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

 

Follow Henry Blodget on Twitter: www.twitter.com/hblodget

Comments

[Fabulousyogi]

I don't think it's toast. I don't see anyone willing to watch everything on the internet. I do think the internet gave the tv business more revenue possibilities.

[fleaba]

We have peasant vision and thanks to the digital box scam can't even watch telenovelas or Faux's nightly knife and gun show. Yeah, it's a huge loss. Like I care.
We rent DVDs and get books and DVDs from the local library. I finally got a great temp job working outside at the local reservoir checking boats for invasive species. I work until after dark and the show at night is stunning. Saw a great June Strawberry Moon last week and it was ab fab. If I want news, I huffpo, cnn , bbc and the national weather website.

[paixa3]

Gosh Henry, I hope you are correct. I have not wasted one second since 1985 on television.

I hope they die a fast death.

[josephXY]

I also wish Henry is correct.
btw: there is a pretty funny video on YouTube: the +mad avenue blues+ (parody of song)
supporting this line of argument somehow, enjoy and have fun:
http://www.youtube.com/watch?v=6CqRcCHk_Pc

[Cool-headed]

I want to compliment the author on a well-written piece. I like the bullet style of presenting arguments. Makes them much easier to comprehend and remember.

I think your vision is basically right for the U.S, but I live in a country where there's high illiteracy and relatively few people have computers, let alone fast internet access. So I guess TV will continue to be the opium of the masses around here for a long, long time. Kind of forever.

[swlewis57]

Free broadcast television will never go away. Ever. There will always be a public need on the local level for certain news, sports, and especially weather and disaster reports in real time. Football and other major sports on free broadcast TV is not going anywhere as well.

Yes, I agree that there is a danger of being left behind in audience numbers by other technologies, but you forget the greatest advantage a broadcast TV station has. The airwave bandwith under it's liceinced control. New technologies available for broadcast TV stations are swiftly becoming a reality. Mobile TV and OTA internet services come to mind.

The local broadcast TV station and it's programming will eventually be the base with other services made available to the public to support it. The old ways of providing content to the public are changing, I could not agree more, but free broadcast TV will always be needed in some form.

Free broadcast TV rules!

[vince70]

What free broadcast TV? Where? I pay for it all and I still have commercials.

[swlewis57]

The kind people watch on antennas. That free Broadcast TV.

Stop paying for the local channel package. All the cable and Sat companies are merely picking up local channels through antennas, just like you can, but they are charging you folks for it.

Free Broadcast TV rules!

[phlashba]

Don't talk to me about HULU that can only be viewed for some ridiculous reason inside the U.S.!

[Bush-Rolled]

I look forward to eventually having internet service the way most of the world has it: Several times faster than what's available in the US at a fraction of the cost.
I'm also not crying any tears for the TV networks or their affiliates. They've had roughly 60 years with a license to print money and have managed by-and-large to produce a very poor product that is an insult to anyone of normal intelligence.

[Tremonius]

I am the savage in Brave New World, the last holdout who is "cornered in a lighthouse." (My buddy scoffs at that; "There are no corners in a lighthouse.")

I hold to the notion that the means of expressing thought is through keyboarding, for any other method will jarble and sink your message. It is considered, deliberate, delicate, and a necessary part of the thought process. You only degrade language when it is spoken solely. (cf John McWhorter's "Doing Our Own Thing")

Language is thought, and you arrive at the idea juncture by that train alone. You develop your own pictures with print, and anyone flashing those images into your skull is jumping the line and invading sacred space.

The means of outrage, indecency, provoking our baser elements, is through the speech of abominable cheerleaders or pictures, preferably moving. We need help, you see, in jump-starting thought. Were broadcast business to disappear suddenly, then we would all be the holdout savage in the lighthouse.

That is, much better off.

[swlewis57]

Yeah, but I can't watch the Bears or OU football without Free Broadcast TV. You know, it is nice now and then to just kick back and enjoy a game on TV. Free TV that is. :)

[grailknight]

Does this mean we'll be spending our money on continuous hardware upgrades? That's were the money will be.

