07/06/2010 05:12 am ET | Updated May 25, 2011

TV Business in the Digital Age

This week, various publications have published articles detailing why the TV business isn't going to be like the music and newspaper business. For the most part, these articles go in-depth of how the business works and what the future of this multi-billion dollar industry is.

In summary:
  1. Cable companies, such as Time Warner Cable, Cablevision, Comcast, etc. pay a certain amount of money to distribute content from distribution companies.
  2. Distribution companies, such as Disney then have 2 income streams -- advertising and subscription revenue. This subscription revenue is as high as $32 billion annually.

This year, we've already seen big debates amongst distribution companies and cable companies. These arguments have been very public and are only the beginning.

TV is still strong because of the underlying economics. Cable companies pay distribution companies a hefty sum to distribute their content. In return, they have a significant leverage over distribution companies.

If a company decides to make all their content available for free, they lose a lot of revenue. A small fraction of the estimated $32 billion is still a significant amount of money. Why would a cable company pay anything to content companies if the content companies are distributing that same content for $0.00?

For example: Why would Comcast pay ABC anything for Lost if Lost is being made available for free at the same time? This gets even more complicated with the evolution of TV sets that can directly connect to the web. Today, many people connect to the web via a cable modem. That same cable delivers their TV content and allows them web connectivity.

For the most part, TV executives have approached this very tactfully. Unlike newspapers, they realize the value of exclusivity. Why would I give the New York Times a dollar every morning when I can read the same content for free on nearly every device I own? To add insult to injury, paying subscribers are also missing out on interactive features, such as online video. In a report published by TubeMogul and Brightcove:

"Newspaper and magazine publishers have the greatest number of video players across online media properties."

Based on the statement above, why should consumers pay for newspaper subscriptions?

TV has done the opposite. They know that very few consumers would pay for content if the same content is available for free at the same time.

And, this is where TV Everywhere comes in. In short, TV Everywhere is an authentication system. It allows paying cable subscribers to view premium content on the web at no additional cost. So, if you subscribe to Comcast and can prove that you are a paying Comcast customer, you'll have access to TV shows and movies.

It's going to be a difficult and complicated system. And, it'll be one that will have a lot of roadblocks in the near future. However, for TV companies, it is a step in a familiar direction.

Today, TV isn't going anywhere. Their digital strategies will continue to evolve to make sure that they're receiving sufficient compensation for their content.


Aanarav Sareen is a content creator and digital media consultant. He blogs daily at Digital Media Business and publishes the monthly Digital Media Newsletter.