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.

Kara Swisher goes to meet with Hollywood Executives who are all looking for a Golden Ticket (Willy Wonka reference) so that they can charge the same monopoly rents they did when they (used to be) a monopoly.

Michael Masnick deconstructs Swisher’s reporting and parses it for us. This is a worthwhile read, even if a little long.

From music to movies to television, the biggest minds here still sound perplexed as to what will finally be the golden ticket to carry them through to the inevitable next era of digital distribution.

That single sentence basically describes the problem. These guys are sitting back and waiting for someone to hand them a golden ticket that replicates the old ways of doing things. That’s not how it works. No one gave the buggy whip makers a golden ticket that let them keep their old lines of business going.

The unnamed executives even ask why the customer always gets to be right. Yep, that’s how far removed they are from any sense of commercial reality. The customer is always right because there’s always someone else that will meet the customer need if you don’t. (Where is my “any program, any time, any device for a fair price” service again? There’s a customer demand for it but the old guard won’t deliver.)

Final words:

The role of the disruptor is not to make life easy for the disrupted. Swisher and these execs seem to be confusing the role of certain folks in the legacy industry with the overall entertainment industry itself. As noted, the entertainment industry is thriving. More movies, music and books are being created. More money is being spent. It’s just that it’s going to different players. There’s no reason to “figure out a way to keep talent from being dragged into the future.” The opportunities and wide open path are there. The problem isn’t that tech leaders haven’t made it easy for them. They have. It’s that these guys are so myopically focused on the way they used to make money they don’t realize that the new opportunities are already there and have been embraced widely by others.

Henry Blodget takes another look at the Kaiser Family Foundation survey of 2000 families about the media habits of 8-18 year olds. As this group grows, they become “the new normal” for media consumption.

No real surprises in the results, but how very different is the audience for broadcast Television where more than half the audience are outside the desirable 18-40 demographic.

Other results from the Kaiser survey:

• Kids consume a heck of a lot of media–and more all the time.  Basically, if kids are awake, they’re consuming media.  And, increasingly, they’re consuming multiple forms of media at the same time.

• Kids’ print media consumption is tiny and falling.

• Kids’ digital media consumption is going through the roof.

With a median age of 51, that makes more than half of those who watch prime time television are outside the desirable 18-45 demographic. More than half outside TV’s desired demographic. Hard to have a hit.

What does this mean for those content creators that rely on that distribution channel? Plan another approach; this one is nearing its use-by date!

So what does this mean for traditional content owners?

First, it means they are losing. They are losing their audience, which will ultimately translate into losing their revenue and relevance. If they do not commit to developing a meaningful audience off television, they will begin to lose their market capitalization.

Read on for implication two (Google and Apple are winning) and three (Technology is king over programming).

Apple’s minimalist approach certainly fits that screen factor, but there’s no real way to get Internet content there, other than where there’s a special deal, such as with the YouTube access. But here we run into the fundamental problem with this kind of interface: try searching for a video in YouTube, or heaven forbid (if you’ve hacked the Apple TV with ATV Flash to get a browser), actually typing in a URL!

Yahoo and Google want to bring a “social” presence to the big screen, as do Boxee and others, but I think they’re fundamentally going about it the wrong way.

Why do we watch TV on that big screen anyway? I think there are two fundamental reasons why we watch TV on a big screen instead of a computer screen (and one of them may indeed be bogus): a bigger image and watching socially.

In our household we have an old G4 laptop that serves as the primary media server via an Apple TV to the biggest screen in the house: in the living area. We frequently watch shows on our computer screen instead of the big screen, particularly when it’s a show I might enjoy, but my partner may not. Or I watch old TV episodes while scanning slides or processing images. But we watch some TV together and when we do that, we watch it on the big screen. Why? Because we’re watching communally.

When I’m watching TV communally I’m already involved in a little social networking with the person, or people, across the room. If I wanted to tweet my approval (or not) of a particular program, I wouldn’t want to do that on the communal screen, I’d do it on a personal screen: in my case my laptop.

The big screen argument may well be bogus: where I’m sitting right now I have a view of our main TV and my laptop screen and my laptop screen takes up approximately 4x more of my field of view than the TV. I would have a bigger screen experience watching on my laptop at 3′ than a big TV at 20′. So, for a lot of content, it’s really only the social aspect that requires the large TV.

I simply don’t want Twitter/Facebook etc. on the program screen. (That big TV.) And I don’t really ever want to explore web video on a big screen TV display without a keyboard or better input device.

