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The Big Networks' Big Google TV Fear

Illustration for article titled The Big Networks Big Google TV Fear

Google TV, at least theoretically, conceptually erases the distinction between the web and television as a medium for video. It's all video, wherever it comes from. For broadcasters, that's scary! So ABC, CBS and NBC's websites are blocking Google TV.

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If you go to one of their websites to try to watch a full-length show, like 30 Rock or Lost, you'll get a big ol' cockblock, just like you'd see if you try to go to Hulu with any other browser on a TV (see: the epic Boxee and Hulu battles). Fox, who's also part of Hulu, might block Google TV from its site too.

Here's the thing: Web advertising is worth a lot less than regular TV advertising. The ads for 30 Rock on Hulu or NBC.com dump a lot less change into NBC's pocket than the ones that run when 30 Rock airs on the network. So if you're watching broadcast content on your television, broadcasters want you to watch TV ads, not web ads.

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That's the short version. The longer version is breaking down the conceptual barriers between media—where it doesn't matter where a video comes from, some indy producer on Vimeo or a giant studio—is a scary long-term prospect. These lines, between "quality" content produced in the old-school system and a really slick piece of viral video are important for Hollywood to maintain. So don't expect them to line up to help erase it. At least until there's a way to make sure they get paid. [WSJ]

Update: Google's trying to fix it.

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DISCUSSION

I ran some math, and while there's a lot of room for interpretation here, I think that it will put the TV exec's fears into some perspective.

Bottom line, they make about 3X as much on a TV ad as they do on a Hulu ad.

I'm working from here to get TV ad prices: [www.frankwbaker.com] it's an aggregation, but since they claim to be pulling figures from AdAge, I'm hoping that they're at least close.

For Hulu prices, I'm looking at this: [www.businessinsider.com] — old, probably out of date, doesn't take into account charging more for more popular shows, etc, but the numbers in there make the math work out nice.

Finally, I'm going to look at Glee's TV rating for last week from here: [www.zap2it.com]

TL;DR version:

* TV shows can charge between $200K and $450K for a single 30 second ad.

* Hulu is charging about 2.5 cents per ad

TV runs about 16 minutes of ads/hour— I'll drop that to 12, assuming that 4 minutes of that is unpaid promos.

Hulu runs 7 ads/show, or at least that's what I just got when I pulled up an episode. YMMV.

Getting specific, Glee is charging $272K/ad. That works out to $6.5M/show ($272K * 12 minutes * 2 ads/minute)

Glee had 11.5M viewers last week— that means that they made about *57 cents* per viewer.

But on Hulu, they only made *17.5 cents per viewer* (2.5 cents * 7 ads).

Is the difference really 40 cents? Probably not, but you can bet that the TV execs look at it that way. Clearly, it's significant.

So we've established that they make more on a TV ad than a Hulu ad. But what about how Hulu affects what they can *charge* for a TV ad?

We know that what you can charge for an ad is proportional to how many viewers you have— for sake of argument, let's assume it's directly proportional (although I will freely admit it's probably not.)

So then, let's say that Glee loses 10% of it's audience to Hulu.

Instead of being able to charge $272K/ad, they can only charge $244.8K (272 - 10%). Total revenue per show is now $5.875M

So how much did we make on Hulu to cover that gap? Not a lot: 1.15M viewers * 17.5 cents/viewer is $201K.

Our new total show revenue is basically $6.1M, vs the $6.5M we previously made. We've lost $400k, or about 6% of our revenue.

Since someone mentioned Nielsen, I'll throw that in— just because you don't have a Nielsen box doesn't mean that you don't affect TV viewership. Teams of mathematicians at Nielsen are constantly working to update how many non-Nielsen viewers each guy with a box represents, and they're not stupid. If 1M people watched a show on Hulu or torrented it, some of them had to have previously been TV viewers, and the model will get updated to account for that.

I'm assuming that someone's going to say that I'm not accounting for people that never watched the show on TV, but only watched it on Hulu— in other words, that should be considered a new revenue source that doesn't cut into the TV ad sales.

It's not possible to get an exact figure from Hulu on viewership for a show.

What I was able to find is that Hulu streams between 20 and 80 million shows per month. ([articles.latimes.com] http://www.reelseo.com/hulu-dances-viewers-watch-february/)

If you assume that each show has 4 episodes a month, and all are about equally popular, that means that a given episode can have between 5 to 20M viewings a month, but that's assuming that the show is so popular that nothing else is getting watched.

We know that's not the case, but there's no way to narrow it down further. So to cheat, let's look at YouTube— the 2nd most popular video on the site is on track to get 2M views this week.

If that were on Hulu, you would make $350K in revenue.

By itself, not a significant new revenue stream— $6.5M vs $350K. Let's put that in perspective for a second— you're adding almost 17% to your total viewership (11.5M vs 13.5M), but you only increased your revenue by 5%.

Let's go back to our TV ad revenue again for a second— if we assume that increasing our viewership by 17% means we can raise the ad rate by 17%, we can increase revenue from $6.5M/episode to $7.6M/episode.

$1.1M for TV revenue vs $350K for online revenue.

One last thought here— Hulu is likely shared revenue. In other words, some of that 17.5 cents is going back to Hulu. So take every online revenue number I gave you and shave off 10% as Hulu's cut.

Again, I admit to a lot of assumptions that may be wrong here. I hope that my errors are cancelling each other out. But you've got all the sources that I used, so you tell me: how far off am I?

So yes, I think it sucks that the studios are blocking the content. But when you look at the numbers, inaccurate as they might be, at least you have a better idea of where they're coming from.