Digital Home: The Content Conundrum–How Does It All Get Paid For?

Scrounging for “digital cents” is a risky business that makes content companies worried about losing analog dollars. But they’re forging ahead regardless. At the second panel of the Battle for the Digital Home, executives from CBS (NYSE: CBS), Hulu, and Microsoft (NSDQ: MSFT) talked about how they saw their companies making ends meet in the digital future.

Just because digital distribution isn’t close to producing the same level of revenue that broadcast does, doesn’t mean it can be dismissed, said Zander Lurie of CBS. “Broadcast is by far the biggest generator, but that doesn’t mean we dismiss smaller platforms–every revenue stream starts at zero,” he said. “People are watching 27 hours of television in their home a day. It’s not like people are cutting the cord.”

But the gap between analog dollars and digital pennies is closing, said Andy Forssell, senior vice president of content acquisitions and distribution at Hulu. “There’s still a gap, but it’s not nearly as large a gap. Half the ad load, but double the CPMs — whether it will work out to exactly that, we don’t know. But that’s not five years away. It might be a couple of years away.”

When will content creators be able to treat online like they treat cable, and get the kind of revenue from an MSN or a Hulu that they get from a cable distributor today? “This distribution on web and mobile, part of it is experimental,” said Zander Lurie, senior vice president, strategic development, at CBS Corp. “We are in a competitive business–we want people to watch Hawaii Five-O. But we do have to have control. Are consumers asking for it, can we get the value that we think we need, and does it cannibalize other revenue streams? That’s what we need to figure out.”

As players in digital media try to balance their checkbooks, the meaning of “content” itself is changing, pointed out Paul Mitchell, general manager, standards and practices, of Microsoft Entertainment. Video games in particular have changed ideas about what content is, he noted, and television is only just beginning to catch up with that. “Mostly today, we watch stories, similar to how we’ve watched stories for 30 or 40 years,” said Mitchell. “In television, one of the things we’ll see change is the genre of content. We’ll have the ability to interact with it in a social way, with other people that are watching.”

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