Finding the Price Points for a New Generation of Television Technology

I think James Poniewozik is largely correct that while the networks may be upset about new technologies that let viewers skip ads, they might be better off trying to find fee structures that are responsive to new technologies:

But they want—and a good business would provide—many more ways of paying, if not with their eyeball attention to ads, then with money. (There’s the possibility, for instance, that networks could raise fees to networks like Dish that offer ad-zappers, which fees could be passed along to those who ad-zap, to replace lost ad revenue.) People want to be able to buy episodes, subscribe to shows, watch on their own schedule, and bypass ads they don’t want. In the process, the relationship of people to TV networks will change: right now, networks’ true “customers” are the advertisers, because they’re the ones who pay money.

The TV business is changing from one with a single main revenue source to one with a lot of them; the transition is bound to be painful for the networks. But quashing an option your consumers want is the wrong way to forestall that pain. You can’t pull the plug on technology forever, and if that’s your best response to change, it’s your own fault when consumers start tuning you out.

I also think this is easier in theory than in practice, and is going to take years to sort out. One important experiment will be to see how consumers respond to a Netflix or Hulu Plus pricing scheme that’s more reflective of the actual cost of supporting that content and the production of higher-quality original content. A second step will be to see how consumers behave if they’re faced with regular but reasonable hikes in the prices of those services, which are responsive to both renegotiated content contracts and rising wages and costs. I would like for it to be true that people are willing to pay for content at a cost that will support a fairly diverse array of high-quality programming, but as I’ve written before, we don’t actually have proof of a viable financial model yet, and it’s not wrong for the networks to be cautious about blowing up an existing business model in favor of optimistic projections.

We have a sense of what we’ll pay for three distinct products in this market. First, there’s what people will pay for bundled cable, both in terms of what prices will get them in the door and what prices won’t lead them to quit at the end of a first-year contract. We also have a sense of what we’ll pay for a single episode of television, because iTunes and Amazon have established that price for consumers much in the way cable companies did. And we know we’ll pay $8-$30 a month for streaming video and DVD exchange services. As consumers, I think we have little sense of the ad revenue we’d have to make up if we were to replace advertisers as networks’ customers. I’d be excited to see a good experiment in how to price out new models, but it would take serious negotiation between distributors and the networks to set one up, and it would need to include both coastal and rural consumers to account for differences in broadband penetration and avoid preference bias. If folks have ideas on how to make such an experiment work, leave them in comments. It’s time to start thinking beyond the simple idea that evolution is good and important, and start talking in greater detail about how we get there.