As networks and studios put more content online, media analysts, Wall Street, and the companies themselves are grappling with the nasty reality that is killing newspapers – you can’t make as much money online as you could from your legacy distribution channels. Credit Suisse’s Spencer Wang says that “a broadcast show makes at least 64% less online than it does on TV and a cable show about 36% less.” (Ratios, by the way, that newspapers would die for.) The solution looks simple – charge viewers or show more ads – but it never really is. As is often the case, the networks biggest obstacle to embracing the future is their biggest partner from the past – cable operators.

As long as people are paying cable operators for entertainment on their TVs, they’re not going to “double-pay” for it online. Although I don’t have the research, my guess is that a large segment of the online audience goes online to time-shift. If that’s the case, if those people were charged to view online they would pay twice for the content – once to their cable operator and once to the online site. That’s not going to happen. Movies may be a different story since viewing them online is less about time-shifting and more about access, but payment there will require the ability to view the content on a larger screen, a process already in motion.

Networks should be partnering with companies working to bring a high quality video experience from the Internet to TV screens. These companies should be the large cable MSOs but, like newspapers before them, they no doubt fear the cannibalization of their legacy business from the Internet.  When consumers can see the shows they want online, output to their TV screens, with a variety that rivals cable, they will be ready to drop cable and pay for online content. That means the networks new best friends should be the phone companies or, better yet, the power companies – anyone who can provide Internet access as a cheap utility.

Of course, even when viewers are paying for online entertainment, the problem isn’t solved. This subscription revenue (if it even is subscription) will be less than what networks currently earn since the audience will no longer be forced to pay for set network lineups. The market will be brutal on marginal shows and networks as viewers only pay for what they want to see. Advertising will continue to be a critical component, but it’s hard to imagine it looking like it does today.

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I just don’t understand why Yahoo! is taking so much criticism for it’s search deal with Microsoft. OK, so there were no “boatloads of money,” but does the share price decline mean that Yahoo!’s price had those boatloads baked into it? I guess so, which means that investors actually believed that money would appear – a pretty lonely position.

Moving beyond the upfront payment issue, let’s think about the wisdom of the rest of the deal. In the minds of consumers at least, Yahoo! had long since stopped being a player in search. Yahoo! search is used by people who are on one of the company’s content sites and happen to have the need to search. They’re already there, so why not use the easy to reach search box? But the point is, users are on Yahoo!’s site for the content, not the search. We may want to look back to Yahoo!’s start as a search engine and lament the loss of one of the industry’s former leaders, but that was then, this is now. And now Yahoo! is a content company that aggregates audiences for advertisers.

As a content company, Yahoo! had no business trying to match technology with Google and Microsoft, and knew that it would lose at that game, so this deal allows it to simply buy off-the-shelf technology for a non-core piece of it’s business. Selling advertising into that piece, however, is core and Yahoo! has retained that ability. The resources that Yahoo! had to devote to search can now be redeployed to areas where it can really ad value – content and advertising innovations.

Most of the reporting on this deal has viewed it as Yahoo! selling its search business to Microsoft. As someone who has run content web sites, I view it as Yahoo! hiring Microsoft to take over the burden of managing and developing a technology important, but not core, to its sites. In that respect, I think Yahoo! got a pretty good deal. And all of this worry about whether Yahoo! can succeed without search? If it kept using its own search technology that was never going to make it a success, so the question was always there. If Yahoo! fails, it won’t be because of this deal, but if it succeeds, this deal will have helped.

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