IP Democracy: Will Free or Fee-Based Web Video Prevail?

Two contradictory bits of news today shed more darkness than light on the twisting path toward a sustainable web video business model. The first is a Forrester Research analysis that concludes (pretty ham-handedly, as these kinds of reports tend to do) that growth in online video sales will peter out starting next year because “free is going to win.”

While iTunes and other fee-charging web video sites got the ball rolling, so much free content is being made available on the web that consumers now have a choice and they will choose whatever they don’t have to purchase. In other words, from Forrester Research’s perspective, the race is between free and fee-based web video and, of course, people always want what’s free.

The contradictory (sort of ) bit of news: CBS has unveiled a new strategy to “syndicate” as much content as it can all over the web, a move timed to coincide with the ad sales upfront frenzy taking place in New York this week. But hasn’t CBS already put a lot of its content on the Internet at no charge?

Well, yes, and nobody watched it, it seems. One of CBS’s high-flying experiments, Innertube, is widely deemed a flop.

CBS’s new chief Internet strategist now jokes that the Web address for Innertube should be “CBS.com/nobodycomeshere.”

CBS has decided, just as News Corp. and NBC-U did, that it’s better to circulate content around a number of highly-trafficked web portals than force viewers to come to a specific CBS website, and that’s probably true. But just because CBS, News Corp., Viacom, NBC-U and a passel of other programmers are posting their programs for viewers to watch at no charge doesn’t mean that fee-based Internet video programming will fade away, as Forrester predicts, or that free always wins.

Innertube was free but clearly didn’t win. And Disney last week announced that it has sold two million movies and 23.7 million TV shows on iTunes since September 2006, when it first started selling content on iTunes. Assuming an average $13.50 per pop for each movie sold (new movies sell for $12.99 to $14.99 and library films sells for $9.99) and $1.99 for each TV episode sold, that’s $75 million in Disney’s pocket.

Granted, $75 million is not a lot of money for a studio like Disney, but it’s probably all pure gravy — extra cash generated by a new-found way to exploit existing content. In all likelihood, Disney’s iTunes’ sales didn’t cannabalize DVD sales or movie ticket sales or even online pay-pay-view streaming sales because most folks want to download the content for storage on laptops or, more importantly, iPods. You can’t do that with streaming video or ad-supported video distribution.

In any event, the point is this: the web-based video marketplace is big enough for both kinds of content distribution, free and fee. It’s not an either/or proposition.

Just look at the cable business, which really took off when “pay” channel HBO launched via satellite. Ad-supported cable networks quickly became the economic engine driving cable after HBO had worked its magic and today “basic cable” networks account for the bulk of the cable’s video-related revenues.

Despite this, HBO and the other premium cable channels are still around and are lucrative businesses despite the fact that the non-premium networks deliver most of the dosh. In the same manner, fee-based web video will probably take a backseat to ad-supported web video in terms of sheer revenue generation. But don’t expect it to disappear or fade away. As cable has shown, free doesn’t drive out fee-based content.

Posted by Cynthia Brumfield on May 14, 2007 4:45 PM to IP Democracy