Interactive Channels and the Challenge of Content Budgeting

Abstract

The standard model of content investment and distribution strategy is extended to include online outlets for content that, in the past, has been distributed through traditional media. The model identifies those conditions that do and do not favor online distribution. It shows that, depending on circumstances, it may be optimal for a media product to be available online as long as it is being distributed through traditional media, to make it available online only part of the time it is in traditional channels, or to never release it online. Online distribution is more likely to increase a media product's earnings the higher online revenue is per audience member compared to per audience-member revenue in traditional channels, the larger the contribution of Internet distribution to a media product's total audience, and the larger the contribution online availability makes at any time to subsequent demand for the product. The interactive capabilities of online channels also may be employed to more fully exploit advertisers' demands for access to online audiences, which also increases profits from online distribution. Exploiting the social character of Internet usage to promote content may or may not make online distribution more profitable.

Acknowledgments

Descriptions of current practices and prospective services presented in this article reflect, to a large degree, a fairly intensive monitoring of the relevant trade press, both online and offline. I was considerably aided in this task by Sang Yup Lee, who helped with the search for relevant materials and provided helpful summaries of recent developments.

Notes

1. For example, a television network may give a situation comedy's producer a budget to work with that covers salaries for onscreen talents, writers, and various technicians who work on the set. However, if the creative direction of the program is influenced by creative advisers employed by the network rather than by the producer, the cost of the time devoted to the program by these personnel would also be part of the inclusively defined production budget.

2. To simplify the exposition, for the remainder of this article I use revenue to refer to net revenue as just defined here.

3. This means that the length of delay will be influenced by the market rate of interest, which is the opportunity cost of delayed earnings (Owen & Wildman, 1992).

4. See Besen, Krattenmaker, Metzger, and Woodbury (1984, chaps. 5 and 6) for an excellent treatment of the nature of competition among program suppliers for placement on networks' and TV stations' schedules.

5. The backward rotation assumes the monetary effect will be larger for programs with larger budgets. The monetary size of the shift will be larger for programs with larger budgets if, even for flops, increased production expenditures improve audience appeal.

6. In what follows, I sometimes simply refer to a program's fraction or share of the total audience and the per-viewer revenue it generates in different windows and distribution channels. In each case, this should be interpreted as an expected value.