And the it hit me: Apple and Google (et al.) are going about it the wrong way. The program goes on the big screen. Period. The interface is on our laptop, or iPhone, or iTouch, or (the killer one) an iPad. All have a keyboard for easy entry of urls and search; there are social applications that work just fine on those existing screens.

Trying to put the interface on a screen 20′ away without a keyboard (and wireless keyboards aren’t really an option) is just wrong: not only is it the wrong place, I don’t want to clutter my program communally (which presumably I’m watching because I enjoy it) with social media that’s personal.

The two screen approach makes much more sense. Put the program on the screen – uncluttered like  the program’s director intended – and put the control and any desired interactivity on another screen. An iPad would seem to be perfect for this, but since I don’t plan on getting one, an iPhone or iTouch or Laptop could also run the interface anywhere on the same local area network.

It turns out that an interface designed for a 20′ experience works equally well as a 2′ experience, but with touch and keyboard at hand.

Ironically a display designed for 20′ all works well at 2″ on a smaller display.

Adobe, no one seems to want to say this to you, but I will. Stop it, you’re embarrassing yourself.

You’ve just spent God-knows how much money on an ad buy that blankets much of the technology press (including this site). It’s a strange passive-aggressive message that just makes Jobs’ aggressive-aggressive post from a few weeks ago seem even more forceful. And it’s transparent. But worst of all, it won’t work. You must know this.

Jim Whimpey also has his say about who is really “open” and who is claiming to be open but isn’t:

Adobe: not open, claim to be.

Apple: not open, don’t claim to be, contribute heavily to that which is truly open.

Flash is an interactive player that produces a consistent result across browsers and platforms. That’s why publishers like it. But most Flash use is at a very basic level: a simple video player. That is also why early QuickTime interactive programmers liked to use Flash (yes, as a QT media type) for controls and text as QT text did not display consistently across platform.

Flash is a player and not a codec or file format. The current iteration of the Flash player plays:

• the original “Flash video” format, which is sequential JPG files, up to 15,000 a movie
• Sorenson Spark, the first real video codec for Flash; based on the very ancient H.263 videoconferencing codec it did not produce good video quality.
• On2 VP6, a good, high quality codec now owned by Google with their purchase of On2. Still not a bad choice for Flash playback if you need to use an alpha channel for real-time compositing in Flash.
• H.264 in MP4 or MOV (with limitations) format. Licensed from Main Concept (now owned by DivX).

Note that those same H.264/MP4 files can be played on Apple’s iDevices using the built-in player; or using the <video> tag supported by HTML5 in Safari or Chrome (and IE9 coming sometime).

Flash as a simple video player is probably dead in the water. Flash for complex interactivity and rich media experiences probably will continue for a while, at least until there are better authoring environments for the more complex interactivity provided in “HTML5″.

That brings me to HTML5, which is not a simple player but a revision of the whole HTML tags supported by browsers, that allow native video playback by the browser without plug-in (the <video> tag); local storage (similar to Google’s temporary Gears offering, now replaced by HTML5 support) and a whole bunch of other goodies. Add to this CSS for complex display (and I mean complex – mapping video to 3D objects in the browser, for example); Javascript for interactivity and connectivity to remote servers/databases; and SVG (Scalable Vector Graphics) for creating graphic elements in a browser (useful for interface elements in rich media).

Javascript used to be very slow and not even comparable to the speed of interactivity possible in Flash, but over the last three years all Javascript interpreters have become massively faster, making complex software possible in the browser. (Check out Apple’s implementation of iPhoto-like tools in their Gallery – online version.)

Summing up: HTLM5/CSS/Javascript is already very powerful. Check out Ajaxian for examples on what is already being done. For simple video playback, Flash is probably not the best choice. MPEG-4 H.264 video AAC audio probably is the best choice. For rich interactivity targeted at anything Apple, build it with HTML5/CSS/Javascript – it’s the only choice. It is also a powerful one: Apple’s iTunes Albums are essentially HTM5-based mini-sites; iAds are all HTM5/CSS/Javascript based and not lacking in rich interactivity or experience.

If you’re building a rich media application to connect with a web backend targeting mostly desktop computers, then Flash could still be the best choice.

For building Apps for iPhone, iPad: use the Xcode tools Apple provides free. While Adobe might be complaining to the Feds looking for “anti-trust” sympathy, they won’t get it as Apple is nowhere near dominant in any market, which has to be proven before taking up the point as to whether or not they have abused a monopoly position. Apple are not the dominant smartphone manufacturer; nor dominant MP3 player, nor dominant Tablet manufacturer. (Ok, they probably are dominant in MP3 players and Tablets but they are not, by definition, a monopoly, and Apple will work very hard to ensure they never are.)

