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Cutting Out the Middleman

Vintage TVs

Vintage TVs by Derek Thomas, available under a Creative Commons Attribution License 2.0.

 

A recent article by Andrew Wallenstein published on Variety’s On The Air web site talks about the comedian Louis C.K.’s decision to offer his next show strictly behind an internet pay wall, instead of selling the rights to traditional cable broadcasters for distribution.  There has been much chatter suggesting that this is the first step in the elimination of the middleman from the broadcast distribution chain, impacting the broadcaster’s ability to capture critical distribution revenues. With the internet offering the content creator direct access to the consumer, content creators/owners (in this case, Louis C.K.) have the ability to sell direct to the viewer without having to go through the hassle of rights contracting or the burden of sharing revenues with cable/satellite providers.  Clearly this signifies the end of broadcast as we know it! 

 

Let’s flash back to the summer of 2003, when Pearl Jam decided to bypass their record label and sell music directly to their fan base on PearlJam.com. Did this not mark the beginning of the end of the music industry as we knew it?  There was another major industry event that also occurred in 2003, just two months ahead of the Pearl Jam announcement, when Apple announced the launch of its iTunes Music Store. You remember iTunes?  This was Apple’s attempt at aggregating and then selling music over the internet, a strategy that clearly went against two dominant industry trends, (1) free music sharing, and (2) artists selling direct to consumers over the internet. Clearly Apple didn’t see the “writing on the wall”. So why did iTunes report record breaking revenues of $1.4 billion in Q2 2011?

 

One argument is that perhaps Louis C.K. or Pearl Jam, although having a strong dedicated fan base, may not have strong enough brands to profit from selling directly to viewers. The pundits suggest that direct distribution is a viable business model for only strong media brands leaving distribution through traditional broadcasters as the place for only smaller players. For example, there has been much talk about the NFL selling the Super Bowl directly to viewers over the web. If the NFL can’t profit from a direct sales model with the Super Bowl, then who can? Well, just last week, the NFL renewed its broadcast rights with CBS, Fox and NBC, contracting the distribution of their content through 2022, including broadcasting the Super Bowl.

 

At Avid, we have been having these same conversations with our major broadcast partners in an attempt to understand the implications of internet direct-to-consumer distribution, and the impact of the tablets/smart phones and pay-per-content apps.  All the broadcasters seem to agree on the idea that having an easy direct to consumer distribution process does not equate to eyeballs (or ears for music).  So, simply having a web site, or an iPAD app, does not guarantee success (revenues).  In the industry we talk about creating “content destinations”, brands that are strong enough that you immediately go there to source your media. For example, when you want breaking news, you might go to CNN.  Or, if you want to watch catch-up TV, perhaps you go to Hulu.  Or if you want to listen to a new song, you go to iTunes.  Because these brands have established themselves as content destinations.

 

Broadcasters are really good at positioning themselves as content destinations, they not only have the reach, but they also have access to the content. More importantly, they have the marketing power to drive people to their brands, something Louis C.K. may not be able to do for his site.  Broadcasters also agree that content aggregation still plays a major role in the market.  Think of a world where every production house, every music artist, every independent film maker, and every major broadcaster relied on a direct to consumer model. Cutting through all the media noise would be a painful experience for everyone, especially the consumer. There would be no quality standard, perhaps no delivery standard, and no pay model standard.  So, by going it alone, are Louis C.K. and Pearl Jam actually doing themselves, and the industry, a disservice, perhaps reducing the overall ability of the industry to capture revenue?  It may be that content aggregators, broadcasters, and distribution middleman in general still serve an important function in making sure that the distribution pipeline is filled with well-regulated, high quality content.  If so, perhaps they are here to stay.

 

“Where there is a large amount of traffic, there will always be the need for traffic cops.”

 

Special thanks to Johann Lau and Christopher Payne-Taylor for their insights on this issue.

 

Rich

 

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About Richard Gianattasio

In my role on the Avid Market Solutions team, I analyze market trends and requirements specific to the broadcast market, and define the long term strategies and solutions required for success in this segment. My focus includes studying the changing requirements for the broadcast newsroom, the specific needs of the field journalist, and the implementation of cloud capabilities. I hold a BS in Mechanical Engineering from RPI, MBA – Marketing degree from UCONN, Associates degrees in both Management and Program Management, and currently pursuing my masters in IT Engineering at Brandeis University.

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