When news sells at a premium

By Felix Salmon
January 4, 2013

I’m fascinated by the economics of the Al Jazeera acquisition of Current TV, at an eye-popping price of roughly half a billion dollars. That’s about $12,000 for each of Current TV’s 42,000 nightly viewers. But of course as Liana Baker and Peter Lauria note, Al Jazeera isn’t interested in Current TV’s handful of viewers: this is “a pay-for-distribution play”, and what Al Jazeera is really buying is Current TV’s access to 40 million households. Looked at that way, the price is about $12.50 per possible/potential viewer.

The way that the economics of the cable-TV industry work, potential viewers can actually be worth much more than actual viewers. Current TV was reportedly receiving 12 cents per subscriber per month from cable TV channels — just under $60 million per year. That’s real money, and it helps to explain how Current TV could possibly have revenues of $100 million per year.

Why would cable companies pay Current TV more than $50 million per year, if almost none of their subscribers evinced any particular interest in watching it? Part of the answer is, simply, Al Gore: he turns out to have been extremely good at personally selling the Current TV service to cable companies and getting them to pay good money for it. Brian Stelter quotes one Current TV executive as saying that “when it came to distribution issues, he was always available to make that final call. He was always the closer.”

Gore’s pitch relied heavily on the idea that cable companies needed a “diverse set of news sources” — and he’s right about that. News is special, which is one reason why CNN can charge 57 cents per subscriber per month for its content, even as its ratings continue to plunge. A non-news channel with such low ratings could never ask for such sums, but if you’re a cable-TV provider, you basically can’t not offer CNN, which means you have to pay whatever Time Warner is asking.

An even more extreme example of the same phenomenon is CNN International — it’s a cash cow which almost nobody watches unless they’re in some far-flung hotel room. It doesn’t matter what the viewership is or what the ad revenue is. The important thing is that TV providers around the world all feel compelled to offer it.

Al Jazeera — clearly — doesn’t have the same kind of clout in the US that Al Gore has. It’s been trying for years to get onto cable lineups here, with no real success. While cable companies know they have to have Fox News (because it gets good ratings), and CNN (because it’s CNN), they need to be persuaded to buy Current TV, and they have no particular desire at all to have Al Jazeera. Foreign stations are, well, foreign: even the BBC has had real difficulty making serious inroads on the distribution front. Which is why Al Jazeera is setting up a whole new channel, called Al Jazeera America, targeted directly at a US audience.

But the bigger lesson here is that any media company which aspires to platform status needs news. Why did all those cable companies pay for Current TV? For much the same reason that BuzzFeed is aggressively hiring journalists. Back in September, David Holmes did a clever mashup, comparing BuzzFeed’s most-viewed posts with its best-reported posts. Needless to say, there was no overlap at all in the two. But both are crucially important to the success of BuzzFeed: the cross-subsidy is alive and well, and is being funded by aggressive venture capitalists for highly commercial purposes. BuzzFeed recently raised $19.3 million at a reported $200 million valuation — the news operation surely accounts for a significant chunk of that valuation, and not necessarily because of the traffic it drives.

Al Jazeera isn’t in this business for profit: this is more about projecting soft power into the world, demonstrating that the Arab countries can produce valuable, first-rate, uncensored journalism. For the prize of two Cézannes, Al Jazeera is buying the Arab world a significant measure of credibility in the single most important country on the planet. Or it’s attempting to, anyway.

Al Jazeera probably won’t be able to persuade most of the cable companies to pay 12 cents per subscriber per month. It doesn’t care much about that; it would happily take the slots on offer even if they generated no revenue at all. Indeed, it might even pay the cable companies, in the first instance, if it needs to do so in order to keep its potential viewership high. The important thing is that America is given the opportunity to discover what Al Jazeera is capable of. Then, if and when it starts getting traction, it will be Al Jazeera America which will have the upper hand in any future negotiations. Because there’s something very special about high-quality news, and the cable companies know it.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

I agree that CNN is a must-have for cable and satellite providers, though I’d look at the numbers a little differently.

It’s not average viewership that’s relevant as much as it is spike in viewership during news events. CNN’s average primetime viewership was 677k during 2012, but what really matters is that it had 8.8 million primetime viewers on election night and 3.4 million primetime viewers when Sandy struck the Northeast.

It’s similar to NFL Network getting $0.82 per month per subscriber. That’s because Thursday night NFL games on NFL Network averaged 7.3 million viewers in 2012 – with the added benefit of exclusive live coverage – not because of NFL Network’s average rating.

Posted by realist50 | Report as abusive

5 x revs for a 3rd tier also ran in the news business. A fool and his money are easily parted.

Posted by y2kurtus | Report as abusive

rather then getting all these cons, ipad device offers similar to very hot wedding cake. . -= Sourish

Kimree is a world-leading e-cigarette company. According to Frost & Sullivan, Kimree was the second largest e-cigarette designer and manufacturer in the world in terms of both revenues and production volume in 2013. The Company designs and produces a broad range of e-cigarette products, including disposable e-cigarettes, rechargeable e-cigarettes and e-cigarette accessories. Visit http://www.kimree.com/ for more.

Red bottom shoes are well known all across the globe. The original creator of these extraordinary style of shoes was Christian Louboutin. These days there are many companies that are making elegant women’s shoes, along with the distinct red sole. These types of shoes are one of the trendiest shoes around, which is apparent from their outstanding demand! Women love to shop for these cheap red bottom shoes, and these shoes usually are in demand during the time of year while they are at a price reduction. However, the common trend is that these shoes aren’t on a discount during the holiday seasons when people love to go shopping for themselves as well as their family.

This year’s Golden Globe Award was voted the deadline in November 15th, before the World Cup qualifying play offs, which makes the C, not by virtue of its performance in the play offs Shen Yong, the competition become golden weight

A number of us not simply are offering exceptional bargains and provides and yet furthermore, we grant place for you to promote your emotions.

Individuals conveying the minds as a result of feedback you could make your web site truly unique.