Cable Tries to Save Itself

Many of you may already know that I believe cable television companies are heading to the slaughter house.  The number of entertainment and video distribution substitutes that are popping up on an almost monthly basis is hard to keep up with. There are many other reasons why I think their business is in trouble, but I wouldn't dive into those right now. While doing my nightly industry reading I came across an interesting article in the economist that talks about Time Warner's plans to save cable television. The action plan included Time Warner spinning off its cable operations business which already happened in March, trimming its film production business, and kicking AOL to the curb. Even more interesting, the plan also called for testing a scheme to put cable programming online via what they're calling TV Everywhere - an interesting choice of name since TV is practically everywhere already. 

This strategy shouldn't come as a surprise. Video content providers like Time Warner have paid close attention to what has happened to the music and newspaper industries and plan to avoid their mistakes. Specifically regarding the music industry, Time Warner plans to give their customers what they want instead of standing in their way. Something the music industry failed to do then had to watch as their customers turned into pirates and cannibalized their industry. The article seems to suggest that the mistake of the newspaper industry was in giving customers too much content for free initially and now they are unable to charge for it. Further, they suggest one major concern of the content providers is that the brands they have spent so much time and energy building offline, like CNN, will be devalued if distributed via current online distribution channels like Hulu. Unlike TV advertising "Hulu does not sell advertising on specific shows or networks; rather, it targets demographic groups". This is the fundamental problem of old media's transition to online.

In old media, magazines/newspapers/TV, advertisers will pay a premium to be placed on a particular page of a publication or injected into a particular TV show. The more "premium" the content the more advertisers are willing to pay. In the world of online media the concept of premium content is much different. In the highly measurable, finitely trackable world of online advertising premium content is really any content that drives conversions for an advertiser. What that means is the notion that advertisers will pay higher CPMs to run advertising on Time Warner's content just because it has a great brand doesn't necessarily hold water online. Any advertiser with half a brain is looking directly at the ROI. Whether the conversion comes from user generated content on YouTube or a home video on all that matters to the advertiser is that they got the conversion. Hulu understands this and is building out targeting options and sales packages that cater to this advertiser demand. Time Warner, as has many old media companies making the online transition, can't quite wrap their heads around this phenomenon just yet. It will take them a while, and hopefully they wouldn't make a complete mess of things by creating distribution silos or putting up too many digital fences. 

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