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Find The Boots

Rantings from a few corporate types about life, technology, travel, guns, politics, and everything good in the world.

Save Jericho: Old Media Shows its Age

Thursday, May 31, 2007

I have fond memories of the 1980s. One of my first jobs was as a "sales consultant" at a chain of computer stores. We were selling fully loaded IBM PC XTs (20 MB hard disk, 640K RAM, Monochrome Monitor -- I still have one in my attic) for $5,000, and we couldn't keep enough inventory in stock. In one week in December I sold 75 machines just by standing in the store and doing a good job of explaining to people what they needed. Our profit margin was 50%, and I got a 20% of profit commission. It was a good week. The company Christmas party that year was lavish. Everybody was happy. And completely oblivious.

I remember that Spring was the attack of the clones. Upstart vendors such as Compaq, ALR, Leading Edge, and Gateway started to appear. They had figured out that personal computers were really just a commodity, and there was no need for opulent showrooms or high paid "consultants." I bailed shortly thereafter and got involved in a software startup. A year later the store I worked for had closed its location. The party was over -- the market adjusted. Things were over blindingly fast -- far too fast for the bloated companies feeding in that market to react. Does anyone remember Entre Computer Center or Compumart? Does anyone remember that IBM used to be known mainly for their hardware?

It turned out to be a good career move. Creating content (computer software) had a lot more value than taking orders for boxes, which is now done over the internet and by folks in Delhi. I'm just glad I made the move into senior management before the low level jobs went to India too.

I've seen two articles recently that reminded me of those heady days. This week's issue of Business Week has the article "TV Parties While Rome Burns," which describes a party similar to Comdex in the 1980s. "Upfronts" are staffed by salespeople that sell billions worth of advertising to a few select buyers. And then there's Les Moonves' performance reported on by the Wall Street Journal, which has caused great consternation within the ranks of the Jericho faithful. I thought this was the key part of the article:
Asked if CBS would consider producing the show and broadcasting the episodes online, Mr. Moonves responded he “would be losing a considerable amount of money.”
I've shown in previous articles how that's not really the case, and my calculations were for $2.5M/episode in cost. But Moonves is using a different view -- he thinks that if he can sell an episode that costs $2M for $8M in advertising, then selling it for $3M is a $5M loss, not a $1M profit. It's the same calculation my store manager made when confronted with PC clones back in the 1980s -- we can't live with less than a 50% profit margin!

Of course, the Old Media really doesn't get it. Just like a computer showroom, there's only one time slot available at 8:00PM on Wednesdays. Instead of selling one show for $8M via broadcast, they can sell 10 shows for $3M via the web. $10M in profit is a better proposition than $6M, and you don't have to take such a hit when you flop. The infrastructure costs are a lot less, and you can cut out the middleman (local affiliates) so there's a better margin. And it's much more convenient to the viewer since they can pick the time and how they want to watch.

This model is absolutely inevitable -- it makes too much sense. The only question is whether it will be supported by advertising or pay-per-view, or what combination. My guess is that affluent and busy people are willing to pay a premium (quite a bit more than the $0.50 the networks make from an hour of viewing) to get their entertainment without commercials. But at some point in the future, we'll look back at broadcast TV as being as foolish as printed newspapers.

This is somewhat bad news for producers and actors. New distribution methods will drive down their compensation as well. But there will be an awful lot more work available.

The "Save Jericho" people have lamented that the Nielson ratings don't take DVRs and web downloads into account. Frankly, under counting DVR views probably doesn't bother Old Media that much, because they assume that DVR viewers aren't watching the commercials, so the advertisers aren't willing to pay a premium for those views. In other words, it's a bug, not a feature.

As for web downloads, I'd bet CBS doesn't yet know how many times Jericho was downloaded. The royalty contracts with their partners such as Itunes and Amazon probably don't even require reporting until the second quarter after the view. They probably can't even integrate the data from Innertube with their reports from the Nielson ratings. People who don't work in a large corporation don't realize what a morass the islands of data and stovepipe applications create. Getting actionable, accurate, real time business intelligence is something everybody talks about, but very few companies actually pull it off. And given the level of technical competence Moonves just demonstrated, I'm doubtful CBS is on the leading edge.

When Moonves talked about web content, it's clear he's still thinking about minor productions done on YouTube, not big time entertainment. I agree with him that these small shows have their place, but I don't think Old Media can do anything for that venue than stunt its growth. Those small efforts work because they're "two guys and a coffeepot" and not giant corporations.

Old Media has a much larger problem on its hands than my computer store had back in the 1980s. They're in a similar position, but the upstarts they face are actually quite a bit larger than they are. The online advertising business has seen rapid consolidation, which means that future growth will come from expanding into new markets. Advertising revenue is already flowing away from television and radio into online venues. Worse yet for Old Media, Google is interested in moving into television and radio. It's only a matter of time before some of the internet behemoths decide that Old Media is doing a poor job with content and start to take away some of their action.

People often talk about CBS as if it's a giant corporation, but its market cap is only $24B, and small fraction of Google's $157B. Instead of dealing with an upstart, Old Media has an elephant wanting to eat their garden.

So what does this mean for the "Save Jericho" movement? Not much, other than that they're playing this out in a much larger context than perhaps they realize. By making a stand and growing into numbers that demand respect, they may have a key influence in pushing Old Media into modernizing, or by hastening their demise. Perhaps they get their show back and the networks start to take real feedback from the internet, or it gets sold to a network that's a little more savvy. Or maybe CBS fails to take advantage of the free advertising and ignores the groundswell of viewers against it and just continues to party.

Either way, if you've got an invite to an "upfront" party, I suggest you use it, because there aren't going to be many more of them. Enjoy the free shrimp and champagne while you can. Those parties are going to be replaced by a web page. Just ask IBM (or should I say Lenovo?).

   

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6 Comments:

  • At 5:06 PM, Blogger Sauceman said…

    Wow! Another great post.

    Les is totally out of it. A little more passion while the ratings were going down? How about a little passion for when they were (not) marketing the show?

     
  • At 5:22 PM, Blogger SaveJericho said…

    syfyportal.com:

    "Jericho" finished ninth among all television shows broadcast in 2006-07 that witnessed gains in the key viewership demographic of adults 18 to 49 in commercial viewing after it had been played back on a digital video recorder. In fact, "Jericho" saw a 3 percent increase in commercial views after it had been taped for three days, putting it in line with similar gains made by "My Name Is Earl," "Numbers" and "Medium."

     
  • At 5:45 PM, Blogger Paula said…

    OMG! My first job out of college was at Entre Computers! How very funny indeed! You think this is that big, huh? AWESOME! I am so happy to be in on the 'in' thing! I keep telling people that we will tell our grandkids about what TV is like today and how we worked for it to become what it will be. That is part of why I fight so hard, because I truly believe that we will be making a huge difference in the world, not just saving one TV show. I fear that many of the Jericho supporters are limiting their view to just the TV show. This worries me, because I feel that this TV show is just the beginning....

     
  • At 5:52 PM, Blogger frierson said…

    Another great article. Hopefully some of your insight will rub off on CBS!! Thank you again for your coverage.

     
  • At 6:11 PM, Blogger MysticNitekatt said…

    A great article, once again showing that "old media" doesn't get "new media"!

     
  • At 9:15 AM, Blogger ahma said…

    Thank you for the great article! CBS obviously needs to do a little "house cleaning", clueLES is living proof that there is a huge difference between intelligence and arrogance! The powers that be at CBS need to wake up and smell the internet. Promote some people who are more interested in CBS than themselves. ClueLES is obviously stuck in the "60's"

     

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