TV 2.0

Over the last few weeks, I’ve looked at the state of internet video on demand in depth, analyzing the availability of most watched TV series and movies for the 2010 and 2011 years. The data showed that there were quite a few issues in the way the video content industry is treating the internet, with efforts that appear tentative in the best case and predatory in the worst.

This week, I’d like to present some models that could help the industry evolve and leverage the internet in the same way as it has other media in the past.

Subsidized vs. Paid

The first step I would encourage the media industry to look at is the fact that there are a number of ways in which they could get paid on the internet and not all of them include customers buying a copy of content. Based on the data I put together, the average price for a legal stream of a more-than-one-year-old TV show is $1.99 per episode. At this price, when consumers can get more recent offerings for free, the competition is not piracy, but more recent TV shows that are available for cheaper. As a result, the TV industry is currently sitting on a pile of shows that it thinks it can sell to customers but customers will not purchase because of the availability of other content at lower prices.

One way to handle this would be to more actively look at leveraging existing models for online streaming. Companies like Netflix and Hulu would be more than happy to go into some form of revenue sharing agreement for a lot of this older content but the insistence of upfront guarantees is probably holding them back in terms of knowing what to offer. If it is control Hollywood fears, they might want to look at the models offered by Hulu and Netflix and create their own versions, with either all-you-can-eat monthly subscription fee offerings or advertising-supported ones.

Unlimited availability

For many years, there’s been talk of a long-tail of content on the Internet, with lots of back-catalogs being available to smaller and smaller groups. The reality the data shows, however, is that such a long tail does not exist when it comes to video content. TV and movies from the past are not readily available and a substantial part of the back-catalog of video-based content is simply not available in a legal fashion on the internet. Some communities have filled the gap by posting streams on YouTube but those things are considered infringement under the current state of copyright law.

Why not put some changes in place to ensure that content is offered in an unlimited fashion. I would suggest some changes to copyright law to enforce this: the basic idea would be that copyright needs to go back down to the 20 year limit that is currently enforced around patent law but with a slight change. The right to put something in the public domain would be given to anyone after those 20 years are up but 20% of any revenue that is made on making said content available would have to be sent back to the previous holder of the copyright. Call it a 20/20 rule.

Such an approach would ensure an explosion of availability as communities that care about pieces of content would make them available online. Old TV shows and movies could thus be made available in a legal fashion either by individuals or companies and the only crime would be failure to pay the copyright holder, with penalties being set at a maximum based on the amount of views a show/movie has had (and the prosecution would have to prove its numbers).

It would also help with the “advancement of learning” clause in existing copyright law. Currently, by locking things away, copyright holders are actually keeping new learning from happening by making content inaccessible to anyone but the people who want to pay a high sum for it. One could argue such behavior is criminal in itself but few have made the case. Restoring access to content after a set period of time would restore that balance.

Killing the release window

As many parents know, the cost of going out to a movie is not just the price of the ticket. Often-times, it includes the availability of a baby-sitter and the cost of having that baby-sitter take care of one’s kids. So a $10 per-movie-ticket easily becomes a $50-75 night.

Today, the main reason one would go to a movie theater is availability. The movie industry has decided that there is an order to how movies are released: they are first made available in the movie theaters, then roughly 6 months later, they become available for purchase on DVD or BluRay, then about 1-2 months later they become available for rental on those media, then about another month after that, they become available for online and TV Video on Demand rental, followed by availability through premium cable TV and regular TV. This is called the “release windows” model.

Some smaller movies, like “Margin Call,” have tried a different approach, going for a same-day release everywhere. Generally, those movies tend to be smaller independent pictures but the model seems to make sense. Today, there is pent-up demand for first-run movies to become available on the same day as they are in the movie theater for roughly $20-30. The reason for that price point is that it is the perceived price of two movie tickets. By offering movies at that rate for online VoD, the movie industry could easily augment its revenue with few extra costs. Since most movies are already shot in digital format, the transformation to VoD would just happen earlier in the cycle and Hollywood would see its box office swell.

Do movies need to be seen in a movie theater? In an age of larger TV screen and surround sound systems combined with multiplexes offering smaller screens, the gap between the movie theater experience and the home entertainment one is shrinking. By making movies available on the same day as release, Hollywood would put a final nail in the “convenience piracy” argument and would gain wider support if (or when) it does go after pirates.

Live on-demand

Recently, the National Football League, which is responsible for American football signed a blockbuster TV deal with 3 networks, charging them an average of $1 billion per year for the right to broadcast up to 19 games per year. This means the networks are paying an average of fifty two and a half million dollars per game to broadcast the most popular game on American television. That translates roughly into an extra dollars on everyone’s cable bill.

But the question is: does it matter to most people? And how long will people be willing to pay for services they do not use?

A better model would be for TV stations to start offering streams to their station on a subscription basis, ranging from day-passes for $20 (for special live shows) to monthly subscriptions for $8-10. For most station, this would represent substantially more revenue than what they get today from cable companies.

Shaking up the system

The main challenge in getting such approaches to become reality is that some people in the current distribution chain will be disrupted.

For example, movie theaters may have to find new ways to cover their costs as increasing numbers of people would opt for watching movies at home. On the other hand, the theaters could have new opportunities in offering different types of communal experiences by tapping into the same streams as at-home individuals. With little reconfigurations, they could start providing things like subscriptions that would give one access to the movie theater at any time (in a way similar to a health club). They could also look to provide other types of experiences by bundling movies (eg. when the new installment of a movie series or when a new sequel comes out, show all the previous movies alongside it, making it possible for fans to re-experience a whole series).

On the TV end, cable companies would be disrupted by the changes initially but, as most of them are already offering internet access, they could look to re-packaging their offering over the IP stack, thus lowering their costs, and offer TV packages that are independent of the lines they are carried on. For example, Comcast could offer a TV package that is carried on Time-Warner Cable or vice-versa.

There is ample opportunity for changes in the content industry but the only players that appear missing at the table are the incumbents. When they finally wake up and realize that complaining about piracy will not achieve anywhere near as much as finding new ways to provide their offerings to customers, they will find their industry turbo-charged to new levels. Now the question, a week before Oscar-night, is how long until they are willing to make those changes…

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