The TV Business Is Toast

The traditional TV industry -- cable companies, networks, and broadcasters -- is where the newspaper industry was about five years ago:

In denial.

There are murmurings on the edges about how longstanding business models will come under pressure as Internet distribution takes over. But, so far, the revenue and profits are hanging in there, so the big TV companies don't really care.

Specifically, the TV industry's attitude is the same as the newspaper industry's attitude was circa 2002-2003: Stop calling us dinosaurs: We get digital; We're growing our digital businesses; We're investing in digital platforms; People still recall ads even when they fast-forward through them on DVRs; There's no substitute for TV ads. Traditional TV isn't going away: Just look at our revenue and profits!

After saying all this same stuff for years, the newspaper industry figured out the hard way that you can't stuff the genie back in the bottle. And over the next 5-10 years, the TV industry will figure this out, too.

Here's the problem in a nutshell:

As with print-based media, Internet-based distribution generates only a tiny fraction of the revenue and profit that today's incumbent cable, broadcast, and satellite distribution models do. As Internet-based distribution gains steam, therefore, most TV industry incumbents will no longer be able to support their existing cost structures.

Specifically, TV business models for the past half-century, from broadcast to cable to satellite, have been built on the following foundation:

• Not much else to do at home that's as simple and fun as TV
• No way to get video content other than via TV
• No options other than TV for advertisers who want to tell video stories
• No options other than cable -- and, more recently, satellite -- to get TV
• Tight choke-points in each market through which all video content has to flow (cable company, airwaves), which creates enormous value for the owners of those gates.

And now, slowly but surely, look what's happening:

• Other simple options emerging at home: Internet, video games, Facebook, IM, DVDs
• New ways to get TV other than satellite/cable: Hulu, YouTube, iTunes, Netflix
• Video-ad options beginning to emerge
• More options for getting video content: telcos, cable cos, wireless cos (soon)
• Fewer choke points in each market: With an Internet connection anywhere in the world, you will soon be able to get to almost anything. And not just to your computer -- to your television.

Thus far, the TV industry has reacted to these changes the way most people would: By trying to port its existing model to the new world and maintain its hold on power and money. This is why we're getting so many ridiculous, consumer-unfriendly TV solutions, such as:

• Market-based control over what you can and can't watch (thanks to contracts with local cable companies)
• No live-streaming of lots of popular video content despite the fact that this would grow the audience (same reason)
• Time-shifting of popular shows (don't want to cannibalize more profitable TV audience)
• Hoarding of video libraries that could be easily available, watched, and monetized online
• Single episode downloads that expire after 24 hours
• $150/month "triple-play" solutions that come larded up with absurd taxes, fees, and service-charges, most of which go to pay for crap we don't want.

All these Band-Aid solutions will eventually fail. Why? Because eventually the cable-satellite-airwave monopoly over TV content in local markets will be circumvented by simple, global Internet distribution.

You won't have 5 channels, or 50 channels, or 500 channels. You'll have millions of channels. You'll be able to watch anything you want, live or taped. You'll be able to watch it wherever you want -- TV, computer, mobile device. You won't have to sorry about "slinging" video content around or programming your DVR. You'll just plug a pipe (Internet) into a box (device) and watch.

This is where the future is going. That's obvious. The only question is how long it takes us to get there -- and who gets killed along the way.

A lot of this content, by the way, won't -- and shouldn't -- be free. But you won't have to pay your cable company for the dozens of channels you won't ever watch just get the ones you do. You may have to maintain subscriptions with several different content-aggregation companies (a pain) but this will be a lot better than paying for things you don't want. And whatever content you do pay for will -- and should -- cost a lot less than it does now.

And what will happen to the companies?

The best content creators will do just fine. Video storytelling won't go away. Compared to the people who produced Battlestar Galactica, the Sopranos, and West Wing, etc., the folks who post to YouTube generally suck at it. So great content creators won't have to worry about them.

The lousy content creators will disappear. No big loss. And no big change.

The cable companies will become dumb pipes, and they'll get disintermediated. We won't need Brian Roberts to negotiate a deal with the Tennis Channel for us (or, rather, to prevent us from getting the Tennis Channel because of some contract dispute). We'll just go direct.

The phone companies will remain dumb pipes.

The wireless companies will become dumber pipes.

The competition between the multiple dumb pipes will eventually, I pray, result in lower prices for consumers for the only thing we will really need: Ubiquitous high-speed Internet access.

Box and device companies will remain box and device companies. Unless Apple somehow creates a new global chokepoint via the iPhone.

Networks that produce live news, sports, and entertainment will offer the content direct to consumers. But they'll no longer get paid big carriage fees from cable companies.

