Yesterday, March Madness kicked off online and offline.
Three groups are competing your your eyes and dollars:
The incumbent, CBS Broacast, offers high resolution, no fast connection required. Good old fashioned Free TV. If a game gets close, they cut to it and return to the scheduled game when it's over. You also have TIVO capability. If your favorite team isn't featured or in a close game, you are out of luck.
Direct TV offers all the games in HD format. It's pricey, but if you are a fanatic (and don't work much), then it's a great way to enjoy the front end of March Madness. But it is 2009, and this is pretty expensive. BTW — Call them now and they will prorate charges.
NCAA.com, for the first time, offers all the games on demand. They stole my business from Direct TV this year. Why not? I can watch CBS and have NCAA on at the same time. I can cut to any game (although my internet connection requires me to lower quality settings). I don't have TIVO capability with NCAA.com, but that's ok. I'm sure that Direct TV is bleeding to this upstart offering. Expect millions of dollars to be moved from TV On Demand to the free model. This is a core concept behind Chris Anderson's upcoming book (Free: A Radical Price, July 2009). Check out his article about the future of free.
This battle has evolved over the last few years. When I was @ broadcast.com, we offered Free Audio Internet and later…pay for. It was, at best, a break even business (ad revenue VS bandwidth costs). It was important to us, as a startup, to have the content. We could leverage it to build the audience. That fed into the exit strategy of selling to a portal (like Yahoo!). Good strategy for the times.
NCAA.com is not a startup with an exit strategy, just a media property. So they need to make money on giving away the tourney online. As Mark Cuban often points out on his blog, the difference between broadcasters and netcasters is that there is an incremental expense to netcasters for each user. Netcasters have to pay the outgoing bandwidth charges, unlike broadcasters that merely upload it once for all to pull down.
NCAA.com is swapping out commercials, so it makes incremental money for every view. State Farm is the named sponsor for this, getting a little button on all the website pages. Given the economic climate and the conservative ad market, I doubt that NCAA's sales team is getting a premium for their "eyeballs delivered". Hopefully State Farm's sponsorship covers the bandwidth and production fees, giving NCAA some razor of margin. Otherwise, we are provisioning NCAA to avoid Direct TV charges.
Takeaway: Free internet may be able to beat out Pay For (and better), but the business model must be for-profit-right-now to be sustainable and upgradable. I'm not sure the price of the future is (still) free. Unless you like learning new media consumption habits every year or so…