Surrendering advertising … killing bundling

Two things strike me about News Corp.’s battle to get cable fees:

(1) Again and again lately, the company is surrendering the advertising battle. In newspapers, it is saying that advertising won’t support its high costs and so it will sacrifice traffic and advertising the hopes of building build pay walls. In MySpace, the company handed over its advertising fate to Google and then couldn’t produce. Now in TV — which is where Murdoch fils says the future of the company lies — they’re trying to eke fees from cable operators.

(Under must-carry rules, a station can demand premium placement — which would benefit audience and advertising — or can demand a fee, but the cable company can decline to pay and carry the station. That’s the stand-off occurring now.)

(2) News Corp. may succeed at getting fees from cable operators, but I predict that will raise prices for consumers as more and more fees are passed along; consumers will be further enraged that they have to spend money for bundles of channels they don’t want or watch; and that will give regulators the cause they need to demand a la carte pricing — which will end up hurting and likely killing second- and third-tier cable channels subsidized by bundles and wil hurt cable operators as they end up charging less.

Add to this the paper-tiger nature of News Corp. threat to take Fox stations off cable. Oh, no, they taunt on crawls across the screen, you won’t get American Idol. Except we will, online, on Hulu, co-owned by News Corp. For News Corp. knows that the value of its own stations as ad vehicles is diminishing as the value of internet distribution rises. And so then this story comes full circle as News Corp. will likely threaten to charge consumers on Hulu — again, a capitulation in the advertising model.

What we’re seeing is the disaggregation of another media form. We don’t buy albums; we buy singles. We don’t buy newspapers or magazines; we aggregate, curate, and link to the best stories we like, bypassing editors’ packaging. We don’t go to bookstores to get the books the system decides to put on the shelves; we buy what we want from Amazon. We listen to radio less and listen to our own playlists more (a trend that will only accelerate as we listen to new forms of radio on our phones). Now we will end up picking and choosing TV channels and even shows, diminishing the power network and station programmers’ and cable MSO’s hold over us.

At the highest level, what we’re seeing is the death of the mass audience — and the value of distribution — and the advertising model that supported it.

I don’t think advertising is dead. I think it’s dying for mass companies with high cost structures. Advertising will shrink, as Bob Garfield argues in the Chaos Scenario, and it will migrate to new media and new forms. News Corp. knows that; every media company finally does.

So I think we’re seeing News Corp. milk the dying cash cow. Newspapers aren’t going to grow and will shrivel and sometimes die. The value of local stations is only going to shrink. (MySpace was a mistake.) So News Corp. is begging for cash wherever it can get it — from readers online or viewers on cable (via cable companies’ billing) — no matter that there’s no strategy there.

  • Yelliott

    I’m not sure a la carte will damage second and third tier program providers as much as it will cripple the cable operators themselves. Under that scenario they would lose a substantial amount of subscriber revenue because they can’t demand the same amount in fees per subscriber as they could under the current model. Comcast would never have been able to entertain the notion of buying NBCU if a la carte were already in place.

    In all honesty, I don’t see it ever coming to pass. Now, I’ll see if tags come to pass.

  • following and agreeing for the most part.

    but I cant figure out the realtime piece – i.e. live sports. seems like this remains an essential part of the bundling play (maybe less the advertising piece, of folks like pepsi keep moving money elsewhere)

    any specific thoughts on the role of sports?

  • Or, maybe, it was all something simple, just negotiating for higher returns.

  • Pingback: Advertising Survives « Wir sprechen Online.()

  • Robert Levine

    >>>In MySpace, the company handed over its advertising fate to Google and then couldn’t produce.

    This is flat-out wrong. MySpace sold Google the rights to sell ads against _part_ of its content – which Google couldn’t then sell. By your own “logic” – “he who has the links must monetize them” – this would be Google’s failure.

    • Not if you don’t have the audience, Rob.

      • Robert Levine

        That doesn’t matter – the issue was that users weren’t clicking through and ad prices declined. Google couldn’t monetize the links it had.

        The fact is that online ad prices are declining so substantially that only the sites with the largest reach or the lowest cost structures will be able to make money in the years ahead. Murdoch seems to realize that, which is why he got the best of Google in this deal. (A least admit that.) And that’s why he’s looking at other forms of revenue.

        To me, that seems smart. You say that organizations need to look for other sources of revenue, which is true. But you tend to deride all forms of revenue other than advertising, which doesn’t make sense.

  • @Shaun: Broadcast HDTV is still the best, most efficient technology for live sports and will continue to be. It will probably be one of the last if not *the* last refuge for big-budget advertising and traditional broadcast, one-way media. But if sports becomes the only thing on broadcast cable anymore, will people stand for advertising if that’s ALL they’re getting on cable that they have to pay for? I doubt it.

    Who knows? Cable is certainly the best and most pervasive medium we have at the moment for Internet traffic. I think cable companies can make a very happy living off ISP fees and either charge for live broadcast sports programming or give it away with advertising. But not both!

  • Don’t forget that in the UK and in Italy, Sky (aka Newscorp) is the satellite gatekeeper, and Murdoch Jnr has done is very best to beast Ofcom in the UK because they are being investigated.

  • I love it, I can read this stuff forever, keep em coming! Happy New Years!

  • Pingback: I Got Money in the Bank » Blog Archive » Surrendering advertising … killing bundling « BuzzMachine()

  • I agree the network vs. cable retransmission agreements may be the wedge that lets the FCC implement a al carte pricing for cable, satellite and telco video distributors. And al a carte pricing will unravel the video bundle just as the internet has unraveled the newspaper bundle.