A few clever online aggregators -- YouTube? Hulu? Cable companies? Netflix?--will create nice video portals and build powerful new businesses. At these portals, you'll be able to sign up to watch anything in the world on any device you want. You'll be able choose among multiple subscription models (monthly, a la carte). You'll also have a basic "what's on" option in case you just want to watch TV.

When will this happen? Over the next 5-10 years. And it will leave today's TV industry looking like today's newspaper industry.

And from this frustrated TV consumer's perspective, it can't happen soon enough.

See Also: How To Make "Buy American" Cool

Comments

[Enger]

Many of us have purchased TV sets that can provide good video fidelity. However, seeing good fidelity requires that the source be of high quality.
BluRay is ok. So, if you're willing to sneaker-net your content, you can enjoy a good looking picture.
Viewing remote content is the catch. Cable and satellite providers struggle to support increasing numbers of HD channels. Most operators (terrestrial and satellite) are re-compressing channels to squeeze more into their limited system capacities (sacrificing video fidelity).
The solution for terrestrial operators is head-end switched video: downstream capacity is used to provide a dedicated video pipe to each TV. Ad hoc video (live or VoD) can be delivered to each TV. The content line-up can then be very large. Consumers won't see head-end switching for a while, as it is expensive. But, when/if head-end switching is deployed it will put pressure on the satellite operators: they cannot support per-TV capacity. It will be very difficult for satellite to offer comparable breadth of content.
While the Internet can support breadth of content, it has great difficulty supporting image quality. The last-mile infrastructure is not presently designed to sustain even 2Mbps streams to every TV in every home (much less the 30+Mbps streams needed to duplicate BluRay-grade HD). Fiber-based systems (e.g. FIOS) could be upgraded to provide the necessary Internet capacity; coax and twisted-pair based systems would be hard pressed to follow suit.

[bgib]

Sadly, the producers of Battlestar Galactica can't produce enough content to fill millions of channels. So who will produce all that content? The next generation of TV producers will come right off of You Tube. They may suck at making You Tube videos today, but with nominal training they can learn to produce reality TV, how-to shows, news packages, magazine shows, etc. And advancing video production technology will ensure that they don't need any special equipment to do it.

http://www.videocinematic.com/?p=34

[Ozarks]

The biggest cable choke point now is bandwidth. Bandwidth problems maybe could be reduced by FCC immediate imposition of an a la carte option on cable companies. A la carte would allow the public to choose the 6 to 12 channels normally watched and discard the other 232. It would also be the demise of the five oligarcies, such as Disney's force fed 7 to 12 channels, awful "tier bundles".
The biggest telephony choke point is "copper wire". If fiber optic became more universal, cable companies would go the way of Fat Sam or offer reasonable cable delivery since cable installations should have been fully depreciated sometime soon.. Hopefully , wireless and telephony would not be allowed to have gatekeeper control but would only be allowed reasonable monthly fees.

[MVPOnline]

This article speaks to the heart of the two major battles going on over the Internet. This is because one finds that the same media companies involved in the TV battle are the same ones with a stake in the future of the Internet.

1. This pending TV demise is precisely the reason the phone and cable companies are desperately trying to maintain control over the 'pipes' and effectively charge people for various 'speeds'. Without it, they won't be able to maintain control over content.

2. And without that control, all the TV business models for the broadcast TV/media companies (both network and cable) will fall apart, as the article suggests. Don't think for a second the media companies don't have a stake in that - recall Barry Diller recently was quoted as saying the only thing from keeping the Internet from being tiered was a 'billing system'. His idea is to turn the Internet into one big store for media companies’ content.

As long as the Internet evolution stays out of the hands of industry, government and the military - it won't go the way of broadcast TV.

http://mvponline.spaces.live.com/blog/cns!195AA915D69DFD05!516.entry

[frisbeeredcat]

Remember when cable first came out it was supposed to be pay TV because they would have no commercials! What a crock! I hope this writer is correct, most of what's on TV is crap and watching a movie pure agony, due to the constant commercial interruptions. I do all I can to ignore and not respond to internet advertising. It is invasive and annoying, boycott it and maybe it will go away!

[JackWhistle]

You missed the fact that those "suckey" YouTubers and all other video/animation producers are constantly evolving their medium. Collaboration projects are beginning to grow. The prices for.. adequate equipment is dropping. The skills these people posses is rising. Tutorials are becoming abundant. The creativity of the online community puts these corporate posers to hari-kari style shame (lack of creativity will be their ultimate downfall, as drama can only be taken so far before it lands in emo town). As the internets visual/aud­io/directi­ng/produci­ng/editing­/special-e­ffects/mis­c. get better.. the need for these corporations will die.

