Interviews with Digital Media Thought Leaders

Internet Video Subscriptions

Podcast Audio | Posted by Phil Leigh on March 2, 2010

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Today’s post is a reprint of an article I wrote for Online Video Insider on March 2, 2010.

By: Philip Leigh

Since Shawn Fanning launched the original Napster about a decade ago CD music sales dropped by 50%. Unfortunately, legitimate digital downloads recaptured less than half the total. Given steadily compounding improvements in computer, storage, and network bandwidth, video-centric media companies have been apprehensively awaiting the new media Tsunami on their own shores. Many industry executives conclude it is now arriving. It appears their response is to (1) charge new incremental monthly fees and (2) increase existing ones. In short, after a decade to prepare, it looks like the industry’s most imaginative solution is to raise prices.

For example, executives of the companies owning Hulu.com want the website to charge a fee for “premium versions”. It seems their notion of a premium service is one that includes satisfying access to the most popular TV shows. Presumably, the basic service would provide only unpopular shows and maybe sharply restricted access to popular ones. Similarly, both cable and broadcast networks want increased monthly fees from CATV and satellite operators. There’s little concern that such increases will compel operators to pass along the fees to subscribers.

Unfortunately, other media companies are simultaneously concluding that their content merits a monthly fee as well. For example, The New York Times will start charging non-subscribers for unlimited online access next year. The Wall Street Journal already requires an incremental fee for an e-book version. Similarly, some Internet radio stations charge for access beyond a monthly quota of listening time. Finally, it’s reported that some producers want an extra fee from “TV Everywhere” even though the service is supposed to be limited to existing CATV and satellite subscribers.

There are two reasons to be doubtful about the success of plans that rely primarily upon raising prices. First, as author Matt Ragas put it, “We all love the information highway, but we don’t want to pay a toll every five miles.” Second, incumbent media companies may be overvaluing their own content.

Matt’s remark led me to examine my own subscriptions which are summarized in the accompanying table. Already I pay over $245 monthly for telephone, Internet, and video entertainment. Other services under consideration would advance the total to nearly $300. Once tabulated, the analysis makes me look for ways to cut, instead of add, services.

Monthly Fees

Naturally, I’ll focus on the bigger numbers first which come from the cable and wireless providers. However, if The Wall Street Journal editorial viewpoint prevails, the carriers will likely increase ISP fees even higher. That leaves consumers with thinner wallets to buy additional services from anyone else, including The Wall Street Journal. Even if cable and wireless charges don’t increase, consumers may calculate that they’re already paying too much.

As for content value, the box office success of last October’s “Paranormal Activity” might serve as a reminder to media producers that we characteristically undervalue the works of people who are not like us. Although the movie had a production budget of only $15,000 and was set in a single San Diego home, by the end of January it grossed about $180 million.

Much like Internet publishing annihilated the value of the printing press, low cost video cameras combined with digital editing and an abundance of people seeking film careers necessitates an introspective reassessment of Hollywood’s self worth. In short, conventional TV and Hollywood studio production budgets are extravagant. They were enabled by a lengthy era of scarcity imposed by high costs for filming and editing facilities as well as personnel with arcane skills. Importantly today’s equipment costs are much lower and digital technology considerably simplifies previously esoteric skills. “Paranormal Activity” is more than an isolated echo of “The Blair Witch Project” which was a similarly successful low-budget movie produced about ten years ago with little-known actors. Years from now we’ll look back to see it as data point in a connect-the-dots trend line pointing toward a future of content abundance.