Analog Dollars, Digital Pennies, and an Embarrassment of Video Riches

(MoneyWatch)  Fred Wilson of Union Square ventures had an interesting post titled Trading Analog Dollars For Digital Pennies. He quoted Jeff Zucker, NBC Universal CEO, expressing concern "that we do not end up trading analog dollars for digital pennies." Wilson writes that the change is inevitable and based on marginal costs of content copies. I agree that it is inevitable, but think that the marginal costs are only one issue. Even more important is audience dilution.

Analog and digital, it turns out, are polar opposites. Analog has physical costs which lead to scarcity driven business models. Digital has zero marginal cost (or near zero) which leads to ubiquity driven business models.

That much is certainly true. But there is a second statement that is less accurate:

The ability to watch a TV show or TV clip anytime anyplace is naturally going to lead to a lot more viewers than any individual show can get in the traditional TV viewing approach. The biggest weekly TV shows get around 20mm viewers. YouTubehas over 300mm monthly visitors according to comScore. Hulu is just getting started, but if it ever goes international (and I sure hope it does and soon), then it will eventually reach similar numbers of viewers.

It would seem true that if people could more easily watch a given video on their own schedules, a greater number of them would. But this rests on the assumption that people wouldn't have something else to catch their attention.

The explosion of distribution, combined with dropping costs of production, make the choice of video dizzying in scope. Wilson even acknowledges this by writing, "The fact is there is so much internet inventory, particularly when you count the various social networks cropping up all over the world, that the $20 CPM may be a thing of the past." No longer are people restricted to a set number of channels. They can find almost anything they might want.

Furthermore, Internet-based video does not easily move to a TV set yet, and it is subject to delays and interruptions in transmission that are largely unknown in commercial television. While ubiquitous, it is of significantly lower quality than what people get by tuning to that one time a week when a show is broadcast. If they don't catch the show when it airs, how many will substitute a view on a computer screen? And how many "hit" videos online are longer than, say, ten minutes?

People are not flocking to the web to watch traditional shows broadcast in a digital format. They're considering the range of entertainment available to them, and what it worth their attention online. Of course advertising rates will continue to drop, because the companies that have shows will find fewer people watching them, not more.

Video image via Flickr user timsamoff, CC 2.0.