[Buddy McCue]

Good point about YouTube content providers.

Even if the production-value is somewhat less profession­al-looking than what one finds on television, it is often just as entertaining, if not more so.

You could compare it to the making of music. Folk music is often better than the standardized commercial product being churned out of the music industry.

[InofTouch]

a little late on this story (because I already know about) since I heard it from Time Magazine Tune In Blog.

[Paw1]

Agree with much of what you say here, Henry. A few questions/comments:

- Web users have become conditioned over time to expect content (especially streaming content) to be free, with minimal commercial interruption. How do you propose to change that mindset in your new model? How do you propose to deal with the unwieldy business of maintaining multiple subscriptions? how do you propose to control costs so that content can be profitable without increasing commercial interruption or charging high fees? The guilds won't help you, that is certain.

- you say the best content creators will be fine. How, then, will their potential viewers find their newest product? Do you expect subscribers to pay for new content sight unseen? Sounds like a cable channel to me. How will these products be promoted in general?

- finally, what differentiates your model from the ala carte cable model? If i wanted content that has never been exposed on Tv before, I can get that for free. If I'm paying for mainstream content via subscription, isn't that essentially ala carte cable?

thanks for the article. Very timely.

[yodaveg]

This scenario is contingent on one thing: bandwidth. Universal everything on-demand in HD (which is what people will want) requires prodigious amounts of storage and bandwidth. Are we there in 5-10 years? Maybe.

Okay, it's contingent on another thing, too: Simplicity. Although the programmable VCR was around for 20 years, in most homes the consarned contraptions flashed "12:00." It wasn't until the idiot-friendly DVR emerged that people began large-scale personal time-shifting. The Web-to-HD monitor connection is not yet easy or reliable (idiot-friendly) enough to spur adoption beyond a few technophiles.

The solution, I think, is the development of the true home server, a powerful Web-connected media hub (a dumb pipe, yes). Whether the set-top box or home PC evolves into this role first is up for grabs. And the 5-10-year horizon is iffy.

Of course, this doesn't begin to deal with the business model for content distribution. Premium cable has shown that many people are willing to pay for content. But that business model has not even been invented yet.

So TV is bread, warm bread maybe. But not toast yet.

[swlewis57]

Plenty of HD content on FREE Broadcast TV. Just sayin.'

[lisaman]

My husband and I pay for satelitte TV mostly for Cardinal's baseball. It is cheaper than season tickets.

[newworkout]

Henry Blodgett is exactly right on this. For those questioning if we would really prefer to watch TV on our computers, no worries. Using internet enabled devices (TVs, DVD players, Roku etc) and software like Boxee, Neftflix, or simply connecting your computer to the TV (my current mode of watching hulu and netflix), you'll be able to watch programs on your HDTV or even tube TV. As one who cut the cable cord four months ago and barely misses it, I love the convenience of streaming TV shows I want to watch when I want rather than when they come on TV. And I will happily pay content providers for the privilege of doing so.

[viewfromuphere]

We haven't had a cable connection or a TV for 2 years now and overall, haven't missed the thing one bit. I also haven't missed ...the Olympics (streamed online by CBC), every Lost episode over the last two years (DVD and online and I see now itunes in Canada) and the news from various places...
I can see this stuff when I want to...not at someone else's predetermined time and I'm not forced to pay for lousy channels I never ever watch.

I think it's all to the good....

[Buddy McCue]

My wife & I cancelled our cable subscription over a month ago. We realized that we would sit and watch things on television that we weren't really interested in, just because it was on. That's a lousy reason to watch something.

We watch movies from Netflix, and we still catch The Washington Journal on C-Span's website. I don't miss the cable one little bit.

[clevomon]

Not sure I agree here. I like having space to sort my cards while I'm watching the news. Then again, I also like having space to eat meals while reading news weeklies.

[platanoman]

As long as TV has that audience, they will continue to make money. I don't know anyone (including myself) who spends more time on the computer than tv. They are probably out there. 98.7 million people watch this year superbowl in one day. Google attracts 139.5M in a MONTH. So, unless more people log on, I think TV is here to stay.

[ToddStewart]

It's not here to stay for me. I used to channel surf and watch TV quite a lot until I finally hit that same "Why are we watching this?" epiphany. I got rid of all but the first few basic channels years ago and have never missed it. Those channels are enough for me to catch a bit of NFL football when it's in season and that's it. The rest of the year the TV is never on except when I'm using it as a video monitor. I have friends who are the same way. One girl I know no longer even owns a TV and just watches videos on her laptop. I'm also not online all that much; the longest spells I ever spend online are reading HP. And it's great; I've rediscovered the joys of having a life.