Advertising sucks, but TV would be worse without it

By: Mike Montgomery

Given the opportunity, many of us choose to organize our TV watching to minimize ads as much as possible. We record, fast forward or pay subscription fees to services like Netflix and HBO to watch shows ad-free. But here’s the dirty little secret of television — advertising makes it go and keeps it affordable for the viewing public.

Which is why the Federal Communication Commission’s attempt to “open” the cable set-top box to competitors has the potential to be a giant disaster for consumers. Let me explain. Although advertising is becoming increasingly easy to skip, it still funds an enormous number of programs. Last year advertisers spent $79 billion on TV. That’s down slightly from 2014 but still makes it the largest slice of advertising spending in media beating out digital and (obviously) print.

Advertising makes up as much as 50 percent of revenue for programmers and 8.5 percent of revenues for the so-called multi-channel video programming distributors. The money flowing from these ads keeps the TV ecosystem going. Networks have money to invest in and pay the creators who make TV shows. Prestige shows like “Mad Men” and “Empire” are financed by ads. But it also allows MVPDs to keep subscription prices relatively low by providing another source of revenue — one that doesn’t come out of consumers’ pockets. That helps subsidize pay channels, which is why standalone HBO costs $14.99 per month but you can get HBO through your cable provider for $10 per month.

The FCC’s proposal to open the set-top box market to third-party developers would destroy this entire system. The MVPDs would be required to provide their programming streams to anyone who wanted to use them. These third-party box makers wouldn’t be required to follow the advertising deals that MVPDs have carefully contracted. They could alter or delete the original ads or pile on more ads and keep all that new revenue for themselves, driving down the value of the “original” ads and sucking up revenue that would ordinarily go to fund new programs. Chairman Tom Wheeler has claimed the new rules won’t allow this but experts recognize that the “rules won’t prohibit extra ads around TV channels.”

Read the full article here.