We must all be impressed by the resilience of the middlemen that not even the mighty U.S. studios were able to eliminate — starting with movie theater owners and cable TV/satellite TV providers.
No matter what, the middlemen are here to stay. Convoy, a Seattle-based freight company, tried to emulate the Hollywood studios’ streaming business by eliminating the middlemen and in the process went bust. At its peak, in April 2022, Convoy was valued at $3.8 billion. A year later it was losing $10 million a month before ultimately shutting its doors.
Convoy aimed at disrupting freight brokerage in which middlemen match loads from retailers and manufacturers to available trucks. Convoy’s founders believed that by automating the transactions, they could take costs away from the middlemen.
In the case of Hollywood’s streamers, in 2022 the studios were convinced that with broadband readily available, they could have gone directly to the consumers, thereby eliminating the aggregators (middlemen in the forms of cable-TV operators), and doing away with the advertising agencies (by simply charging a subscription fee).
Like Convoy, a year later, in 2023, the studios’ streamers were also losing an estimated $10 million a month each and quickly called back the advertising agencies to bring in clients willing to buy commercial spots. The cable-TV middlemen also came back with demands that they carry the studios’ ad-supported streaming services (if they wanted to receive payments for the studios’ TV networks and their own local TV stations’ retrans fee, and also don’t lose the studios’ cable channels carriage fees).
Other middlemen that the studios wanted to eliminate were the theater owners, who keep 50 percent of the box office receipts for themselves. The plot almost succeeded, until the studios realized that the theaters were the best way to promote their streaming features.
The studios’ idea to eliminate the middlemen — the TV stations’ network affiliates and the theaters — started in 1951 when Paramount began offering its Telemeter pay-TV service for a $5 installation fee (a service that they provided directly via broadcast) and a per-program fee to 3,000 TV HH. Later, with the development of cable/satellite TV, studios found it more convenient, economical, and profitable to have cable and satellite operators offer pay services to consumers with a revenue-sharing model.
Indeed, direct-to-consumer business is not something new. It has been circling businesses for many years, but it took flight with the so-called “dotcom era,” starting in 1995 when it popularized the acronyms B2C and DTC.
Today, real estate agents take five percent of sales prices. Literary agents grab 15 percent of book deals. And over a century ago, advertising agencies started by collecting a 15 percent commission for selling ads for publishers, and later for buying ad space for advertisers.
Middlemen have been getting a bum rap for millennia even though they played a fundamental role in market operations in ancient Greece, albeit with a bad image. I read one report which stated that, according to Plato, middlemen were supposed to be unfit for any other job. For Aristotle, they were not worthy of being full citizens.
The hostility towards middlemen translated into legislation. Laws from various states limited their profit margins, and price increases were attributed to the greediness of middlemen. Every time a famine struck there was even a temptation to blame them for it. Nonetheless, they survived.
(By Dom Serafini)
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