Bandwidth Isn’t Free, Distribution Isn’t Free, So Why Should Content Be Free?

As the cost of delivering video continues to get cheaper every year and video syndication to devices and platforms continues to grow, it seems more and more people are under the impression that access to premium video content should be free. Frankly, I don't see where this idea of "free" comes from. Video content costs money to produce, to distribute and to consume. Yet even with those costs, many seem hell-bent on the idea that business models can somehow survive based on the consumption of free video content supported solely by an ad model. But in reality, that simply can't happen.

If people are not willing to pay a content owner for their content, then it's not worth anything. That's the bottom line. Non premium content and some niche focused video might be able to survive on an ad only model, but even that would be rare. YouTube is a great example of this. While there's been a lot of talk over the past 24 hours surrounding the details being released from their lawsuit with Viacom, we've always known that since the beginning, YouTube built a large portion of their business from displaying premium content from third parties, without permission. But years later, even with all the insane amount of eyeballs YouTube has, the business is not profitable based solely on an ad model. Not to mention, YouTube is only monetizing about 20% of all their video views. It's no wonder that they along with Hulu are trying to move to a model where consumers pay for access to premium content.

Another topic that seems to be confusing some folks is the price of bandwidth and the rapid pricing declines we're seeing each year. While it's true that the cost of distributing video over the web is getting cheaper by the day, it will never be free. I'm now hearing some people in the industry saying that one day soon, delivering video will be so cheap that content owners won't even think about the costs. What world are these people living in? It cannot be debated or even argued that there are no fixed distribution costs when it comes to online video. Cable and satellite distribution methods have fixed delivery costs, video over the Internet never will. Any video business model that relies on generating revenue only from ads is fooling themselves if they think they can sell enough ads to keep up with their skyrocketing distribution costs every time their traffic grows. That's simply not the way distributing video outside a closed network works.

Why so many in the industry are so quick to bash subscription based video models makes no sense to me. When HBO came out with their HBOGO service, too many folks were quick to point out that it was behind a walled garden and that as a non-HBO subscriber, they would not be able to get it. That's exactly the point. Why should HBO simply give away their content for free, knowing that ad revenue alone won't make it a profitable business? HBO is smart not to offer a service that they know will lose money yet some chide them for it. Why do so many people seem to think they have the right to get all of their video content for free simply because the Internet is an open platform?

Of course many times, the argument that comes up is that people won't pay for something once it's been given away for free. That may be true, but if we look at some of the most successful content models on the web today, like MLB.com, they are from companies that never gave away their content to begin with. And why should they? Their content is worth money, the experience they provide is compelling and as we have seen for years, consumers think the content is worth paying for. While it's good that the Internet has opened up video distribution to anyone, it's also created the false assumption that all content is worth something and that all content owners will one day make money simply by running some ads with the content. For most content owners, even the big ones, that day simply won't come.

  • Completely agreed, Dan. At LittleShoot, we’ve been working for some time on core p2p tech. One component will ultimately allow any web site to embed videos that are served via p2p behind the scenes, including Flash video, without the user ever knowing there’s a difference – the web page looks and loads identically.
    There are several similar solutions, but I’m curious about your perspective on them. The costs can clearly drop dramatically. Some bytes are still served from the central copy, of course, but peers will typically serve the majority of data.
    What’s your opinion of solutions like that?

  • With that understood, and with so many content providers out there, nobody is going to pay premium prices at the current price points to watch/listen to/read what could be as many as 50 to 100 feeds of content.
    Either an aggregator will need to come about, or there will need to be more iTunes-like app pricing for access to content. But if HBO were willing to this, they’d be willing to go to a defacto a-la-carte kind of situation that I’m sure isn’t popular with other cable content providers.

  • A significant motivation for free/freemium models for content could be the need for aggressive traffic growth. I’ve know cases where this is indeed the case, due to bottom line or even investor pressure. While it doesn’t rule out premium content that can be directly monetized at a later point, it does end up making the transition tricky.
    Also, as far as content online goes, there is something to be said for online content being an excellent growth driver for the same/similar content on other distribution channels. I feel this is true of online content, not just in it’s role as a straight forward traffic driver, but also as an excellent source of data and analytics about the content that can then be used (profitably) elsewhere. I feel that both of these cases, in some way, legitimize the use of free content.

  • Darn good commentary Dan – you are correct, of course. This issue, and so many other issues in our business (Google vs. Microsoft, AT&T vs. Verizon), is about worldview. Many of these folks that download ‘free’ music have been coddled by industry elites to think that this type of activity is okay. AT&T and Verizon spent over $35B last year just to keep up with existing demand – no matter LTE, etc. Someone has to pay.
    Time for this industry to grow up and start paying for what it uses.