But the entertainment industry has a vested interest in the success of this new type of convergence, as within it lies the secret to its continuing prosperity. The only way to block the incredible ease of pirating any content a media company can generate is to couple said experiences with extensions that live in the cloud and enhance that experience for consumers. Not just for some fancy DRM but for real value creation. They must begin to create a product that is not simply a static digital file that can be easily copied and distributed, but rather view media as a dynamic “application” with extensions via the web. This howl is the future evolution of the media industry.

It brings together some of the thinking I’ve been doing on how to challenge the loss of revenue from direct consumption or from advertising revenue when digital files of programming and music are so easily shared and copied. Techdirt.com like to summarize their approach as CwF + RtB = financial success: Connect with Fans and give them a Reason to Buy some scarce goods. Many musicians are already doing this and the results are summarized in the article The Future of Music Business Models (and those who are already there).

I agree that CwF + RtB is part of the future: we can’t charge for infinitely distributable digital goods but we can charge for scare goods (or services) promoted by the music.

But I’m not as sure that will work in the same way for the “television” business, which I define as being “television style programming professionally produced” even if it’s never broadcast on a network on cable. Certainly it will be possible to sell merchandising around programming, and everyone is encouraged to do that.

I’ve also written and presented – as long ago as my Nov 2006 keynote presentation for the Academy of Television Arts & Sciences – that producers and viewers have to be more connected, even to the extent of allowing fan contributions.

Well, last night I had something of an epiphany that bought together Edo Segal’s thoughts and my own as I contemplated the implications of the recently announced Apple iPad.

As a brief aside, I find the iPad to be pretty much exactly what I was expecting (although I thought maybe a webcam for video chat) and interesting. Although I don’t see where it would fit in an iPhone/Laptop world, I can see plenty of uses particularly for media consumption. (For example a family shares an iMac but each of the older children have their own iPad for general computing, only using the iMac for essays etc.)

But the iPad doesn’t really lend itself to static media consumption as it has been: where the producer sends stories fully finished and complete to viewers who passively consume. That’s when the import of Edo’s comment struck: there is more of a future in media consumption for those producers who create the whole environment.  This has definitely been done by many movies and shows but usually with more of a consumption-of-information about the show, rather than a rich interactive experience where fans of the show are as important as the producers.

The future of independent production and media consumption is an immersive environment (website, or better yet and iPad app) with:

• Content
• Community (forums, competitions)
• Access to the wider story, side stories or “back story” in various media formats
• Character blogs
• Cast and crew blogs
• Fan contributions and remixes.

Such an experience would be almost a cross between a typical television program and a video game environment. Sure programming is part of what can be consumed on the site; but there are competitions, games, back stories; additional visual material edited out of the program source, with additional shooting, using technologies like Assisted Editing.

Any unauthorized distribution of content will only be distribution the content, not the experience of the program in its full glory.

Now, there’s no particular reason why this couldn’t be largely done on a website, but it is as an immersive iPad app that I think it will really be fantastic. The iPad is very immersive and tactile. It presents no “border” (i.e. browser window and other computer screen elements) to distract from the programming. It begs to be interacted with because holding it in place to watch a 22 or 44 minute show doesn’t appear to be going to be all that great.

There’s one more selling point for the iPad: it allows in-app sales, so some of the “reasons to buy” can be sold very transparently without even leaving the app’s environment. Avatars, screen savers, certain games or activities might carry a small charge. Yes, even the media itself (or some of it) could carry a small transaction charge. Smooth, frictionless sales in an environment optimized to engage people in the story of the show.

Apple’s iTunesLP format is a very small start in this direction by building a micro-site for the album artwork. This is very powerful because it supports most modern web technologies in a tight package and interactive features (all, b.t.w., without Flash but looking a lot like Flash).

Edo has some further good ideas and I recommend reading the article at the top of this post.

RED Digital Cinema’s latest announcements and more on how we’re going to fund entertainment

http://www.digitalproductionbuzz.com/BuZZ_Audio/Hodgetts_BuZZ_091105.mp3

More of my thoughts on the Democratization of production

http://www.digitalproductionbuzz.com/BuZZ_Audio/Hodgetts_BuZZ_091126.mp3

My Look Back on 2009

http://www.digitalproductionbuzz.com/BuZZ_Audio/Hodgetts_091224.mp3

My thoughts on what to expect in 2010

http://www.digitalproductionbuzz.com/BuZZ_Audio/Hodgetts_091231.mp3

Television is to newspapers and magazines what movies are to music.

