Here's How to Save Journalism From 'LOL Cats'
NEW YORK ( TheStreet) -- Here's something we know to be true: The Internet has killed a lot of traditional businesses, from bookstores to music labels to newspapers. We've mostly accepted this collateral damage as the price of progress, the casualties of a transformative technology.
And, to be sure, the nimble accessibility of the web has enabled upstarts to fill some of those voids, for better or worse. Indie musicians have more access to fans and funding than ever before. At the same time, bloggers rehashing gossip of dubious origin can score more page views -- for far, far less money -- than trained journalists investigating corruption in Washington.
But there's something inherently wrong with the digital content model. The money -- and there is an awful lot of it to go around -- is not making it into the right hands.
I Need My MTV
Consider the revolutionary rise of cable TV in the 1980s and '90s. There's no question that it hurt the big networks. But it didn't kill them. They were forced to adapt and, for the most part, they did. Meanwhile, everyone involved made fistfuls of money -- both the cable companies (the providers) and the cable networks (the content creators).
That's because the business model looks like this: a company like Comcast(CMCSA) , Charter(CHTR) or Time Warner Cable (TWC) invests in the infrastructure to wire your neighborhood. Then they charge your household about $50 for standard cable. And, of course, you pay it because they have managed to convince most Americans that cable TV is no longer a discretionary expense but a necessary one.
The cable providers take their fair share of that $50 each month, to reap the rewards of their capital investment and then some. But nearly half of that money finds its way back to the content creators. For instance, cable and satellite TV providers pay Disney(DIS) about $5 per customer per month for the simple right to broadcast the ESPN family of channels. At 100 million subscribers, that's roughly $500 million a month. These affiliate fees account for $6.1 billion a year, a full two-thirds of ESPN's revenue.
Likewise, a few bucks of your cable bill are paid to Time Warner (TWX) each month -- the entertainment company, not the cable provider -- for the rights to broadcast CNN, TBS, TNT and the like. And so on. Even the old-school major networks like CBS(CBS) get a piece of this pie: About 10% of their income comes from these affiliate fees, which the cable company happily passes on to you, the customer.
So in addition to earning some advertising revenues, the content creators are getting a cut from the middle man -- and thriving as a result.