[Carrie-On]

Grailknight, more like software maintenance, not hw upgrades! ;-))

I've been delighted to fire cable and accept difficult digital boxes. But, I well remember being 'sold' cable when it first came around, on the basis: You pay because there will be no advertising." Rahhhhoo - we bought, and were taken.

Out with the corporate gluttons feeding off their own neighbors.

[RoseMerry]

Mr. McGuire: I want to say one word to you. Just one word.
Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: BitTorrent

[bighat]

Why should the networks care if they are making money today. they know they will be bailed out by congress if necessary

[BushIsAWarCriminal]

You're the only one who 'knows' this to be a fact. The rest of us, me at any rate, consider this unsupportable speculation.

[swlewis57]

If that was so then where were the Feds in bailing out Ion Television Network? They just went through Chapter 11 reorganization. Let me assure you, the Networks care about making money.

[EngineerBill]

I think that what you mean by "the TV industry" is actually local affiliates of Networks. Why watch WKRP when you can watch 24 on Hulu? The TV Networks will be fine. Local affiliates not so much.

[Carrie-On]

Locals can go - all they send out are MVAs, murders, rapes, and other tragedies, grossly ignoring the NEWS. In that regard, only PBS and (included on mine) BBC are worth the time. Sadly, imho, I believe this lack of information is intended from the top down.

[BushIsAWarCriminal]

You're forgetting the actors, writers, directors and crew that Make the product you watch.

[doodlebug2]

Quit watching that crap all together and see how your life improves.
That is the best way to go.

[BushIsAWarCriminal]

Have you ever watched the West Wing?

[doodlebug2]

all of it is crap, bugs bunny and the three stooges are ok though, hahahaha

[Cool-headed]

Absolutely. I stopped watching TV altogether about 18 months ago. I am a more productive and self-respecting person now. I used to hate myself for lying down on a sofa and watching TV. I have many better things to do including watching great old films on DVD and news online.

But I think the author may be a little wrong in the sense that people just love "vegging out" in front of a TV , exatctly because it's all so mindless, and so there will always be certain types of people who would prefer TV, with ads and all. It's a habit and I've met few people so far who turned off the habit as I have done.

[Tena]

This is so true and it's so mind-boggling that the industries most affected by internet access and the growth of online media are whistling past the graveyard like they are.

Then - Boom! - just like newspapers, they will be all surprised when they suddenly can't compete and one big reason for that, in addition to what you have pointed out, is that everything in this country now is controlled not locally, but by a corporate headquarters with no ties to any community, no sense of responsibility to the public and that's just what they get.

Like banks - they should stayed local and reacted to their communities, but they didn't. Noone does any more and communities are not going to keep living with this stupid model and we've already shown that with newspapers.

[CulturalMuse]

[see part I]
- The distinction between networks and media will cease to be relevant, in fact the term "media" will become archaic, it's all communication.

- There will be a network independence movement to keep government out of our heads and wi fi access will be considered an inalienable right.

- There will be a vigorous debate about whether or not we should make the jump from sensory control of our network, to brainwave control of our network. (I have a short piece on this today, at CulturalMuse.com)

- Somewhat surprisingly, one way video will still be popular, because sometimes, folks just don't want to interact all the time.

- A rating system will be created not for content, but for how powerful the projected "events" are, and there are ironclad age limits that correlate with the strength of the "events". Junior will want to sneak a peak at Dad's 'mesh" just to see what he's missing.

- There is also a vigorous debate about when children should be allowed to "mesh".

- There will be a growing concern about the death of the printed word, mostly unfounded.

- There will be physical spaces where people gather to share 'events" simultaneously", but of course no "big screen" required.

- Media corporations will take on more and more attributes of network hubs, and there will be much controversy about how much power they have, especially editorial control over their millions of content producers.

- Dating, I won't even go there.