Steve Effros

Commentary by Steve Effros

Judy Woodruff was hosting the PBS Newshour the other night with a story about the new deal between HBO and Sesame Street. Her “neutral” demeanor was sorely tested. Her concern, chagrin and disdain for what was happening couldn’t be missed. What unfortunately was, however, was why this was all happening and that it was neither a tragedy nor a loss, but actually a fortunate solution to what is going to be an increasing problem.

Judy was clearly upset that the signature children’s series for PBS was now going to be available first on a subscription service. She opined that its mission, she thought, was to deliver quality children’s programming to everyone, not just those who could afford to pay for a “premium” service. But in the process she lost the real thread of the story, which actually has to do with how media is developing, and who’s going to pay for it.

She interviewed a former Sesame Street CEO, who accurately pointed out that the programming would still be made available to all kids, free, on PBS, nine months after the first airing on HBO. He also noted that the world of video was changing, and that services such as HBO needed to compete with other, similar services like Netflix, and the growing use of “streaming,” thereby luckily creating the opportunity for Sesame Street to get the deal it got.

What was missed is that Sesame Street was in trouble. As with most programming, it’s never been “free!” It’s just been paid for in different ways. PBS, with its government and private industry subsidies, covered only a small part of the cost of production. Another very significant revenue stream came from things like DVD sales. As even Judy should know, the value of Sesame Street is in the ability to show it repeatedly to new generations of kids, and whatever age yours are, a convenient copy was ideal to have when the time was right. But DVDs are dying. DVRs allow parents to freely record the shows and use them whenever they want. The alphabet doesn’t change. That’s why the HBO deal is such a good one for everyone.

HBO is more than paying its share. They’re guaranteeing five years of income, thus allowing the producers of Sesame Street to create twice as much programming per year. The “cost”: nine months of exclusivity, only on new material, before it goes into “free” distribution on PBS. As I said, everyone wins. HBO gets some new quality product aimed at a customer base (new parents) who they want to retain or attract with programming in addition to the hits they already have. Sesame Street remains a timeless program made available to all kids on PBS, and there will now be even more high-quality children’s programming because of the HBO revenue stream.

At its base, however, this is a story about changing media distribution technology and business. From VCR to DVD to DVR. The last step is killing the traditional revenue stream. OTT may bring some back, but there’s no guarantee. So HBO is a blessing for Sesame Street and PBS, not a curse. As important, this is the strongest example to date of a trend that’s going to continue: old revenue streams are changing. Business models are morphing. The lucky, like Sesame Street and HBO will do fine, but the new world of DVRs, streaming and a la carte is going to result in many good programs not making the cut. And so it begins.

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