    Not surprisingly, after their New Year’s Eve brinksmanship, Time-Warner Cable and Fox announced that, indeed they had come to a retransmission agreement in time to avoid a game-day blackout. Equally predictable, the financial terms are undisclosed.

    But their public spat may make a few Time-Warner Cable subscribers come to the realization that they will be paying a fee for the privilege of receiving over-the-air channels that they can get for free, in pristine digital form, with a $39 roof-top antenna. Moreover, these are channels that enjoy monopoly access to the public airwaves.

    The former FCC chairman, Kevin Martin, tried to push his a la carte agenda on the basis of “family programming” (“Why should you have to pay for programming you find offensive?”) but that agenda lacked widespread appeal, and besides, most families know how to skip through channels.

    But if savvy cable subscribers ask to have their local over-the-air channels — and the associated retransmission costs — removed from their cable lineups and bills, that may give the FCC sufficient grounds to mandate a la carte pricing, at least with regard to OTA channels.

    • john

      Why would consumers pay for “retransmission costs” from any entity — local stations, broadcast networks or cable stations? This entire infrastructure will ultimately disappear as un-necessary and un-supportable in any business model. 4g networks and then 5g networks will hasten this infrastructure demise just as sure as it will appointment viewing.

      • Tex Lovera

        Is the bandwidth problem really any better on 4g/5g than it is on FIOS when it comes to streaming TV? I don’t think that will be the demise of cable/DSL.

  • David

    When broadcast stations migrate to cable, please let the standards they tried to uphold move, also. When cable stations can pass off for news the drivel they send out now, the general population will be less and less truly informed, and more and more misinformed. How will people get the actual fact? Chances are, not from a media company looking after its bottom line. I believe that’s where the real problem with new lies –– when they have to choose between telling the truth and cushioning the blow for advertisers.

    • Tex Lovera

      What “standards”? The same ones that let CBS push faked National Guard memos (to name just one instance)?

      There is no need to “enforce standards” – the viewing public will decide for themselves! If you don’t like what you see, change the friggin’ channel!

  • So does Google’s move to monetize YouTube by charging for access to premium content also mean it has finally admitted that advertising won’t support its high level of costs?

    Or is it simply – and sensibly – exploring multiple revenue opportunities? Which is, of course, exactly what News Corp is doing.

    • Robert Levine

      Ian, just because two companies are pursuing the same strategy, doesn’t mean that Jeff can’t have two totally different perspectives on it. Just look at Google’ two-faced attitude toward openness and ask yourself, WWGD?

  • Rich Gombert

    I hope that either way the cable companies drop News Corp. I do not watch any of their programming (the local sports casters on the local sport channel are terrible) and I don’t care to watch any of their programming.

  • Paul Evans

    Current fee negotiations may not simply be milking the most from a dying cow. They are likely the initial steps toward the demise of current cable and satellite broadcasting systems.

    The limitation for current cable systems is their infrastructure. They can’t sell to subscribers that aren’t reached by their wires. That’s a serious problem with Verizon moving heavily into selling cable TV via FIOS, since Verizon has a nearly national network of wires, and satellite companies that can reach any home with a view of the western sky.

    Comcast, which is attempting to purchase NBC, may use their own site (Fancast) or HULU as a way to provide paid content a la carte or to subscribers. That would give them reach far beyond their wires. But to make that content exclusive they will first need to escape deals that allow others to broadcast that content. Their ongoing spat with DirecTV over VS may be a test case. Most analysts agree Comcast’s interest in NBC/Universal has nothing to do with the traditional broadcast network, which many believe has a failing business model. They are purchasing the popular cable networks and Universal movie content which they may use to jumpstart Fancast ( as a paid internet TV vehicle or folded into the jointly owned HULU service. HULU ownership is shared by NBC and Murdoch’s NewsCorp.

    Perhaps it is a hollow threat that entire networks will be purposefully taken off the air, but it is possible that their most popular content will be migrated to internet TV sites as their owning companies make plays to compete against new kids such as Verizon or for more money than can come from increasingly homogenized cable companies. The networks may then die for lack of a reason to continue living.

    The big kink in all of this is, of course, that the internet lacks the bandwidth to handle all of this content streamed on a mass basis. And net neutrality may cut the legs out from under internet infrastructure owners, such as Verizon. But it does look like there will be lots of jockeying in the next few years as various companies position themselves for what is looking like the shift to IP TV in the US.

  • Pingback: » HGTV & Food Network vs. Cablevision: Vote with your wallets, people &raquo

  • Isn’t the analogy here blogs.

    There has been much talk of many sites charging for content (starting with news sites) however, whilst others continue to give stuff away, I can’t see that taking off, other than if the content is substantially better.

    Having traffic is one thing, monetising it is something else.

    See the post on Copyblogger about the site of the Fake Steve Jobs he recieved 500k hits in one day and made a $100 from adsense.

  • Advertising is the bread and butter of top companies and that goes the same for small to medium scale businesses. We need that to increase traffic and sales. Every entrepreneur knows the value of advertising and we therefore invest in that aspect for our businesses.

    local advertising

  • Pingback: The New York Times and the Cockeyed Economics of Metering Reading | Media and Tech()

  • Pingback: links for 2010-01-19 « Michael B. Duff()

  • At the highest level, what we’re seeing is the death of the mass audience — and the value of distribution — and the advertising model that supported it.

  • My online habits today alone are proof that your article bears you out I clicked 3 different sites off of Buzz Machine I am one who goes on New York Times & read my limit of articles & NYT cuts me off I only want the one or two stories I can’t get here in Houston one sad daily newspaper So I do what I do