Lately, there has been a sharp debate in the United States between cable companies, online distributors and mainstream content providers over the cost of content. This intensified most recently when Fox went so far as to black out New York City from the first game of the National League Championship Series and was threatening to black out the World Series and key NFL games just before a deal was agreed. By blacking out what some consider to be their most valuable content -- sports programs -- Fox used the full weight of its power to force Cablevision's hand. This fight has huge implications which are being poorly covered in the media. Most important to recognize is that fighting about the price of content has disguised the real issue, which is about how much viewers value the content and the resulting effect on advertising prices.
Cable companies make money in two ways -- through subscription fees and through advertising. The networks make their money from advertising and re-transmission fees from cable companies. As the internet, DVR, and the diversity of choices available on cable have eaten into the networks base of eyeballs, it has been more difficult for them to demand the same price point from advertisers. In 2009, advertising revenues for network television were down almost 12% from 2008 for network television. However, their share of advertising revenue in relation to other outlets remained almost flat. The networks hold the line on share by selling more advertising. This further encourages eyeballs to leave to alternatives.
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