The New TV Pt. 3: Who gets the Advertising Dollars?

In my last post I talked about how direct payments by users for video content were being diverted from the MSOs to OTT companies and how this affects MSOs and the media companies.  Today, I’d like to address the other half of how video content gets paid for: Advertising.

Let’s take a look at the revenue flow document and see if there are any clues as to who will win and who will lose:

A diagram of the how the money flows in the media industry.

A diagram of the how the money flows in the media industry.

Once again, just as we saw subscription revenue leaking over to the OTT companies, we see the beginnings of advertising revenue leaking as well.  Who loses in this situation?  Big cable?  Big media?

Well, there is a small chance big cable could REALLY lose.  If the media companies decided to release their content for free over the internet and support it solely with advertising revenues, the cable companies would cease to exist.  Given the fact that this would be suicide for the media companies, this seems unlikely (particularly in a global advertising recession).

The MSOs stand to lose advertising revenue only in so far as they lose subscribers to the various OTT companies.  Although big media hasn’t emulated the joint subscription/advertising deals they have with MSO with the OTT players, they likely will, and MSOs will suffer.

But what about the media companies themselves?  Once again, the news isn’t as bad for them as it is for the MSOs.  Although they are likely to have to share advertising revenues with websites that distribute their content for them, they are likely to have to pay LESS than they did to the MSOs.  There are a number of reasons for this:

  1. These websites will have to compete directly with each other (unlike the MSO’s who often have regional monopolies or duopolies), so they won’t be able to demand premium revenue shares.
  2. Their cost structures are decreasing more quickly than those of the MSO’s (or the affiliates for that matter), so they will need less of the advertising dollars to be profitable.
  3. Just like the media companies own many of their affiliate networks, they have made sure they own web distribution as well with network branded websites, and more importantly with Hulu, which is owned jointly by 3 of the 5 big media companies (NBC Universal, Disney, and News Corp).

So big media is likely to maintain a larger percentage of the advertising dollars than they did under the old model, but just like with the transition from cable subscribers to OTT subscribers, there is a risk:  Will advertising revenues for online distribution be as big as they were with broadcast and cable?

The news is both good and bad.  First the good news: CPMs are currently higher for online distribution than they are for broadcast.  The number currently floating around the industry is that Fox gets a $30 CPM for the Simpsons during broadcast and a $60 CPM for the Simpsons on Hulu.  The reason for this is that Hulu can make you watch the ad, whereas most households with DVRs will skip the ad.

So what’s the bad news?  Well, while broadcasting that episode of the Simpsons, Fox shows 18 ads; whereas on Hulu, it shows only 3.  That means that overall, Fox gets 1/3 of the revenues.  Of course, this if Fox’s choice.  There is no RULE that internet users must be shown fewer ads than broadcast users.

This means that if big media can show the same number of commercials, get a higher CPM, AND have to share less of the revenue with their distributors, it could be sitting very pretty during the switch from broadcast to internet distribution.  There are certain realities about the new consumer, however, that this optimistic picture belies.

I’ll save that for my next post,  when I discuss the real issues advertisers are facing and how they aren’t unique to New TV at all.

Be Sociable, Share!
  • air max shoes

    I totally agree the standpoint of upstairs, and I believe this will be a trend. I often come this forum , rom here I learn much and know the newest tide! the content here constantly update and I love it! Another I know some websites which often update their contents, you guys should browse if into321 you are free.

  • basketball shoes

    Here elaborates the matter not only extensively but also detailly .I support the write's unique point.It is useful and benefit to your daily life.You can go those sits to know more relate things.They are strongly recommended by friends.Personally