Free doesn’t pay the bills
NBC Universal president and CEO Jeff Zucker has to be credited with coming up with what has to be the most memorable media phrase of decade. In addressing content owners’ attempts to profit from digital delivery, he said we’re “exchanging analog dollars for digital pennies.” He updated his comment last May when he changed it to, “We’re up to digital dimes.”
He updated his position this September while speaking at The Wall Street Journal’s D7 conference “We’ve got to change our cost structure. We have to get to digital quarters.” Zucker continued to lament that media companies remained unable to profit from digital platforms.
The unhidden elephant in the corner is that media companies are afraid that no matter what they do, digital revenues may not be able to offset the declining income from traditional (basically analog) revenue streams.
Zucker maintains that online video is not a threat to conventional TV programs. Hulu, NBCU’s partner in the online video business, is “ahead of plan,” according to Zucker. “We expect it to be profitable for us very soon.” He maintains that Hulu has more than 200 advertisers.
I have to wonder though, how long will his board of directors give him to make Hulu profitable? One report suggested that the free ride Hulu viewers currently enjoy may be about to end.
Two of the Internet company’s major partners, News Corp. and NBC Universal, recently hinted that they are investigating the possibility of charging a subscription to viewers.
That would be good news to Zucker’s competitors, especially CBS. In a recently-leaked memo, posted by TechCrunch, CBS Interactive CEO Quincy Smith made plain his disdain for Hulu’s business model. In a note to his staff, he commented, “How hard it would be to prove that some ratings declines are a result of reckless Hulu streams.” While the ratings for CBS this fall are steady, one might think he was suggesting that the reason the other networks’ numbers are down is because their audiences are going online. Clearly everyone would like to know if that’s true.
In the same TechCrunch article, Major League Baseball Advanced Media CEO, Bob Bowman, said, “You can’t just give stuff away for free. It just can’t happen. I don’t see premium content publishers doing that [Hulu distribution] forever. They’ve done a good job. It’s a marvelous site, but I don’t understand the business model.”
That’s the conundrum. How does a company attract an audience that’s willing to pay for content, when others are giving it away for free?
The problem for all content owners is that (historically) anything delivered over the Internet is perceived by users as having to be free. No content owner wants to be the first to erect a pay wall only to be vilified in the press, blogosphere and by competitors as being an evil corporate monster.
So, for now online content will simply be stuffed with more commercials. Even so, that’s a short-term patch. At some point content owners need to figure out how to get viewers to pay for programming.
Free doesn’t pay the bills.
October 12th, 2009 at 4:34 pm
Free is a good way to introduce a new platform or service.
There is an opportunity to generate a lot of subscribers. For those who create accounts before X date, your monthly rate will be X dollars less per month for 12 months - where as those who sign up after X date will be full price - whatever that is.
As for being vilified, take the whole Metallica/Napster/MP3 free for all as an example. Metallica took a hit for the music industry initially, but their concerts still sell out and people are paying for their downloads now.
Take an obvious page out of the Apple playbook with iTunes. No one has an issue anymore paying .99 for a song - and now they allow you to share with up to 5 people. Even before the people share, buyers were fine with it.
It is the experience and content that will make charging for things like Hulu viable. Poor experience + lack of content = disaster.
Don’t be afraid to charge. I believe consumers will pay for a good experience.
Accountant Warning: - Don’t let the bean counters go crazy with trying to forecast revenue. Make sure the service is very inexpensive - as in 2.99-3.99/mo. This has to be less than 50/yr or it will not work. After all, you still have Ad revenue. You also need to deal with people sharing their access. Make sure a user cannot be logged in more than once at a time.
If anyone needs help, let me know!
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