Too many media-related companies mistakenly believe their conventional advertising, subscription or even free business models will simply transfer over to a connected marketplace. They won't, says Diane Mermigas, Mediapost columnist.
But that's a mistake common to other industries buffeted by IP technology, such as the telecommunications, wireless and music industries, for example. The entire global telelcommunications business, for example, is finding itself facing a nearly-complete replacement of its underlying voice revenue model.
Media firms face something similar. Advertising has been 37 percent of all content revenues, and nearly half of all video revenue.
But advertising is expected to comprise only one quarter of domestic online video revenue by 2012. "The economics are simply not there for advertising to support online video, given rising variable costs and limited scale," says UBS analyst Matthieu Coppet.
There are some other, less quantifiable potential issues as well. Most believe online distribution will be more important in the future. The only issue is how important, and how long the change takes.
At the same time, cable TV's key value proposition--more choice--now is running into potential exhaustion. "Choice" is easier on the Internet.
Also, since most viewers watch a handful of channels (possibly seven to 16), adding more channels, and raising prices to match, is going to run out of gas. It seems to me the only issue is when.
There's a reason so many of us spend so much time thinking about evolving business models. If IP technology affects your core business, it also means your core business is going to face huge business model change.
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