This week marks the start of the television “up-front,” when advertisers traditionally buy much of their commercial time for the upcoming season.
No one’s quite sure how it will go this year: advertisers are worried about the rapid proliferation of the digital video recorders that let viewers zap their commercials, so they may see television as less valuable. Marketers are also reserving more of the dollars they once spent on television for the Internet. But at the same time, the television folks are embracing the Internet, with one big advantage: as the last medium to come to the Web, they have some history to look back on. And both print and the music industry provide key lessons in what not to do.
Magazines and newspapers were the first on the Web in the mid-1990s and adopted the then-reigning ethos: everything for free. We can always start charging later, went one theory.
More visionary folks saw that the Internet would someday be an incredibly powerful advertising medium: We’re going to make it up on advertising. But it turned out there is enormous competition for ad dollars on the Web — community sites, games, search engines, and soon even application software, all competitors that print never had to face in the real world.
While many magazines and newspapers are attracting a large Web audience and lots of advertising, the revenue may never match what they made in the real world. Print’s future on the Web: downsizing.
Next up was the music industry. Early on there were smart people in the recording industry who saw the potential of legal downloading: What business wouldn’t like to sell direct to the consumer with no physical distribution costs?
But the industry was both complacent and overly concerned about upsetting the existing CD distribution chain. Thus they dragged their feet on downloading and were entirely overwhelmed — with no legal alternative to offer — when Napster appeared in 1999. Seven years later, illegal downloads still vastly outnumber legal online sales.
Now that video-capable broadband reaches more than half of American homes, it’s television’s turn to leap. And they’re doing something that’s collectively very smart.
Five networks — ABC, NBC, CBS, Fox and WB — have announced a panoply of varied Internet initiatives that include both streaming and downloading, both for-pay and advertiser-supported, and even a deal with BitTorrent, the current number-one technology used by those offering illegal video downloads.
Some of the approaches virtually ignore the local stations (the current distributors); others cut them in on the deal. When you step back, it almost looks like an industry-wide research project, throwing a half-dozen business models at the wall to see which ones stick. As soon as winners emerge, you can bet the rest will follow — television executives are, if nothing else, very good at copying each other.
But what’s the Internet upside for television? Print and music, of course, get to shed the costs of physical distribution — no more mailing magazines or shipping CDs.
Television, on the other hand, is already electronically distributed, in a way that makes lots of money for the networks and stations. But there’s a different benefit for television — getting out from under the cable and satellite owners. It didn’t take long, for example, for network TV executives to figure out that interactive advertising was going to be controlled by the set-top box.
In other words, if CBS sells an ad where the viewer clicks on Ashlee Simpson’s sweater to buy it, under the current distribution model the cable or satellite company is going to get a cut of the action. With video delivered on the Web, the network could get 100 percent of the deal.
So when do we all start watching television on the Web? Certainly not anytime soon.
Computer manufacturers need to sell more media-centric machines, such as Media Center PCs, that connect directly to the big screen in the living room. Delivery to cell-phones must also be standardized and simplified. Apple could provide a boost when it finally provides a living-room Mac with full television compatibility— not to mention a video iPod phone.
Television producers have to be convinced that digital rights management systems will protect them from the illegal downloading of the music industry. And then Internet picture quality needs to improve. That last is inevitable: video compression and bandwidth will only get better. And MP3s and iTunes have already demonstrated that consumers will give up some quality in return for convenience and control.
Finally, it’s once again worth looking at history. Ten years after newspapers went onto the Web, print circulation is beginning to drop substantially for many papers, while their Internet properties grow by double digits. On the music side, the value of legal downloads tripled in 2005 even as CD sales fell 7 percent, and neither trend is slowing.
It’s only logical to assume that five or 10 years out, the television landscape will see a similar shift. Cable, broadcast, satellite — plus the new telephone company fiber-optic systems — will still deliver lots of video, especially high definition. But both consumer video buying and advertising spending will increasingly move to the Internet.
It’s still very early days for the television industry on the Internet, but so far it seems to be doing an excellent job at keeping its business options open. Ironically enough, even though Internet entrepreneurs have always glorified the “first-mover advantage,” television may demonstrate that the last to arrive at the party may occasionally still have the best time.
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