Internet is still not the big money making machine for broadcasters and cable operators. So far it has been an endless story of heightened optimism and somber reality. There is this hope that one day  digital channel will bring unimaginable riches but that day is still far away in the future.

Once businesses go beyond the hassle of copyright, content packaging, operator licensing etc, real margin at the end of all excruciating negotiating is still pennies.

Robert Seidman at tvbythenumbers, using high level number crunching, without simplifying too much, argues that there is not much money in Internet distribution.

Let’s say that a traditional TV broadcast network strives to have a $25 CPM for its commercial spots in prime time.  In other words, it wants to sell its advertising at a rate of $25 per 1,000 people.  Obviously scale matters, so in this 50,000 foot view example, if 10 million people watch a show, that means the network can sell each commercial spot  for $250,000.

In a typical one hour show there are 16 minutes worth of commercials or 32 or so thirty second spots.  By this simple 50,000 foot view, a show with 5 million viewers can sell each commercial for $125,000.  Keep in mind, that with rare exception scripted shows with less than 5 million viewers on a broadcast network would get cancelled (though those same 5 million viewers on a cable network would make it a hit show!).

Because there is such a difference in scale, we can discount the price of commercial advertising down to even $100,000 per commercial for that show with 5 million viewers just to have a nice round number.   With 32 commercial spots, it would generate around $3.2 million dollars in revenue.

If 25,000 downloaded a show from iTunes at $2.00 per download, that’s $50,000 in total revenue.   Or one half of what the show would make for a single thirty second spot even at only 5 million viewers.  And that assumes that all of the money goes back to the network, which of course isn’t  the case  — iTunes (Apple) gets a cut.   Again, I’ve deliberately ignored many nuances and disclaimers here just for the purposes of  keeping it simple. Adding all of that discussion and explanation back in just confuses things and doesn’t change the end result much.  And the end result right now is simple.  Watching television on television makes a lot more money — and I mean a lot more money — than Internet viewing of those same shows.

As he rightly mentioned, winning on internet distribution channel is a long and expensive march. It will take years and in technology world this time period is almost suicidal to plan. What’s the way out then? Be pragmatic and plan slowly. This is not a case of black and white. TV is not going anywhere. iTunes and Hulu will eventually attract significant viewership but now is not a time to dream of $25/CPM.

[pic thanks to seekingalpha]