The Future of Web Video

9:55 AM -- Why do Internet users continually resist paid content on a systematic basis? Perhaps because they've been trained to think that way, since many current Internet business models were built on the ad-supported, "free" premise.

We have all seen the sterling examples of this model, with Google (Nasdaq: GOOG), Facebook , Hulu LLC , and YouTube Inc. , along with a host of others, including news organizations, betting on ad-supported revenues to make a profit. While this model worked for some businesses, it has not for others. Relying solely on ad-supported revenues is a weak model, as the broadcast TV industry found out the hard way.

Historically, news organizations relied heavily on paper subscription models supplemented with ad revenues to make their profits. Linear TV models like CNN and Fox News relied heavily on the cable industry’s monthly subscription models while being supplemented with ad revenues. These amounted to dual and re-occurring revenue stream models, realizing the best of both revenue worlds -- subscription and advertising.

I’m sure the current ad revenue-based models were launched based on garnering a gigantic number of users who could be attracted to these sites based on whatever product/service was being offered, not to mention that these models worked and trained users that Internet content was free.

But what new startups are going to get the numbers needed to break even, much less make a profit? They are few and far between, and Internet junkyards are full of great ideas based on an ad-supported revenue model. One only has to remember the dotcom era where company valuations were based, not on real revenues, but on pie-in-the-sky business models.

With a continued proliferation of broadband Internet users, all clamoring for content to distance them from a linear TV model, the time has come for studios and networks to understand that Internet-based subscription models will work, if the business model gives the right combination of a paid and free content model.

The cable industry is using this model to perfection with its TV Everywhere initiative, giving away free Internet content… so long as customers keep their subscriptions. In the future, these companies will surely test dual revenue Internet models (ads and subscription), but that move will likely be gradual since traditional, linear TV continues to produce great profits. (See Comcast's 'Xfinity' Goes Live .)

The bottom line to subscription-based content delivered over the Internet is that consumers want a quality experience at a reasonable price. And that can only happen in a competitive market that does not get trapped into upward rate adjustments.

This is where the linear TV model got into trouble. While it produced great content and hundreds of programming choices, it became too expensive and forced consumers to subscribe to channels they didn’t want or need. But here lies a new frontier where innovation and competition can solve consumer demand at a digestible price model.

The era of Internet video subscriptions is coming, so turn up the bytes and let the good times roll!

— Leonard Grace, a cable industry vet, is a telecom strategist and blogger. He can be reached at [email protected]. Special to Light Reading Cable

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