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Media risks walking the plank

If the past six months have been a nightmare for most investors, it has been a massive wake-up call to big media companies. The recession is forcing them to rethink their approach to the Web.

On Tuesday last week, for instance, Walt Disney Chief Executive Robert Iger disclosed that Disney was considering an online subscription service for movies and possibly TV shows. Others in Hollywood are thinking along similar lines, conscious of the growing popularity of Netflix and its instant-watch online streaming service for movies and TV shows.

If that sounds like back to the future, that is because it is. In 2002, several of the major studios started a movie-download service called Movielink. But it never took off and, in 2007, the group sold the service to Blockbuster.

Now, though, not only has technology become easier to use -- it is no longer difficult to watch on a TV set a movie that is streamed or downloaded from the Web -- but financial pressures are growing. DVD sales are sliding, at least partly because of the online availability of movies.

That is forcing a fundamental debate in the entertainment industry: whether the strategy of putting content for free online, as pursued by big broadcast-TV networks, makes sense.

The lessons of the Internet so far aren't helpful. As the music industry found out a decade ago, holding back content from the Web only creates opportunities for piracy. But the opposite tack -- making everything available for free online -- has only hastened the demise of many newspapers. The closure of papers such as the Rocky Mountain News in recent days has only brought that reality home to entertainment executives.

Even so, the entertainment executives can't get in a time machine and withdraw all of their content from the Web. Piracy is becoming an ever-greater problem. Buccaneering sites like Pirate Bay offer a huge array of television and movie content for free. If people can't get a show at a cheap price through a legitimate site, they will simply find it elsewhere -- as they did with music.

The solution is likely to be complicated. It is too early to write off the potential of Internet advertising, particularly in video. Its growth has been held back by technological hurdles, such as differences in ad formats, that will eventually get resolved. The trouble is, even though video advertising will grow, it is unlikely to fully offset the erosion of old-media ad dollars.

That is where a subscription model, possibly of the kind being contemplated by Disney, makes sense. But attractive pricing will be crucial, given the piracy challenge. There is no doubt Netflix's appeal rests partly on its all-you-can-watch streamed video for less than $10 a month.

Whichever way entertainment companies jump, they will likely have to accept lower revenue than in the past. But the alternative, being sunk by pirates, is worse.

Источник: Total Telecom

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