The TV world has been able to combine license (subscription) revenue and ad revenue models. Online subscription and ad models are mostly separate. Will they ultimately be combines and if so how?
Chapter 1: The dual-revenue model (1:30)
Most traditional television channels have a dual-revenue model. They get license fee payments for their content from pay TV operators and sell advertising against the shows. The balance between ad and license revenue is different for each network, but online things appear to be developing differently. Many services, like Amazon and Netflix, exist without the advertising component. Others, like YouTube and Facebook, exist, in the most part, on advertising revenue.
Chapter 2: Dual-revenue models rarely found online (5:10)
Hulu’s SVOD service is a dual-model, though the ad load is much lower. CBS All Access also includes ads. However, both services allow consumers to watch ad-free for $4 a month extra, though not many subscribers appear to be taking the option.
There appears to be an over-emphasis on the pure subscription approach online as people appear reluctant to subscribe to more than two or three of them. Already we see SVOD service failures because consumers simply wouldn’t subscribe. Seeso is shutting down and is an example of a service that perhaps would have done better as an advertising-supported product.
Chapter 3: Where is the market headed? (11:40)
The premium video market looks headed toward a situation where consumers have:
- A core set of two or three subscription services they use all the time providing high-value viewing
- Another set of services they subscribe to when something looks interesting
- Other services that they drop in on sometimes but to which they have a low
The services they have a more casual relationship with could be perfect for an ad supported model. I remain surprised there are not more services that combine ad-supported viewing with a premium, ad-free tier. VRV is one of the few examples of this approach.
Will says the reason there aren’t more services like this is that it is relatively difficult to move people from ad-supported to ad-free viewing. He says there has to be a lot more extra value than just watching ad-free to get people to pay to watch ad-free.
Chapter 4: Facebook and YouTube (19:10)
Facebook and YouTube have been very successful with the ad model. Both companies are now turning their attention to premium content and to being more successful on the television. Nielsen has also added both companies to their digital ratings, lending authenticity to their TV efforts.
Will thinks it is far from clear how the balance between AVOD and SVOD will resolve. I also don’t think there are any guarantees that a company existing in the dual-revenue model today will continue to earn the same amount of money in the new online market place. Will echoes this warning that some traditional TV providers are heading for much pain as they grapple with the reality that they simply can’t attain their existing revenue levels online.