  • Doesn’t have to be free- at a penny-a-gig its $.02 or $.03 to deliver a full DVD… cheaper than distributing the physical DVD…

  • DanS

    What?
    Television spent half a century delivering content for free. Sure, the content had costs to produce, and distribution (broadcast towers aren’t free), but advertising paid for it. And advertising paid for radio broadcasts for years before that. Advertising dollars made quite a few people quite rich. Sure, not all content sources has enough of an audience for advertising to support creation and distribution, but this isn’t Viacom’s operating regime.
    The issue here isn’t that people expect content to be free. People pay for cable to get more targeted content. People pay for HBO to get premium content. The issue is copyright holders like Viacom thinking that poor quality content wiht a limited audience ought to bring in as much money as the best content with the highest appeal.

  • Etienne

    Interesting.
    I think we might turn it around.
    Telco network are a relying on a completely unfair logic for content owners: a content owner is treated like an individual, considering the “value of the message” to be reduced to it “bit weight” infrastructure wise (not to mention the “access fee” to network infrastructure). Or would you accept to say that youtube has the same value to a typical ISP than your closest neighbor? That seems pretty unfair. I’d say that youtube participate to the value of your access to Internet.
    ISP are using the “expert”/engineer argument that is simple to “visualize”, explain, assert… but they are less than transparent on those infrastructure, their investments logic, the pressure they exercise in relation to their mastering the final users…
    You have to question your models, that is not good to throw certainties of that kind! Think outside the box. Don’t tell us you’ve been “lobyied” : your analyses are(were) too precious for us.

  • Charlie bit my finger has over 148 million views on youtube. Thats a lot of eyeballs.

  • Vance

    While I understand the points raised in this article, the fact is that the “premium” video services are now competing with a lot of free content that is getting better and better. With the rise of ad-driven free content, there will necessarily be a downward price pressure on traditional video media. I will not be ditching my cable anytime soon, but as these hungry young artists produce better and better work at the low, low price of FREE, I can definitely see the day coming.

  • John Mitas

    Television!
    The cost to the consumer APPEARS FREE!
    FREE CONTENT!!!!!
    Let them put there walled gardens up, the survivors will find a way to deliver what appears to be free content because that’s what people want.
    Also trying to convince a consumer to have several subscriptions is just plain stupid and it will be proven stupid in the long run when these business models also fail!
    Free is what people want, give it to them (even if you have to trick them into paying some other way).

  • Um…who’s going to pay grownup ad prices for this stuff? you know, the multi-thousand-dollar, or higher ad buys that pay for “free” TV?
    that’s the level of money you’re talking about with real-world advertising.

  • DLG

    Put your money where your mouth is. Go behind a paywall.

  • Dave

    The reason MLB.tv is succesful isn’t because they never “gave” away the content. They’re only rebroadcasting existing content that you could get elsewhere for the most part because it’s all just retransmission of the Fox Sports broadcasts and your local TV stations. (but primarily for people who don’t live in those areas and can’t get them at all). It’s previously free or cheap content but they’re offering convenience, not content.
    That’s the trick. Convenience.
    Most people are hung up on the content. Content is king! Content brings advertisers!
    What about convenience? What about ability to see things you couldn’t see anywhere else? I dare say that a pay Hulu is a terrible idea if only because you can just turn on the TV and see the same things for nothing. But what about a pay BBC Hulu? Wouldn’t that be a compelling thing? As far as I’m aware, the typical American can’t get 24hrs worth of live BBC content in any form at all. Yet, there’s no service that’s willing to serve it up.
    Same goes for international viewers on US content. Wouldn’t a person with spare money in London find it nice to be able to pay $20/mo for a US Hulu account to be able to watch the things we in the US take for granted as being free?
    Now, wouldn’t it be nice if someone could monetize these things in a way that the ‘free’ side is taken care of by the subscriber side? Keep US Hulu free to US viewers, and monetize it by charging people who otherwise can’t even access it (italy, france, spain, UK, russia, etc) and watch the books even out.
    This is the internet.
    Convenience is king. Content is cheap and often irrelevant. The people who understand this will profit the most. It’s already done in the form of Craigslist. It’s not that it was cheap to put your listings on craigslist, it’s just that you didn’t have to pick up a phone and call anyone or go anywhere. You just typed in a few things. Everyone’s STILL hung up on the idea that the content of craigslist killed newspapers, when it’s the convenience of the idea. Local news is going to die in the same vein. We don’t give a flying crap what an “if it bleeds it leads” news director thinks anymore, we’d like to just get to the stories we’re interested in. The internet works for that. Because of Convenience. Not Content.
    Hulu works because you can see what you want WHEN you want to see it. Emphasis on convenience. It’s just an internet DVR.
    Find a way to monetize convenience. That’s all Cable Television did in the first place. No Antenna was a BIG deal. Do that, you’ll be rich. Keep worrying about content and advertisers and blah blah 1960’s television models and you’ll watch your business go down the drain to someone else’s Big Idea.

