Supporting the Madness: Competing with Free

Back in November, during the fight to defeat SOPA and PIPA, I wrote a blog post arguing that content companies could compete with, and prosper in spite of, the illicit distribution of their content online. In that post, I argued that the success to pay-to-stream services like Netflix, and free with commercials services like Hulu and Spotify, clearly shows that when content is made available through easy-to-use, legal pathways, consumers will access it that way. With regard to sports, at least, the content companies may have figured this out.

The biggest sporting events of the past three months (the Super Bowl and March Madness) were (and the NCAA Division I Men’s Tournament continues to be) available to watch online. The NCAA Tournament is available for a fee, while the Super Bowl was free. During both events, commercials were shown in the online feed during breaks. This provides direct support for what groups like Public Knowledge argued: innovative content delivery models are an effective way of combating piracy while expanding revenue.

The month-long extravaganza of college basketball that is the Division I Men’s Basketball Tournament is so popular that for the past two years, it has been broadcast across four television channels: CBS, TBS, TNT, and TruTV (the latter three are owned by Turner Broadcasting System, a division of Time Warner). This multicompany distribution system, combined with staggered start times, has been a boon to those fans that are able to sit down in front of a television for twelve straight hours and watch up to 16 games.

Unfortunately, because the first two game days of the “Second Round” of March Madness fall on a Thursday and a Friday, many potential viewers are stuck at work, unable to reach a television. In 2004, when CBS held exclusive rights to the tournament, it made out-of-market games available online for a fee, and starting in 2006, it put early round out of market games online for free. The strategy paid off, and it was kept in place after CBS signed an 11 billion dollar, 14 year broadcast agreement with Turner in 2010. There was good reason to do this: in 2009, CBS made $4.26 per online viewer, only slightly less than the $4.76 per television viewer it earned, and certainly more than the $0 it would have made off those who had no other options to watch the games.

In 2011, the March Madness On Demand Service counted 26.7 million visitors, and users streamed a total of 10.3 million hours of video in the tournament’s first weekend alone. Granted, the first weekend features 48 of the 67 tournament games, but still, that is a massive amount of video, and thus advertisements, reaching consumers. This year, CBS and Turner have instituted a fee of $3.99 to watch the games across a number of platforms, including online, on tablets, and on smartphones (hopefully, you don’t hit your data cap). While it remains to be seen how users will respond to the fee (I certainly would rather have had it be free), but purchased the service, it is clear that users will respond to innovative content platforms, and will use them despite the availability of illicit options. While the Super Bowl has been a staple of broadcast television for decades, this year’s marked a departure from tradition.

NBC, which had this year’s rights (they rotate between the NFL’s partner channels) chose to broadcast the game both over the air and online, something it already did to great success with its weekly Sunday Night Football programming. The online offering, which was available for free, offered viewers extra camera angles, Twitter commentary, and some DVR functionality. The stream had its own set of commercials, but users were able to watch the broadcast commercials on demand.

Though users reported some technical issues, including lag periods, the broadcast was certainly a success for NBC: 2.1 million unique viewers tuned in, making Super Bowl XLVI the most-watched online sporting event of all time. Of course, compared to the 111 million over-the-air viewers, this isn’t much, and some certainly watched the game on both platforms simultaneously, but for limited additional cost, NBC was able to reach a wider audience, including those without TVs. Given an easy, legal alternative to illegally streaming the game online, consumers responded, and NBC earned additional advertising revenue, expanding its profit margin on its most valuable sports property.

To be fair, there are differences between sports broadcasting and other content; sporting events are much less valuable when rebroadcasted than they are live, whereas music, movies, and television programming retains value. However, this does not undermine the fact that innovative content delivery platforms and wider content availability are effective tools in countering the use of illicit distribution channels.

Consumers will pay a reasonable fee, or watch advertisements, to get the content they want. Content companies should embrace this new market dynamic, and profit from it, instead of hoping their old business model of constricted supply and high prices suddenly becomes palatable to consumers.

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