Just got back from leading the third LAMP lab in Perth (there will be more info about the great projects in the lab on the official site over the next few days) and I was also speaking at various multi-platform, digi distribution events – during which I caught up with a couple of NY Times articles on a subject that pervaded all of them – what are the emerging business models or to put it more bluntly “Tell me how to make money with all this new stuff”.

A few experts talk at great length about some of the new roads ‘paved with gold’ being laid, for example at Milia I recently posted about in great detail, models as confused as they were bold and optimistic – the fact that digital music is still only around 5% of the market, iPod music around 22 tracks per device (5 videos per device) with on-going Apple favoritism and iTunes store lock-out, then a rather poor 3G video download history worldwide (around 1% of overall revenues – before the telcos eat into it).

Firstly I believe no one knows what the most lucrative avenues will be, we are just at the tipping point, and certainly no one knows the models that will truly drive the online on-demand industry forward. The fact that audiences are transitioning and shifting to anytime, anywhere consumption is obvious, so ‘perhaps’ we can get them to pay, somehow. We all know audiences are consuming content from short linear clips, traditional programming, films, virtual worlds and more importantly giving the professionals a run for their money by creating content themselves across a multitude of devices. As the NY Times article “Can TV’s and PC’s Live Together Happily Ever After?” points out, until rights and revenue share models are worked out, we will exist in a ‘trial by error’ market, dominated by entrenched broadcast while fiddling with alternatives that slowly eat into the true on-demand competitor, the DVD market.

Just in the last few weeks, for example, Warner Brothers announced it would make hundreds of its hit films and shows available this summer for paid download via the file-sharing site BitTorrent; Fox Entertainment has joined the other major networks on iTunes with downloadable episodes of “24” and “Prison Break”; TiVo announced a deal with the Web video outfit Brightcove that intends to give people with TiVo boxes access to Internet fare on their TV sets; and ABC and CBS have begun streaming replays of some of their most popular shows on their Web sites, offering a new advertising-supported way to tune in.

Even though no one seems to be making much money yet on these ventures and there are still chewy legal and rights issues to sort out, there is palpable excitement — a sense that the TV and movie industries are going to head off the pirates and file-sharing teens by making their products widely available online in legal ways.(snip)

But here is the swirling myth — or is it The Big Lie? — about convergence: It’s not as close as all of that activity suggests. For various reasons, watching TV programs delivered by the Internet on regular TV looks like it will remain tantalizingly out of reach for all but the most enthusiastic gadget junkies for some time.

The point of all these new video-content deals being struck by networks and studios is, of course, to avoid making the mistakes of the music industry, which focused too much on rear-guard actions like lawsuits and not enough on figuring out new ways to give the fans what they wanted.

The music analogy only goes so far, however. The way music is promoted and sold and listened to bears scant resemblance to TV and video products. Ventures like the one announced by Warner and the big networks are not really an alternative way of receiving conventional TV, but rather an alternative to buying or renting DVD’s coupled with an intriguing new market opportunity to reach viewers on their desktop or mobile devices.

The model that is proving the most popular at the moment is the grow the on-demand brand by taking part in the land-grab-give-stuff-away-free and draw audiences to your content (as I blogged about in Media Addiction, the next wave). This is a real issue to those who want money upfront to develop their content, they are still stuck in the old model – finance then produce, don’t do anything until you have the budget. Makes sense, up to a point. In a digital media world where the ratio of advertising revenue to content sales is 8 to 1 where advertisers are looking for audiences and those audiences are moving into the digital domain it is a hard sell to content makers to say, audiences first, advertising funded budgets later. Those who will win of course in this nightmare for some scenario are those with long back catalogues who can afford to grow audiences on content that has been on the shelf gathering dust and can be given away free (ABC, Warner, BBC and others spring to mind and they are moving already) – or those enlightened few who can create compelling interactive, cross-media content that is relatively low budget but captivates, this is where the fleet of foot independents can really make their mark. More on that later. NY Times’s second article “Digital Media brings profits (and tensions) to TV studios” talks about the trickle of revenue from new platforms and how that is being ‘argued’ over, through to the carrot (the fact that DVD’s, on-demand, are really driving the market. It also points out that mobisodes are still very immature…

Though the studio would not release exact figures, each of the series’ 120 episodes has cost just under $2.5 million to make, for a total of about $300 million. Licensing fees from the Fox Network are not believed to have exceeded $1.3 million an episode, for a total of no more than about $156 million. The rights to broadcast the series internationally have probably been sold for $1 million or more an episode, for a total of at least $120 million. All told, that revenue — about $276 million — has not been sufficient to eliminate the deficit and provide a profit. DVD sales, however, have. “The DVD opportunity on this series has enabled us to produce the show that is on the air,” Ms. Walden said.

Over the last year, the Fox studio has also sought to find an audience for “24” and another series, “Prison Break,” through episodes available on cellphones. In the case of “24” — which involved one- or two-minute-long episodes, the first of which did not feature actors from the series — the results have thus far been modest: fewer than one million downloads worldwide, the studio said.

and continues with the fact that DVD’s are amazingly the current saviour of the TV industry in that forecast revenues are the only thing allowing big budget TV shows to get made.

But opportunities to get that material into ancillary markets much sooner — on DVD, as well as, more recently, via the Web and cellphones — have emerged as potential new sources of revenue for the studios that produce that content. But negotiations over how exactly to get a show to the point that it can be downloaded onto someone’s iPod, for example, have created new tensions between studios and networks, including over how to share the additional revenue. Web revenue is small now, but if it ever approaches the scale of some series on DVD, the prize could be substantial.

Consider that the Fox studio has tallied sales of more than $200 million worldwide since the first season of “24” went on sale on DVD in 2002 — more money than the studio had made from the sale of its international broadcast rights and more money than it will likely reap in syndication.

The audiences appetite for content when they want it has been known to studios and TV execs for a good while – but I suspect audiences want to ‘own’ content as well and the current mobile, DRM protected broadband files (that stop you moving it around your universe) is slowing progress down considerably, but that is another story. The article continues to echo my original point that no one knows the most effective models (beyond developing your brand at low cost and a handful of others that we keep close to our chests) and I will leave the last word to ABC and Warners in this regard.

Mark Pedowitz, president of Touchstone Television and executive vice president of the ABC Entertainment Television Group, who negotiated the iTunes deal, said: “Here’s the underlying thing you must understand — it’s all brand new. Everyone is feeling their way through what is the appropriate model. And they’re keeping each deal short.”

Indeed, the half dozen or so digital-content deals involving major networks and studios over the last few months would have been unthinkable as recently as last year.

“The landscape is evolving, literally by the day,” said Bruce K. Rosenblum, president of the Warner Brothers Television Group. “What makes prudent business sense may look very different 12 months or 24 months from now. A lot of intelligent people are trying to make the best case where the eventual landscape will fall out.”

Posted by Gary Hayes ©2006