“Free Internet TV” Will Hurt Consumers

Claims of “FREE!” drive purchases of cheesy TV products from Shamwow’s to those (supposedly) Amish heaters. But somehow, it escapes notice of the tech press that equally cheesy claims of “free” run deep amid marketing of the internet.

Free music, free newspaper articles, free magazines, and now supposedly free television. Everybody offers free. And it’s no surprise that consumers go for it.

In fact, this idea of making millions by giving things away was found in many of the irrational “business plans” that dotcom’s claimed would make their investors rich. It didn’t work then, but maybe things have changed.

How is “free” going for Wikipedia”? Wikipedia is the poster child for internet “free”. Except they are deep in the midst of a campaign attempting to raise $16M in donations just to keep their doors open. It’s a campaign that pitches quite hard. Makes me think that even for a donated content online Encyclopedia, “free” isn’t quite as powerful a business plan as we thought.

How is “free” working out for newspaper and magazine content? Bob Garfield wrote an AdAge blog entry recently about the incredible dark side of “free” print on the web.

He notes that print on the web is driven by sites that “aggregate” (bring together) content. Where do aggregators get good content? From newspapers or magazines. Except aggregator sites deliver content to you for free.

In a fit of business insanity, internet copyright anarchists imply that revenue from the hated banner ads on the site of the aggregator somehow trickles back to pay for the hard work it took to create that content. (Hard work is required to make well written, well researched, well fact checked, and well published content.)

Well, the revenue doesn’t trickle back. Garfield notes how “free” access has undercut the economic model that created good content in the US. But he also notes that even those aggregator sites are struggling to keep in business. Guess this model is so flawed that you can’t make money even when giving away content you didn’t make.

How would “free” go for TV content? Don’t expect too much. And note that it’s a double “free” idea that is being used to entice consumers to internet TV – payment free and advertising free. (Secondarily, there’s the idea that they can watch anything they want, anywhere they want, and on any device they want. But while consumers will pay for DVR’s, there’s no evidence of willingness to pay for it online.)

Double “free” is publicized with massive money from manufacturers of internet TV sets, creators of internet TV sites, the venture capitalists behind them, and the tech research agencies paid by the venture capitalists – all drooling at the idea of tapping TV’s big old vein of pure financial gold.

And, frustration with out-of-control cable TV costs means there’s very high consumer interest in cost savings. But do consumers really want what double free TV would mean? I don’t think so.

Double “free” TV over internet will kill content. The existing economic model supports an incredibly well developed, sophisticated, sometimes dysfunctional, but essentially effective eco-system – an eco-system that creates good TV, offers the single advertising medium which delivers the best economic impact and delivers most of what consumers want.

The net results for consumers would be the death of programming. Google claims they’ll stitch together YouTube content to make programming (of course, selling their own advertising time within that content). Don’t expect much. The existing ecosystem turns out everything from niche to mass hits – 30-Rock, The Daily Show, Survivor, Amazing Race, NFL Football, Antiques Roadshow, and CSI Miami on a big screen (I just can’t include “Darth Vader, Night Clerk” in that list). But it costs millions to deliver those shows – often over $1M per episode.

There’s some good news for TV. As Mark Cuban has pointed out, TV is different from print and music. Networks ARE aggregators. That means TV networks have been fighting this type of battle all along. They also seem to have learned from print and are being quite stubborn about protecting their right to get money in return for all the money they invest. Consider

– Hulu (funded by networks) started “free”, but is beginning to use subscriptions.
– The networks fight regularly with cable operators to maintain a viable economic model – even if that means people don’t get to see the World Series. We have to assume they’ll use all means to fight against a double free idea that hurts their business.
– An example of this seems to be that while networks work with Apple, they don’t work with GoogleTV. Maybe they know Apple wants to create viable media business models. But it seems the only reason to create GoogleTV is to try to steal advertising revenue that currently goes to the networks – revenue that pays to for programming.
– Now Hulu (funded by networks) has made it so that you can’t watch their programs on GoogleTV’s.
– Network testing seems to indicate that consumers are willing to watch online TV with traditional advertising breaks. In other words, the double free idea doesn’t even seem necessary for internet TV to work.

Internet TV should have a tremendous future and it will be stronger if the industry stops the promise of double “free”. Internet TV’s future comes with the truly exciting opportunity: integrating programming with interactive features that make the programming more valuable.

But sadly, companies aren’t talking about delivering more value. They’re getting wrapped up in dead ends – like removing advertising when there doesn’t appear to be monetized market power created by doing so.

So next time you hear someone talk about how great it is to get free programming on the internet, know that they’re really talking about a future of really bad programming. You may not like programming today (it’s fun to complain). But just imagine what it would be like in that free future.

