It’s an age-old debate, but the consternation over whether media companies and other content developers should put their wares online for free—or try to squeeze a few pennies or dollars out of consumers—continues to rage on endlessly. It’s a tricky debate. Apple’s iTunes proved that the pay model works. Sort of. It came perhaps too late for the record industry and, when it comes to video downloads, still dwarfs the revenue that TV content players still make off of cable/satellite carriage and linear TV ad revenue. But its relative success and market dominance suggests that consumers have at least some willingness to pay for content they really, really want on platforms that make it really, really easy to pony up.
Meanwhile, YouTube, Hulu, Joost, Fancast and others have proven the obvious: Significantly more people are interested in free content than that for which they must pay. This is a natural and predictable situation. Why wouldn’t people want to watch the latest stuff for free rather than pay a buck or two per episode? Is enduring a few non-skippable commercial interruptions really that much of a hardship? Hulu has been experiencing double-digit growth over the last couple of months. That would suggest that people are more than willing to endure the ads when the content is free.
This debate is even reaching the mobile space where video content is only now starting to proliferate on devices such as the iPhone and through handsets outfitted with services such as MobiTV and Qualcomm’s MediaFLO. At this week’s Media Summit in NYC, media execs—perhaps envious of the mobile industry’s ability to get people to pay several bucks for a ringtone despite being able to buy the entire song for one buck on iTunes—are looking at the dual-revenue model that has turned the cable industry into a massive success. Execs from NBCU and Disney sang the praises of combining subscription revenue (a la MediaFLO) with ancillary revenue derived from advertising. Nothing new conceptually here. Every ad-supported cable network has done this for years—and with great success.
The big question is whether this cable model will work in online and mobile platforms. The audiences are different. Usage is different. Expectations are different. In music, which has a decade of the digital revolution under its belt, the subscription model has garnered mixed results. RealNetwork’s Rhapsody, for example, offers access to millions of songs for a modest monthly fee—and yet iTunes’ buy-as-you-go model continues to attract far more users. And let’s not forget that Rhapsody just last year absorbed Yahoo! Music, which got out of the subscription game following years of lackluster results.
And now we have major cable operators discussing ways to authenticate their subscribers so that they could access everything they see on their TVs on the online platform. For users, this would be a seachange. No more fishing around for shows at different Web sites. Under an authentication system, any cable subscriber could simply log in and watch any of their cable programming—perhaps even much of it live. The mechanics will depend on working out rights issues, of course. Sports nets will face issues with leagues that restrict games by geography. And most nets distribute shows produced by numerous third parties, each of whom are bound to have different opinions about whether their shows could exist online—even under an authentication system. On the other hand, nets increasingly require ownership of third-party fare for this very reason. For example, the Discovery family—which typically requires ownership of just about all the content it airs—may find themselves at an advantage in this world as they face far fewer rights issues than other nets.
This is complicated stuff. Will consumers rebel against the pay model when they must also endure ads and even product placement and other more intrusive branding? Will they demand that paid content be free of ads? Or will they do what cable subscribers have done for decades: Sit back and watch without complaint. It’s unclear, but one thing is certain: Today’s consumers are different than any that have preceded them. They watch content on demand. They have shorter attention spans and generally less tolerance for ad interruptions. It’s a tricky time. But what else is new?