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The Free Internet TV Era Is Coming to a Close

Free TV content on the Internet, notably via Hulu, has a lot of people exited, perhaps even canceling their Cable TV subscriptions. However, that teaser phenomenon isn't going to last. Hollywood places a lot of value on creative content, and the goal isn't to give it away, rather it's to create a new revenue stream. The viewer, that's you, will end up paying more. How this will impact the Apple TV remains uncertain.

For several years now, I have been subscribing to some key media related newsletters. They keep me up to date on the pulse of Hollywood and how those executives think. The one enduring theme is that people love to watch TV and movies, and creating new revenue streams, even to the extent of having people pay twice, is not out of the question.

For example, when you watched Eli Stone on ABC, you paid your Satellite or Cable provider the first time. But the recording was held hostage on your DVR with no way to move it to an archive, Later, when you bought the series on DVD or in iTunes, you paid a second time. This business philosophy is what, despite economic hard times, allows Hollywood executives to keep up on their Porsche payments.

Old TV from 1950s

The Teaser

Right now, the Internet is in teaser mode. The network studios are providing free content with limited commercials to capture additional customers, not relocate them. These are customers who may or may not also have Cable or Satellite TV. It's a question of time and space shifting plus convenience that lures may people onto Hulu or or the like.

Once these additional revenue streams begin to work, then the plan is to slowly start charging. That's why Hulu started out with registration and, later, a dedicated app. The idea is to have the viewer log on, designate as a customer, and ultimately pay up for special content, and ultimately, all content. Your frog will be boiled along the way.

Content Providers

There are content creators and content providers. Apple and Netflix are competing content content providers. They don't create content, they simply compete to deliver content and pass a lot of the money on the the creators. That's why we haven't seen Netflix available on Apple TV. Competitors to provide content usually don't play well with each other.

On the other hand, content providers often work deals with hardware manufacturers. For example, Netflix recently inked a deal with Sony to provide Netflix stream directly on some Sony Bravia HDTVs that have built-in Ethernet or, soon, Sony's Video Link. Because Apple already provides its own integrated hardware, the Apple TV, once again, there is little motivation for Apple to work directly with any one else.

Perils Await

The problem is that the collective surge of consciousness amongst the TV viewing community can often bypass what appears to be logical solution. For example, if events go in favor of Netflix, then some day, we could find ourselves automatically signing up for the consensus that Netflix is the natural way to watch movies on demand. Every other solution drops off our radar.

This phenomenon is why Hollywood puts as much content out there in as many different ways as possible. Movie theaters, Hulu, Blu-ray, DVD, Blockbuster, Netflix, Cable, Satellite, TiVo agreements, and so on. As content providers compete for your attention, some will flourish and some will fail. Hollywood, however, keeps raking in the cash.

Apple has fixated on the single idea that people will pay for TV and movie content sans commercials. Meanwhile, Hulu and others, keenly aware of the drop in advertising revenue these days, are working hard to generate new revenue streams. A day could come soon when you'll end up paying to watch Hulu with limited commercials. Don't think so? The history of the transition from free, over-the-air TV to Cable television proves how Hollywood executives think. Keep raising prices, develop new revenue steams and depend on the fact that most viewers just shrug and keep on paying. A few mavericks, cynics, and technical wizards notwithstanding.

Apple benefits from having a single, coherent mechanism in place with iTunes. Those who insist on not paying for anything will slowly become squeezed into paying on other delivery systems. Whether the Apple way or the Hulu way or the Netflix way becomes the dominant vehicle is really up to those companies, not the content creators. In that sense, Apple is on both solid ground and shaky ground.

Solid in sense that, thanks to Mr. Jobs and Apple's ties to Disney and content creators, the company profoundly knows that content has value and must be paid for. Shaky in the sense that if they don't keep up with the initiatives by other content providers, and Netflix comes to mind, Apple could end up losing the entire business base they've developed to supplement music sales. Keep moving, keep growing -- or be eclipsed.

In any case, no matter where your loyalties lie, the future holds the promise of more content in more ways and you'll pay for them all. Sometimes twice or more. The classic teaser, the free TV ride era is coming to a close. What Apple needs to do to come up a winner in this Hollywood double-pay bonanza is a subject that will have to wait for a future article.

9 comments from the community.

You can post your own below.

ChoMomma said:

charge advertisers like the ‘did’ before on OTA free TV, but limit the commercials like on HULU or tell me how long the commercial ‘break’ is going to be (like on HULU)so I know how long I have to run to the fridge or bathroom, or update Twitter or Facebook..etc…


MrSin said:

Here’s sincerely hoping you’re wrong, but media history would indicate you’re not. The wife and I gave up subscription TV at the end of 2007, with no regrets so far. Will have to see what direction the industry takes, short and long term?


daemon said:

Subscription free TV will be around as long as there are people trying to sell you something you don’t need.


graxspoo said:

For-a-fee TV on the internet going to be a big deal, except perhaps as a free add-on to cable packages. If I don’t want to pay a cable bill, then why would I pay for Hulu? I can download most of that stuff from torrents. I can buy a TiVo and record it over the air.
The basic fact is, people aren’t thrilled about paying for content through one channel that they can get for free through another. This is why Apple’s model of paying for TV shows isn’t popular.
I don’t see why the networks aren’t satisfied with having people watch ads on their internet broadcast the same way that we’ve done for over-the-air broadcasting for years. Perhaps its simply a matter that there aren’t that many people watching on the internet at this point, so they can’t charge much for the advertising. If this is true, then what actually needs to happen is that more people need to watch free internet tv, so the networks can monetize it. It would be killing the seedling before its sprouted to shut it down and turn it into a pay service at this point.


Zarko said:

I disagree.  Hulu and such surfaced as a reactionary move to fill a niche that already existed, and allowed the networks to capture some revenue from consumers who were otherwise getting their content illegally over YouTube or other portals.  Similarly, these services act as a replacement for TIVO and other DVR’ s—where users skim past ads and again Networks lose revenue.  If they try and squeeze too much revenue out of these streams they will lose it.

Since Hulu, I can say that I watch more TV than I otherwise would, and having become accustomed to short breaks, I can hardly stomach the long breaks on traditional TV.

Technology has put the Networks in a bind just as Napster gave the music industry troubles.  If Ad revenue isn’t going to sustain the newspapers, why should we expect it to prop up television producers.  The limited ad revenue of online streaming is not enough to bankroll the TV status Quo—but I’m not convinced there’s a practical way to make it more.


Intruder said:

I think you meant “excited”, not “exited”.


jack said:

Piracy is here to stay as a sea-change, because torrent-like distribution has never been possibly before, and because you can’t shut down file-trading without destroying the internet.  Companies can only charge for convenience, now; they can’t charge for access.  Ultimately, if a place like Hulu starts charging too much, we’ll just start torrenting.

Which is of course the genius of apple’s iPod strategy; people can fill their ipods with music they pirated, but apple still makes money by selling the iPod itself.  They make money on the razors, because the blades are becoming free.


iJack said:

I watch something on Hulu at least twice per week - usually something I have missed on TV.  The shows I watch already have limited commercials.


rpaege said:

One word:  Slingbox.  Get together with a friend (or friends), split the cost of cable.  Share the connection.


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