Copyright 2010 – Doug Garnett

About Doug Garnett
Growing retail based businesses through television, DRTV, and all forms of video. Doug is a strategist, executive producer, director, author, & teacher.

5 Responses to “Free Internet TV” Will Hurt Consumers

  1. Pingback: Tweets that mention “Free Internet TV” Will Hurt Consumers « Doug Garnett's Blog -- Topsy.com

  2. John says:

    Hi Doug,

    This is an interesting article. I don’t think people are expecting “double free” TV. I know that I am willing to accept commercials as a part of my internet TV experience. And look at Google, doesn’t cost me a penny to use any of their services, but they are rolling in money. Last time I checked, my high-speed internet was costing me $56 a month, that’s not free. I don’t think the model has been defined yet, but I do think there are plenty of great ways for Video content providers to make money via the internet and at the same time provide consumers with unprecedented access to the content. cheers, John

    • Doug Garnett says:

      John –

      I appreciate your thoughts. What I’m trying to reflect is a broad sense the market. When I talk with people about their use of the internet to view TV, what I hear back is primarily the “double free” along with some interest in the on-demand availability.

      But even if it became a mass movement with your type of usage we’d have these same problems. That $50 a month is already spoken for merely to get the basic functionality of the internet for browsing and the like. So, here’s where I think the “free” idea is so critical – even to you.

      Assuming your way became mass market, are you willing the pay the additional $60 a month it would require to deliver enough bandwidth to reliably support your entire neighborhood consuming TV through the net? (Because there clearly isn’t bandwidth for mass adoption today.) You probably wouldn’t want to pay that. So if we lose cable, then everyone will suffer slow distribution.

      Are you willing to pay another $100 to $300/month for programming (because print experience as well as Hulu & Netflix experience show it’s unlikely that there’d be a way to charge enough advertising money to pay for the programming)?

      Add this up and for a realistic TV over internet, you’re easily having to pay twice what you would today for cable.

      And this gets us back to some flavor of “free” – or perhaps in this case a lie about the true costs. If the internet TV enthusiasts were being honest about THESE costs, very few would want it. So they ride the coattails of the “free” ideal.

      Love the discussion, though. I don’t expect my thinking to be 100% accurate and enjoy searching out even better, clearer answers.

      …Doug

      • John says:

        Hi Doug, you make some good points about the infrastructure to support internet TV and advertising dollars being spent on internet TV services.

        The US is way behind Europe and Japan in terms of broadband internet service. It is slower and more expensive here. I do believe the situation will improve, driven by advances in technology and upgrades to the infrastructure. I also expect the cost of high-speed internet to come down as more options are available to consumers.

        Regarding the advertising dollars, I think the advertisers will follow the consumers. As soon as advertisers see that there are more consumers watching internet based content, they will be willing to spend more money in that arena.

        We certainly are not at the tipping point yet, but there is a transition taking place and I do believe that we will see Internet based content playing a much larger role.

        If it really would take $120 for internet service + $300 for TV programming, then it would never happen, but it seems like those numbers are based on an outdated model that is certain to change…

        Another interesting discussion is about the attitude of people towards online content. It seems like people expect it to be free because it is online. This is a challenge that all providers of online content (video, audio, and print) have to face and I’m not sure what then answer is…

        cheers,

        John

      • Doug Garnett says:

        Thanks for the thoughtful reply. It’s all quite complex with a lot of open questions and unkowns. It will be an adventure watching things develop.

        I would like to take up the question of advertiser dollars. That’s really my special area of knowledge. So, some thoughts.

        Advertisers are already quite frustrated by the fragmentation of their audience with audience spread to cable. And where the web is a strong advertising medium is reaching splintered fragments of audiences. There’s no reason to believe that would change with much of what people claim is their vision of internet TV.

        So, I can’t see the web ever becoming very effective at reaching mass audience.

        It may not matter because advertisers would have no choice but to follow the people. And what they find online is a ghost-like echo of true marketing power. That harms advertisers. (Of course, “advertiser” means a company who employs a lot of people and who needs advertising in order for those jobs to exist.) And, in the end, would be difficult for our economy.

        Many ad agencies won’t tell you this because they’re making so much money charging their people on new media projects and getting press for those campaigns. (Fundamental to ad agencies: They make more money on people than media today.) But, while agencies make money from new media, I don’t think most advertisers do.

        So, where does that leave us? I can’t affect much. But I sincerely hope that the networks and cable operators respond well to the challenge of internet TV so we don’t lose a structure that’s been very important to our economy.

        The operators, for example, responded to the threat of satellite TV by taking satellite’s consumer value and co-opting it into their services. We’re beginning to see similar things from Comcast. And that bodes well for the future of a powerful medium that people fundamentally like.

        Again, it’s great to get your thoughtful comments.

        …Doug

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