Death of Television Channels?

Posted by admin on May 1, 2009 in Creating New Markets |

Very interesting post from the New York Times on how the cost of content is impacting the profitability of the cable companies where as their dumb pipe business of internet services is taking off.

I’ve been looking closely at the recently announced first-quarter financial results of Comcast and Time Warner, the country’s two largest cable systems.

Matt Rourke/AP

Over all, these companies are doing quite well, making more money than ever, with lower capital investment. But if there was one weak spot jumping out of the numbers, it was not their Internet business but their traditional TV service, where the cost of paying for content to put on all those channels is rising faster than subscription fees.

via The Problem With Cable Is Television – Bits Blog – NYTimes.com.

As a result, I’m having an internal debate on the potential death of channels.  Channels are in some ways the original website portals, locations on the frequency spectrum where you could find content, typically served by a single company but provided by many.  The success of the business model was predicated that the consumer would experience advertising served during their time on that channel/portal.  The channel would gain sufficient revenues from selling these ads to purchase new content, produce their own content, and hopefully make a tidy profit at the end of the day.

As the content gets more expensive and more people are consuming content by selecting specific content from the Internet more than affinity portals on cable networks (Sci-Fi or TLC or ESPN), the channels will start to lose ad revenues while their content acquisition costs continue to increase.  Portals/channels are no longer required for customers to discover and experience content of interest (think You-Tube, Hulu, etc.).  As a result, the blanket advertising model is crumbling.  As TV’s and laptops both begin to access the same content sources from the net, bypassing cable channels all together, there is an opportunity to tailor ads directly to the consumer based on the real time personal channel creation.  By leveraging membership and viewship rosters, YouTube, Roku, Hulu, and others can insert more pertinent ads to the individual or household consuming content outside the traditional cable channels/portals.

Couple this with the increasing quality of prosumer generated content and you have a rising ecosystem that could drive the cable companies into internet service providers at a more rapid pace.  I believe that this will culminate in the death of the channel as we understand it today.

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