear services the price, and the inability to control that price by being able to “pick and choose” which channels of that service they actually are willing to pay for. By leaving the linear services they are finding alternatives that actually allow them that choice at a lower price point.

I assumed “market cap” means what you have described Tin Wisdom. The value of the big market providers. Although in a real world situation I am not sure that actually means anything. But that is another discussion.

Yes, what’s driving people away is that the content provider industry has made it too lucrative for people not to go a la carte.

That’s not the question here. The question is: is this model sustainable (I don’t think it is), and thus what happens when the a la carte gets to be more expensive than linear cable, but audiences are used to the choice, convenience, and low/zero ad loads? What happens when AMC can’t afford to keep making seasons of Walking Dead, or make the next Mad Men or Hell on Wheels due to lost revenue and depressed valuation based on the collapse of the linear market?

Ginger Yellow suggests that people will be OK with paying more for the convenience and portability. He might be right.

I’m a little less sure, since I think that even in the UK, the cost to consumers for that convenience is still artificially below demand and will shoot up as more and more content providers adjust.

I think you see a lot of providers (cable channels) disappear.

I think the rise of reality shows is probably the first wave of cost reductions against content providers by the big boys in the industry. Reality shows are much cheaper to produce. The results can be seen all throughout cable programming. Every little channel now has it’s own versions of reality shows instead of paying for original content.

The other element maybe over looked is that content is now being shared over various channels that are owned by the same companies. i would think that provides income for producers while keeping cheaper available content for the larger multi-channel providers.

I guess what I am saying is that the changes are price driven, so the providers will need to react to that by somehow reducing the costs associated with the content they provide. Whether that means reducing the amount of content, or allowing users to pick and choose content, we will see.

Also, I think individual providers would have to jack up prices quite a bit to exceed the combination of prices that is basically cable TV today.