In the music and movie models we’ve been used to, there is a direct transaction – payment is made to buy music (on disc or download) or to pay to view a movie (in a theater or by buying a DVD). This is a fundamentally different model than Television, where the content is “free” in return for your “attention” to advertising. Advertising supports both Television and newspapers and magazines.

Yes, people pay a small amount for newspapers and magazines, but that is nowhere near the cost of producing the magazine. Newspapers and magazines (I’ll just say “newspapers” from here but I include magazines) are heavily subsidized by advertising or they can’t survive. (Consider how many magazines have been closed in the last year all attributed to the “loss of advertising revenue”). Given that I don’t believe advertisers are coming back, what are the implications of the music experience for movie distribution, and the newspaper experience for television distribution. Without distribution there is no production.

The music industry has found that “infinite goods” – those that can be produced for close-to-zero (a digital copy) – has changed the market. Classic economics tells us that the sale price will trend toward  incremental cost of a sale. For music that’s zero or close to it because there is no scarcity. Scarcity, again classic economics tells us, is what drives up price: no scarcity and the price drops toward the marginal cost of producing the copy. (Yes, classic economics ignores the cost of production.)

The movie industry is finding some of the same dynamics happening, except that the movie industry has an advantage: the primary product is not the movie, but the “going to the movies” experience. Clearly the movie-going experience is more important than the movie otherwise attendance would have dropped dramatically as the quality of picture has dropped. Instead movie attendance is up despite audiences being treated like criminals with bag searches and, in some theaters, full body, airport-style scanners.

The smart people in the music industry have also realized that the business model they grew up with – where Record Companies actually had a role to play – is no longer viable. (When you have to sue your customers to “keep control” of your product, you have acknowledged a total failure of business model and you should be allowed – encouraged even – to go out of business.) So they’ve been deriving new business models that use the non-scarce good (the recorded music) to promote scarce goods – like concerts, experiences and merchandise.

Music, and movies, will continue to have “direct pay” models but they won’t be the same as in the past. (Nor should anyone who has two working neurons think the models can remain the same.)

It is newspapers and television that I’m worried about. The current models for both are unsustainable. Advertising revenue has dropped dramatically partly because of the current economic conditions, but long term because advertisers have better alternatives than renting some irrelevant eyeballs for 30 seconds at a time with a message that’s irrelevant to 99% of the audience who aren’t ready to buy your product right now.

Newspapers once provided a valuable service(s) that have been replaced by better models online. Craigslist has effectively killed the cash cow of classified advertisements because it’s a better model (free, instant). No-one really needs a newspaper to learn the session times for the local movies (available online) nor really, to decide what car they’ll buy next.

People, by and large, don’t need newspapers for news either. Not that most newspapers did that much “reporting” anyway. Surveys of typical local newspapers showed that they often have as few as five or six “real” stories (researched and written by staff reporters) not sourced from elsewhere. Most “news” comes from Associated Press, Reuters, people-in-foreign-countries, press releases, etc.

Worse, most newspapers (and television news) do not really vet their stories, taking away one of the major claims that we “need” professional journalists because, unlike bloggers, they “fact check”. (Really CBS? Who “fact checked” last night’s industry-lacky piece full of major errors on 60 Minutes?) It’s hard to make the case that the majority of professional journalists actually fact check anything. (Quick quiz – in any news story that you’ve been involved with and then seen the reporting, has it ever been completely accurate? Never in my experience, never.)

So, when the impetus for “demand” drops, and the money to produce evaporates because even the advertisers have a better way to do things, newspapers will, of necessity, die. That does not mean that great journalism will die, but it will be funded differently and have very different forms.

Television, including basic cable, is facing the same challenges: advertising revenue is drying up and unlikely to come back to previous levels, meaning the whole model is probably broken. Not this week, not next year, but long term Television as we know it is being destroyed by this lack of advertising revenue; the failure of the “players” to adapt business models, and that audiences for any given show are much smaller because there are so many choices.

What we’ve known as Television will have to evolved into a model that allows for “any program, any time, any device for a fair price” (i.e. a return that is similar to the return from advertising, not an attempt to get a 4x return as the Networks currently do with iTunes et. al).

I suspect that will, like with the Record companies and Movie Studios, leave the Networks out of the picture as middle-men imposed between producer and audience.

I don’t (yet) know what that model is going to be, or indeed if there will be only a single model, but the transformation of a nearly-70 year old business model based on scarcity (broadcast licenses) has to evolve when that scarcity no longer exists. And it no longer exists.