CBS Wins Battle…But Will it Win the War?

Les MoonvesWhen I was growing up, one of the adages I always took to heart was “perception is reality.” As someone that wanted to grow up and be involved in the media, I always looked at news stories and celebrity gossip as proof of that adage. Surely, people couldn’t be as stupid, crazy or mean as the headlines made them out to be, but if anybody should be aware of how their actions can be misconstrued by the media, surely it was the politicians, celebrities and entertainers who often used the media to their advantage.

But now I am a grown ass man, and I know better than that. Perception is not reality. Reality is reality. Yes, how we are perceived often goes a longer way than what we are does, but it is our nation’s desire to be perceived in a manner that we cannot or should not live up to that is slowly messing up the integrity of the “good ol’ days.”

After graduating from college and entering the media business as a lowly intern at the ever-so fledgeling publication Inc. Magazine, I began to study up on media and entertainment strategy and one quote kept coming up: “Content is king.” Now the person who should be credited with this term is Bill Gates, who wrote an essay by the same name in 2006.

However, by some twist of fate, and perhaps media manipulation, CBS majority owner Summer Redstone is often the one credited for coining the phrase “content is king.” While the credit has helped put him among the pantheon of the most infamous media moguls, that very phrase may come back to bite him in ways he could not have imagined. But I’ll get back to that in a second.

Truth is, content is not king. It took me 7 years, a couple of start-up websites and decreasing budgets all around me at my various corporate jobs, but after an MBA degree and the $200k that it costs, I learned that content is anything but king. Props to Columbia Professors Ava Seave and Jonathan Knee for explaining this to me and dozens of other aspiring media moguls over the years. Because while I certainly don’t agree with everything they say, I agree with them on this one.

It has taken me all of 378 words to do this, but allow me to finally get to the point. CBS has won! In ending their carriage dispute with Time Warner Cable over Labor Day Weekend, CBS got the reported $2 per subscriber they were looking for, and just as importantly, CBS retained the right to sell access to their shows to digital distributors like Amazon Instant and Netflix.

That’s a big win for CBS, as well as for Summer Redstone’s phrase “content is king.” After all, Time Warner folded for one reason and one reason only: the content, in this situation, was more important than the distributor.

That said, professors Knee and Seave taught me that the distributors of content were the ones that held the most power in the media industry. The people who create content (studios, journalists, singers) were at the bottom end, and the packagers (networks, publishers, some websites) were not too far above them. But the distributors (cable companies, satellite companies, retailers) were the ones making all the money. They were the ones controlling the relationship with the consumer, controlling the prices content-makers got paid and controlling the vehicles through which many types of media would be available.

For the most part, that belief continues to be the case. Many distributors are still making all of the money. Take a look at the cable companies. Despite their falling subscriber counts, they still manage to increase their profits through further consolidation and raising the prices on their locally monopolistic services. It’s quite beautiful actually. Despite yours and my desire to get off the cable box’s teat, we get pulled in by things like sports, HBO and Breaking Bad, which are hard, if not impossible, to watch the way most people want to watch them without paying for a cable subscription.

But in controlling the things I like to watch, cable has to pay for the content I like to watch. That means cable companies have to pay top dollar for sports channels like ESPN and YES. And in turn, those channels have to pay top dollar for the NFL and baseball teams that actually produce the content those packagers want to own. Until now though, the only way to get the NFL and HBO in front of a huge audience was through cable. But as SmartTV continues to evolve and becomes more and more widely adopted, content makers are increasingly more able and willing to go straight to the consumer themselves.

But going straight to the consumer can be overrated. It sounds cool. Instead of giving Comcast the ability to distribute my package of content as they want, I can just put it online and control the relationship with the consumer and keep all of the margin the distributor was once collecting for myself. Problem is that those cable companies have a lot of scale and a lot of customers. Sure, you can put your channel online, but how will anybody find it, and who is going to invest millions to make sure somebody finds it? That’s a lot to ask of a cable television channel that’s not use to doing that.

Which brings me back to CBS. Time Warner Cable tried to call CBS’s bluff. The cable company essentially bet on the fact that CBS needed them more than they needed CBS. It was a worthwhile bet. After all, CBS immediately lost 3 million viewers in 3 of the biggest 10 markets in the United States. In the process, they were risking hundreds of millions of dollars in lost retransmission revenue, and they essentially gave up all kinds of advertising dollars by having smaller audiences during primetime. Early on, it seemed like Time Warner could win this battle.

Instead, TWC lost. And they lost, because CBS’s content was king. When TWC finally gave in, the first NFL Sunday (partially aired on CBS) was 6 days away. And if TWC subscribers did not have access to television’s most popular programming, the cable company would have lost an untold number of subscribers, including myself! Clearly, TWC did the math, and whatever CBS was asking for was going to cost them less than whatever an expected drop in subscribers was going to cost them.

So in this instance, content won out. But is that sustainable, or were my professors wrong?

Let me put it this way, CBS better reap all the rewards they can from winning this battle, because their long-term prospects for winning the war don’t look good.

There is going to come a day when the combination of growing programming costs and a decline in the number of subscribers is going to shake the cable industry. Either cable is going to go away altogether (unlikely), or a la carte is going to happen. And when, not if, a la carte becomes a thing all Americans can get, are people really going to be prepared to pay $4 or $5, or whatever CBS will have to charge to be profitable, for a channel that should be free! Not a chance in the world.

Fact of the matter is, both you and I can get CBS, Fox, NBC and ABC for just $9.99 a month by signing up for Aereo. While I don’t think Aereo’s business model and thievery will last, I don’t think that broadcasters can get away with charging individuals (not cable companies) for the right to watch content that the government is subsidizing. Yeah, the subsidy isn’t much, and broadcasters could decide to become cable channels to get off the government’s teat, but then they would be no better or bigger than cable networks, and I don’t know that’s the market category they want to be in.

Truth be told, the cable companies and television networks need to work together, or their current business models, which are already sure to disappear in the future, will spell the end of their profitability. Netflix and Amazon Prime, along with on-comers Google and Apple, are all trying their best to disrupt the current TV ecosystem. And take note, none of those companies are content companies in favor of the adage “content is king.”

So if major players like CBS and TWC keep doing battle like this, the industry will not have to wait long before consumers start demanding retribution for their TV viewing woes and increasing costs. Sure, CBS got their $2 per subscriber this time, but those costs aren’t being paid by TWC, they are being paid by you and me. It’s only a matter of time before we the public declare war on the status quo. Unlike the last 3 decades, the reality is that the internet era has made the consumers the favorite to win this war…and perception has no place in this fight.

 

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