In announcing that it would air some popular ABC TV shows over the web, the Walt Disney Company was careful to stress that the program was only a two-month test. It’s “a learning experience,” a Disney exec told a group of cable TV broadcasters yesterday. What Disney is testing is not just, or even primarily, the demand for the web broadcasts, but the way the economic tradeoffs play out.
Ronald Grover, of Business Week, provides a good analysis of those tradeoffs, and the risks they present. Disney’s move, writes Grover, “is almost certain to rile its cable partners, broadcast affiliates, and TV advertisers,” who all stand to lose if viewers shift from the old boob tube to the new one. “Disney’s Net strategy could effectively cut its existing partners out of the new online revenue stream. Cable companies, for example, typically pay a fee to distribute media companies’ content … If [cable subscribers] can now go to the Net to watch the same programs, they’re less likely to watch the shows on cable. ‘If [Disney] is going to put cable network programs online, they shouldn’t expect us to pay the same subscription fee,’ says Glenn Britt, chairman and chief executive of Time Warner Cable.”
Grover also quotes an executive of an ABC affiliate: “‘These are programs we helped pay for,’ the exec said even before Disney announced its latest online effort. ‘The idea that they could cut us out of the money stream for some of those shows is offensive. We need to change their thinking.'” Disney also has to worry about the tradeoffs between TV ad revenues, web ad revenues, and downloading fees from the distribution of ad-free programs (through iTunes, for instance). Move too far in the wrong direction, or move too quickly or too slowly, and your bottom line could get hammered.
In the excitement over new business models, it’s all too easy to lose sight of the underlying business economics, but it’s the economics that are ultimately of the greatest concern to corporations. Whether it’s Microsoft with web software or Disney with web broadcasting, companies can’t just jump blindly into the future, no matter how loudly the pundits tell them they have to. They have to look before they leap.
Absent barriers such as, say, a dam, water always flows to the lowest point in any body of water. In much the same way, absent barriers such as, say, regulatory intervention, content always flows to the lowest-cost distribution channel.
Still, this doesn’t stop even very smart individuals from wishing otherwise. Consider Lord Kelvin’s statement: “Wireless [telegraphy] is all very well but I’d rather send a message by a boy on a pony!”
Kudos to ABC for doing the smart thing.