Finance: Make Content Pay

Cable’s high-speed business is a proven winner, but to maintain their edge operators will need smart content revenue models. By Mary M. Collins Over the past decade, the cable industry has enjoyed substantial growth from its Internet investments, despite the market corrections that deflated some of the "irrational exuberance" cited by former Fed chief Alan Greenspan. It may have taken a little longer than expected by the industry’s Internet pioneers who predicted the demise of dial-up ISPs and walled-garden content as far back as the mid-1990s, but high-speed Internet is now in the majority of U.S. households^1. A recent Wall Street Journal article asserts that perceptions about the cable industry, which for several years have been clouded by concerns about competition from satellite TV and phone companies, have changed in recent months because of strong demand for cable’s triple play of video, phone and Internet². However, AOL’s recent decision to provide more of its services for free to broadband users coupled with continued competition from DSL, wireless providers and "over the top" VoIP services make it clear that the business continues to evolve. As the old saying goes, whatever it was that got you where you are today is not sufficient to keep you there. If Internet content revenue isn’t in your business plan, it’s time to rewrite your plan. In the same way that advertising revenue helped the industry deliver valuable content at competitive subscription rates in the eras of expanded basic and digital video, we are anticipating its potential for supporting the development and delivery of broadband content. Ad-supported Web portals have demonstrated their ability to deliver a market; advertising dollars are following the market (see chart). A few years ago, selling advertising across the industry’s platforms meant packaging upfront ad sales for a company’s broadcast and cable networks. Today, cable operators and programming networks are creating cross-platform advertising opportunities that combine television’s broader reach with the Web’s capabilities for greater interactivity and more refined measurement. With subscription and advertising revenue playing an essential role in cable’s television business model, it’s also not surprising that we’re seeing momentum behind the "charge the provider" model for content licensing to broadband ISPs. Given the accelerating pace of technological change and consumer adoption, we shouldn’t have to wait very long before we know whether or not broadband Internet service providers will offer a choice of basic and pay programming packages in addition to various speeds for accessing them. Concerns including those of copyright licensing, piracy and taxes signal that many of the issues influencing our traditional businesses must also be factored into the math for modeling the industry’s Internet businesses. However, when we consider the commanding presence our companies and brands already enjoy with the majority of broadband households in the U.S., they are nicer problems to have than the hurdles of our competitors, who must first figure out how to catch up with us. 1. FCC report on High-Speed Services for Internet Access, July 27, 2006
2. August 3, 2006, page A3 Mary M. Collins is president and CEO of Broadcast Cable Financial Management Association (BCFM), which will be hosting the seminar "Business Modeling – the Internet" in New York on Sept. 13.