  • Nick R

    Absent a pervasive, effective and non-intrusive micropayment methodology for the vast majority of online content, support needs to continue through the same “brokerage” model that has worked for broadcast and print media in the past – advertising.
    This is an a la carte, albeit semi-random, form of micropayment because the end users do pay for the content through higher product prices.

  • Bravo for your comments! We are launching an innovative business around the Arts, performing and visual. We bring together dance, opera, symphony, modern arts and other artistic expressions under one powerful platform. We have a full featured Social Network combined with a FLASH Interactive HD streaming video network with strong content protection combined with a real time payment system allowing art producers to monetize digitized shows and pay all the supporting artists in real time using a synthetic currency.
    We do not believe that Advertising is a sustainable approach, and is in fact resisted my many we have spokem with. Certainly Sponsorship that drives many productions now will be sought, so streaming ticket sales (alacarte or subscription based) is the remaining approach and we suspect that the combined power of the social network components with the royalty definition and payment systems operating an Arts Boroadband Network will attract the type of consumers and art lovers of any genre to pay a small amount with very direct supportr back to the artists. We believe that packaging a business strategy around premium content delivery to affluent consumers with few artistic alternatives is the only approach – at least shorter term. I suggest that this strategy holds true for any application of premium content delivery. You have to bundle it with something more compelling than just FREE content of Ad supported content. A reason to participate and support.
    This being said, Yes we are idealists, and we believe that there are many such innovative and profitable niches yet to be discovered and built to exploit broadband TV networks and problem solving business models.

  • Patrick

    The internet and cable i pay for is not free either, in fact it’s rather expensive. We are in the age of video on-demand, and since i am already paying for the content (cable) and the means to deliver it on demand (internet), it should be at no extra cost to view it whenever, wherever i want in my home or mobile devise. End of argument; stop making excuses for media execs and their multimillion dollar contracts.

  • Thank you very much! You’re perfectly right!
    We are currently developing a freemium model of WebTv. As producers of video contents (in Paris) we must fight everyday against this absurd idea that “producing – and broadcasting – contents for the web is really cheaper (almost free) than for TV”. WHY WOULD IT BE ???
    T: @streamlabel

  • I think the best model is cell phone apps. There, the costs are hidden. If consumers can just keep happily clicking away, not having to stop and whip out their credit card, and worry about the bill later, I think they would be more likely to pay. No one wants to be lectured on the ethics of free content. I’ve found that the average person does has SOME sympathy for entertainment companies struggling to make a profit, but their frame of reference is Beyonce, American Idol, Avatar, entertainment facets that are hardly struggling. So when little old indie singer/film maker comes along bemoaning not being able to afford to upload videos for free, the blunt response from the consumer is, “I wasn’t that curious anyway.”

  • Um, Dan, television broadcasters have been offering free video content for the last 60 years or so and they’ve done just fine. What it boils down to is that these content owners want to have their cake and eat it too: they want to put their mediocre content behind a pay wall AND pepper it with ads so they’re making more profit off of it.

  • max

    Mobile networks will most likely be serving up rich multimedia in the near future. There needs to be something in place so the telcos can flourish as co-distributors of others’ content. http://datarevenue.org is a leading advocate of such a process. Also, here’s a recent article on the subject;
    http://www.free-press-release.com/news-does-the-dmca-provide-safe-harbor-to-mobile-network-operators-the-way-it-does-for-internet-service-providers-the-answer-is-1269154556.html

  • Tim

    From Cynopsis Digital today: Following its success charging for the WSJ and The New York Times’ stated plan to adopt a metered paywall for online readers next year, News Corp.’s U.K.-based newspapers The Times and The Sunday Times announced plans to charge readers for online news beginning in June. Visitors will pay 1 pound sterling per day or 2 pounds per week while print subscribers will get free access to the sites. New, separate websites at thetimes.co.uk and thesundaytimes.co.uk will be launched in early May and will be free to registered customers during a trial period.

  • Tim
  • FindaDiet.net

    Why should content be free? Because its already given away to plentifully that to try and claim it should be paid for would be difficult. Its already been established as free, for a lot of things, and changing it would be like changing the color of the sky.

  • Companies in my opinion are getting greedier and greedier, they want to add a price to everything.
    Gotta Love Capitalism.

  • Caitlin

    Not all things can be free. This is why some videos are just teasers of the real thing. It is just a way for them to show what they can bring to the consumers. As a consumer, I’d like to see from a sample video whether what I’m going to pay for would be worth every buck.

  • Great
    Love it, will be waiting for your future posts