Wednesday, May 12, 2010

How affiliate fees pay for content. This is actually very important to understand, because I think this is heavily tied up with much of the net neutrality regulations that are coming down the pike.

Hollywood is struggling to find a model to produce and pay for content, and right now it relies quite heavily on bundling and affiliate fees. The successful headliner shows subsidize the remainder of the programming on a channel or from an affiliate, and help provide seed money for new content. Moving to a true internet style, direct to consumer, a'la carte style content delivery makes cash flows more volatile, becoming more difficult to leverage successful shows, and significantly increases search costs for consumers.

That is not to say that this is the ideal business model for the entertainment industry. Bundling has its downsides, as successful shows are not rewarded fully, but instead used to subsidize failures, and as the article above points out, bundling encourages the production of large amounts of cheap, low quality shows to round out lineups. But Net Neutrality regulation is explicitly designed to allow the government to short circuit the natural process by which the market sorts through these options.
Copyright © Swing Right Rudie
A notebook to myself