What's the Value of Concentrated Viewership?

Mark Cuban hypothesizes on the value of concentrated eyeballs on a video stream. He doesn’t remember why he was reminded of Metcalf’s Law, but I do, he brought it up in an exchange we had a few weeks ago regarding the perception that the more people watching at the same time, the more valuable the content is. Cuban hoped to generate thinking and discussion with his blog entry, so here is my “thinking out loud” on the subject.

I agree with Cuban’s hypotheses in his blog entry for the most part, but I am in “simple man asking simple questions” mode when it comes to my examination of the TV space, and so far my thinking boils down to:

The value is to both the producers of the content stream and the broadcasters of the stream(s). How is this value determined?

1. How much people are willing to pay for the content
2. How much companies are willing to spend on advertising
3. a combination of both

One assumption I have not validated is that for the most part in cases like ESPN, people don’t realize they are paying for it specifically. Oh sure, they know they pay for cable, but they don’t associate the fees with “buying the content” until you hit the realm of HBO, PPV, MLB Extra Innings, etc.

For purposes of forward looking thinking, at some point in the future I don’t think the opportunity will exist in the scale it currently does to monetize content via physical media (DVD, etc) distribution. I don’t see the revenue from that drying up completely, but I think for the most part how people will buy content in the future will change and I’m guessing how content is purchased/received/accessed will change dramatically. I believe every single one of those changes (some which are already in progress) will come at the expense of the # of people with eyes on the stream at the same time.

As Cuban himself pointed out to me, the number one show in 2007, American Idol wouldn’t have cracked the top 20 in 1987. More people watched Monday Night Football , the #20 show in 1987, then watched American Idol, the #1 show in 2007. I don’t have the data available, but I’d bet $1000 without the data that the cost for a 30 second spot on American Idol in 2007 was higher (adjusted for inflation, etc) than 30 seconds on 60 Minutes in 1987. If this is correct, 1/3rd of the audience 20 years later has more “value” than three times as many eyeballs in 1987.

This my friends seems to be the new math. Why?

My working theory is : advertisers have no real idea how to value their advertising, but they believe what Cuban is preaching. American Idol may have 1/3rd the eyeballs of 1987’s top show, but it’s the biggest “all eyes on at once” show, and the advertisers do value the concentrated viewership regardless of any real ability to quantify (or even qualify) what the value of this actually is in pure dollars and cents. The thinking seems to be more is better, and “fear” comes into play. Fear of looking stupid, fear of missing opportunity, fear that NOT paying to have more eyeballs at once will impact sales (even though I can find no actual data that would seem to justify such a fear).

What results is the buyers of television advertising and the sellers of the space seem to form one of the most inefficient markets ever, with no real basis for determining “valuations”.

Can it continue? If the top show in 2027 has 1/3rd the eyeballs of American Idol – will the price (relative to inflation) go up, stay the same or go down?
What happens when even 50% of the people are watching 50% of their content via time shifted DVR viewing?

And in the future, won’t I actually be able to get more for less? Is it possible I’ll be able to subscribe to the major broadcast networks, HBO, TNT, all of ESPN’s channels, USA, SciFi, whatever the local cable sports channels are, all in HD and with some kind of “virtual” DVR/On Demand (anything on the channels I’ve subscribed to me is available for X time after it initially airs) and pay significantly less than the channels I have today?

Is there anything prohibiting someone from trying to cut these deals now? In the case of the subscription the individual channels (ESPN, TNT, the local sports channel) would likely get a bigger cut than in the current arrangement with the Cable & Satellite distributors, and honestly, I don’t care about almost ALL of the channels on my package. I’d be better off paying for specific content on a pay per view basis than subsidizing a whole boatload of content I almost never watch on a monthly basis.

I believe these services will certainly come and fragment the concentration of “people viewing the same content at the same time” even further. But it’s a fairer market for the buyers of content.