The Impact of Internet on Economics of Commercial Television Industry

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The commercial television broadcasting industry is undergoing a period of intense change. New technologies such as Electronic Program Guide (EPG), Digital Video Recorder (DVR), Video on Demand (VOD), digital television, Podcasting, online streaming, Mobile Video, and the Internet are dramatically changing the competitive landscape and placing strains on traditional media business models. All of these unprecedented technical innovations have significant implications for broadcasting market. Perhaps what is most interesting about this period of transition is the expanding role of internet in television business.

Interactive Websites: New way to Reduce Production Risk
To begin with, networks and cables have been investing heavily in their websites to make presence felt in cyber space and to let audience participate in and contribute to the creative process. CBS, for example, is directing visitors to its blog site with insider content and exclusive, behind-the-scenes looks at some of the network's most popular programs. As Nancy Tellem, president of CBS Paramount Network Television Entertainment Group, said, ¡®Blogs are a great way to bring the millions of viewers who enjoy our programming into the creative process.¡¯ (Emma Brownell, 2005). Why network websites become a vital factor in television business? One economic reason is to reduce the risk of failure of media products. Producers usually make production decisions based on their estimates and beliefs about market demand. Anticipating changes in audience tastes and the extent to which their interest in specific genres will continue is difficult. Predicting the continuing success of currently popular performers, directors, or writers is also problematic. The result is that there are few very successful titles each year and many more unsuccessful or less profitable media products. (Robert G. Picard, 2002:10) Obviously, producing unsuccessful programmes is a waste of scarce resources and it greatly decreases the efficiency of broadcasting industry, as ¡°content cost ¡­is a higher contributor to overall costs for average cable systems and one-quarter to one-third of all costs of radio and television stations. ¡° (Robert G. Picard, 2002:59-60)

Fortunately, internet with an intrinsic feature of interactivity has opened a window for producers to glance over audience expectations while providing audiences a feeling of involvement. The inside story of TV hits, combined with the programmes themselves, not only brings an exciting and interesting experience to audiences, which may enhance the audience loyalty and in turn stimulate growth of rating, but also helps producers and TV executives to find out the needs and wants of consumers. Generally speaking, consumer insight has significant implications for the economics of both television broadcasters and production companies. In the past, many broadcasters had to sustain a high level of programme budget to attract audience, hoping to break into a ¡®virtuous¡¯ circle of profitability (Gillian Doyle, 2002:62-63). With the amazing power of internet, program improvement doesn¡¯t necessarily derive from higher budget. (See Figure 1)

Figure1 Virtuous circle of profitability in broadcasting (Adapted from Gillian Doyle, 2002: 63)

A resent case in point is the Current TV, a cable channel controlled by former Vice President Al Gore, which uses viewer-contributed video content. Users or audiences could upload short video thought the website and get paid. ¡°To the surprise of many critics, after three weeks of operations Current TV " is not a joke." Current, is slick, engaging and aimed at a brighter group of young adults than Viacom -owned MTV. ¡° (Alessandra Stanley, 2005) Although, user-contributed content might not be able to absolutely replace the dear cost of professional production companies or teams and Current TV haven¡¯t reach its breakeven point yet, internet could at least reduce part of the content...
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