Remember that quote from former NBC Universal CEO Jeff Zucker about analog dollars and digital pennies? It was early 2008 and he was commenting in The New York Times about the top monetization priority for the TV industry as it transitioned to online video.
“Our challenge with all these ventures is to effectively monetize them so that we do not end up trading analog dollars for digital pennies,” said Zucker, referring to various online video initiatives, including Hulu, of which NBC Universal is a partner.
A couple of years later, two things are different: First, Zucker was ousted from NBC following Comcast’s plans to acquire the network and second, Zucker has changed his tune somewhat.
“I’ve since revised that quote, and I think we’re now up to digital dimes,” Zucker told an audience at the Wharton School on September 29, 2010—just five days after his dismissal.
But regardless of whether he’s talking dimes or pennies, Zucker hasn’t changed his overall assessment of the online video economic model. “Hulu and Netflix are pretty much destroying our business model and if we don’t figure this out, there’s not going to be any content to watch anymore. The equation still won’t work,” he said, gravely.
Zucker offered a familiar litany of reasons for his pessimism—the fragmentation of the viewing audience, competition from cable channels, the difficulty in getting high CPMs for content on broadcast TV, and the industry’s fundamental lack of “a business model that will cover its costs.”
I can’t argue with Zucker that those are big challenges. But the real crux of the issue was something he revealed in response to a suggestion from the audience that NBC Universal reduce actors’ salaries or other personnel costs.
“There’s a lot of mansions in Hollywood built on preserving the old system,” said Zucker. “We make billions and billions … each year from the old models that are still in place, [such as] distributing USA and SyFy and CNBC through Comcast and Time Warner Cable. It’s expensive to produce the kind of content that we do and to collect the kind of news and information we do. If we forgo all of that because of these new technologies, we’ll be out of business right away.”
Zucker’s comments confirm what many of us have thought all along, but few (at least in the industry) have been willing to admit: That the monetization struggles of the burgeoning online video industry have less to do with a lack of economic viability than with a dogged determination by the old guard to protect its own interests—from their big mansions to their sweet content deals.
The “old system” Zucker is referring is not just the TV network he worked for, but the entire ecosystem of actors, writers, producers, content owners, broadcasters, cable channels, cable and satellite systems, and of course the two parties that ultimately fund the whole enterprise: consumers and advertisers.
At least in the short term, the shift to digital video will disrupt that ecosystem. The viewing audience will migrate toward online and mobile platforms, of which some will be fee-based and some ad-supported. For marketers, neither option is as attractive as the status quo. Paid content models effectively take advertising out of the equation, while ad-supported venues will take a long time to reach the kind of scale that broadcast and cable channels offer.
As I noted in a recent column in AdAge: “It will be years before TV and home movie viewing shift en masse from cable and broadcast to purely internet-based offerings. Until TV networks and movie studios start seeing dollar signs, they’re not likely to make a critical mass of content available to digital video providers.”
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