Thursday, July 01, 2010

The Ultimate Gamble

There are recurring themes appearing all over the place in the TV world. The latest, of course, is the move to pay over advertising models. News Corp are now charging for their papers online and Hulu today announced a paid for service. There are also rumours that ITV are planning a paid online service.

The math is quite simple.

If you deliver 100,000 views for ten minutes on a video service you have a fair chance of delivering 200,000 ad views at around £15 CPM - so, £3,000 in revenue. But your cost of delivery, depending on your data rate, is likely to be around £1,000.

If you add a paywall, you're likely to restrict your audience considerably. Let's say to 5% of the original figure with 5,000 viewers. The cost of delivery will come down to £50 - actually more, since experience shows that if people pay they consumer more - so let's say £100.

If you persuade these viewers to pay £1 each then you'll make a profit of £4,900 - considerably more than the £2,000 under the ad model.

So, this is what has dawned to the content production industry. The trouble is of course, that there are free competitors out there with a business model that is more benevolent to the user.

It also ignores the other commercial opportunities from having a large scale user base, e.g. affiliate or ecommerce revenues, sponsorship, etc..

But most traditional telly has gone pay per view, even when there are good free alternatives available, for example the success of Sky in the face of Freeview in the UK.

This was a model we confronted around a decade ago at Narrowstep and the basic calculations haven't changed. What has changed is the scale and volume involved in the industry. The reality is that you should be able to make any model work now.

This has been the effect on timesonline.co.uk since they introduced registration, it may look bad, but I think it bodes well for them. Only time will tell.