The present and future of post production business and technology | Philip Hodgetts

Jul/10

19

What is my beef with advertising?

Yesterday’s post about $10 being the “magical figure” for video-on-the-web from prime sources, and I basically said that there’s no way I’d pay for a service that included advertising. I hate advertising: it’s intrusive and about 99.9976% irrelevant to my needs or interests.

I also hate advertising for another reason: it’s an economic intrusion on my life. It costs me far, far more than the benefit that Hulu – or a network – gets from advertising even though they’re charging more than they would normally get from advertising.

Here’s why. Typically a major network TV show will garner 25-65c per viewer per show. Very occasionally a top-rating, network-leading show might crack 85c per viewer per show.

Now, an “hour” long TV is is 42 – 44 minutes, not 60. The other 16-18 minutes are advertising. My time to watch those ads has a finite value and it’s not an equitable one at all.

Hulu does not have anywhere near the ad load of a Network but there’s less inventory so the same ads keep repeating in a very annoying fashion. Let’s say that there are 5 x 20 second spots in each 45 minute show. At best Hulu will be getting 65c from those five ads, more likely they’ll be getting a fraction of that, but let’s be generous.

At my charge-out hourly rate, that 2.5 minutes costs me $6.25!!! At my nominal salary rather than charge-out rate that’s still $2.79!! An average plumber would have a $3.33 opportunity cost from the advertising!

So, Hulu Plus wants to charge me $10 a month and then cost me $2.79 for every show to cover my attention to the show. Every single show I watch. Since we watch very little TV, way under 2 hours a day, that’s an additional (using the extremely generous 65c per hour show figure) $78 in revenue to Hulu Plus, although given the size of Hulu’s audience I doubt they get even 20c per viewer per hour show making that closer to $24 in advertising revenue.

But that time has cost me $334.80 for the month in attention.

And that, Hulu, is why you can’t have it both ways.

And before you all start in the comments, watching any TV is an opportunity cost. I choose to do that but I choose not to watch advertising because watching the advertising adds an additional $335 in opportunity cost to watch the advertising.

The cost to me is 4.3 to 16.5 times higher than the benefit to Hulu. I guess I’ve just convinced myself that a Hulu-like service, that I can watch on my TV and covers all programming ever made, will be worth $20 a month to me. Without advertising. With advertising it’s just too expensive.

PS, the numbers supporting advertising still don’t make sense at even more modest salaries. AT $20 an hour, the five Hulu ads still “cost” 83c up against a maximum revenue at Hulu of 65c (and more likely 20c). Monthly opportunity cost at $20 an hour is $59.40 for Hulu’s $79 down to $24 in revenue.

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4 comments

  • Jason Koch · July 19, 2010 at 8:18 pm

    So how do have your cake and eat it too?
    I agree with most of what you are saying.
    But what is the solution ?
    If you get something for free
    how is it “intrusion on my life”
    As an artist and video creator I am plagued by this.
    The people that create this should be paid don’t you think? (you mention it,but are you going to pay 59.40?)
    “With advertising it’s just too expensive.”
    maybe we can come up with a way to help the content producers and get rid of those ads all together
    I hate spending my time creating those ads but they pay my bills and help fund the creative stuff that I do. I am stuck in the middle of what pays and what doesn’t with people complaining on both ends.
    Your time is money so

    “watching any TV is an opportunity cost. I choose to do that but I choose not to watch advertising because watching the advertising adds an additional $335 in opportunity cost to watch the advertising”

    A lot of I’s but no mention of the creators?
    I hope I don’t come across as flamer, I like your blog

    • Admin comment by Philip · July 19, 2010 at 11:06 pm

      The thing is, if I could pay the producers directly they would be better off and I would be better off. 10c per viewer for a Daily Show would currently bring in $200,000 for each show, They get $35,000 per show from Comedy Central. The math works that way for almost any show you can name. And that’s the model I’d prefer. Pay a fair (as in what would be earned from advertising) amount for the show in a transparent manner and skip the whole “sell your eyeballs to a 3rd party” stuff we have going on.

      The creators are the ones who are getting screwed by the middle man, not the audience. They get a fraction of the advertising revenue,which is a fraction of the opportunity cost to me. I’m for the producers here. Just not the network middle men who no longer have a necessary role.

      Philip

  • Chris · July 20, 2010 at 12:40 pm

    Makes sense to me Philip.

    – Do you know of any companies that started a business model like the one your describing (like a Hulu for $20/month w/ no adds)? Did they succeed or fail and why?

    – For a content producer that wants to sell/distribute their media in the way your describing, what are the best currently available avenues for doing that?

    Chris

    • Admin comment by Philip · July 20, 2010 at 12:45 pm

      To date no-one that I know of has tried the no ads/$20 a month for unlimited. (Truthfully, for no ads, on demand wide choice of current and past shows, I’d pay $50.)

      Currently the best alternatives seem to be either an iApp or klickTab.com (another of my companies fwiw.)

      Philip

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