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

[ginsu]

Well, of course the package deals are silly and oddly-priced.

However, the larger point that this article makes -- TV : now :: newspapers : 2002 -- is just wrong.

The newspapers are doomed because their content is tardy (no longer news) by the time it comes out, when compared to the Net. Furthermore, news per se is owned by no one and is simply reportage of facts that anyone can discover online. Craigslist has replaced the classifieds. What's left in newspapers -- opinion columns and editorials -- can't save them.

The TV industry revolves around creative content, which it owns, not news which no one owns. Tardiness is not an issue, since no one else can produce such content at all, not owning the intellectual property rights. Such content can and will translate easily to the Net. As you yourself say, Internet pipe to display box... well, IPTV is what that's called, and it is no threat to the TV industry.

So much for the TV is Dead predictions.

You know, about nine years ago there was a guy named Blodget who predicted ICGE and CMGI would skyrocket forever in value, and Exodus would do well as long as the Net grew... all his predictions failed, and I think he was found guilty of fraud and barred from the securities industry for life. I wonder what he's doing now, that guy.

[Dugwood]

A great article with timely and important opinion content. Good bye TV.

[Jsens3]

I have cancelled the daily newspaper, although I have been an avid reader since 1967; I watch practically no TV (exception for late breaking weather news - tornado threats etc.) and refuse to upgrade to digital. This is my chance to get off the TV hook permanently. It works out just fine. Last winter we heard that The Office was a good series, so we bought dvds a season and watched them. No ads! Three per hour! Next bought a season of Thirty Rock. Also fun.

Truly good content will sell; crap won't . Author makes good points.

[COPerez]

The big CableCo.s could delay this day of reckoning by quite a while if they'd just allow us ala carte billing! I watch MSNBC (why is there still no HD feed for this on TWC?), HBO (gotta have Big Love, True Blood, In Treatment, etc!!), VS (during hockey season), Discovery (Mythbusters alone makes this one a no-brainer!), Science, I dunno, maybe 4 or 5 others...

[Lendall]

I don't watch "TV" (either via signals, cable, Hulu or on my computer), so perhaps I am the wrong person to comment on this post. Nevertheless I shall. The media glut which began in the late 1940s with the advent of television has reached a saturation point. Digital connectedness gives one the illusion of activity, involvement, and even power -- and even, I dare say, the illusion that thought is taking place --, whereas in actuality it is the ultimate in disconnectedness and passivity. Instead of three channels to numb the mind -- ABC, CBS and NBC -- we now have millions. So what? Meanwhile two facts remain: It costs money to produce "content" (whether it's Indiana Jones crap or some ostensibly meaningful Sundancy indie flick). And money to produce that content must flow somehow from the "consumer" to the "producer." An increasingly fragmented market in which many consumers rip off content one way or the other will not, in my opinion, lead to more artistic and/or original expression. It is now more difficult than ever to make a living as a professional content creator (in music, film, or any other medium). When everything is possible, nothing is possible, as Stravinsky once said.

[Dugwood]

"An increasingly fragmented market in which many consumers rip off content one way or the other will not, in my opinion, lead to more artistic and/or original expression." If you read the article more carefully I think you will see that you are actually agreeing with the author. Internet based content will de-fragment the current market place and provide a more direct and profitable link between producers and the market place with far few gate keepers. Fortunately, the Stravinsky quote is not a physical law nor is it particularly salient.

[WorkingClass]

"It cant happen soon enough." Amen Henry.

[trimom]

My sixteen year old son has a TV in his room which is unplugged and hasn't been used in over a year (his choice). When he needs a break from schoolwork he IMs his friends. He will occasionally watch a PBS special or Discovery Channel program with me but shuns TV as entertainment other than that.

My older son is in college. He doesn't watch any TV ever (very different from my generation that used to congregate to watch soaps in the late afternoon). He says that he thinks that it is stupid to require that people watch a show at the time that it airs and prefers to watch movies and such on his computer at a time of his choice.

I and the supposed adult in this group. I grew up with the TV on, if not for entertainment, at least for company. My mom still does this. However, the cost of Comcast drove me to cancel all but the minimum package and I have not missed any of the other stations. I watch PBS, Comedy Central, A&E and Discovery. That is it. If I could pick and choose, this is all that I would pay for.

I get my news online and have found that, even though I keep my computer on all day long, the TV is off.

[trimom]

Oops! I am the supposed adult in this group...

[WitteeFool]

I wonder how the content end will really work out, though. There's a reason these big television production companies exist and without access to big networks who will sell their content, how will these shows be produced? Maybe the Joss Whedon's (Dr. Horrible's Sing-a-long Blog) of the world will manage, but new talent will continue to struggle without access to production money.

I don't own a TV, btw, and I happily watch all my regular shows online.

[Liberal2]

Heh. Most TV is formulaic, so a computer can sketch out story lines (software has been written that composes poetry).

Computer graphics are being used to generate scenery.

Computer graphics are being used to generate characters.

With a powerful enough computer who needs a production company.

[Dugwood]

Read. Content aggregaters will likely pay for production - they are the ones who benefit from it.

[joebaggadonuts]

Great call, Henry. It's past time for these dinosaurs to wake up before they get themselves extincted. LEAP puts on cable, and networks anyone? GE is pretty forward thinking lately, perhaps if they remodel the business model for MSNBC we can see the future there.

The big problem is that they are still making some money and holding on to the old models, as you point out. If they had brains and common sense, something severely lacking in most chief executives, hence our problems in paying them so g-ddmn much, they would listen to you. This has happened in industry after industry. GM and Chrysler are examples in the auto industry. Digital Equipment, Control Data, and now perhaps Dell today are examples in the computer industry. The newspaper industry, the recording industry, they all have examples. These dinosaurs and buggy whip enthusiasts need to see the future and move mountains to be part of it. They won't. They want to suck the marrow out of the bones when they are done licking them clean and then toss us the wreckage and expect us to love it. To hell with them.

[KT157]

Great article. I just canceled my comcast service because they raised my internet and cable rates again . I have been very happy watching all the great TV series and movies either on DVD or through "play it now" feature from Netflix. I wish they would provide a channel by channel or individual program choice. I would be very happy pay for content per episode or season if the prices were reasonable.

[ezeflyer]

I want commercial-free video. We can't afford to lose precious time watching and listening to propaganda when there is so much useful information, entertainment and news out there to keep up with and still have a life outside of media. Good riddance to tv business. The world can only benefit from its demise.

[Dugwood]

Tell it like it is brother.

[TakeSake]

Example #1: Cell phone service providers charge for text messaging within network even though calls within network don't count towards minutes. Therefore, I call instead - I use more bandwidth, but it doesn't cost anything.

Example #2: I didn't convert to digital TV yet. I don't have a need for it.

Example #3: Look at the fate of the long-distance telephone service providers. Some were able to shift business toward cell phones, but they have other competition in those areas too.

At some point I expect one of the cell phone companies will start to make a move to capture market share from current users. The market is saturating - no more easy growth. They will have to do away with a bunch of arbitrary rules that only Marketing could dream up and implement a realistic pricing structure.

[plebeianswillrevolt]

* $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.

HENRY - you have that right. I am sick of Comcast and am looking for any way possible to fire them. They have me on a leash. 5 days or less paying their $150 and they just throw the switch. No service, cable, phone or internet. I;m not saying that I shouldn't pay on time, and two months past becomest $300 in a hurry. I just cannot tolerate having anyone stand over my head with a hammer. Even if I was getting $150 of value from their service, which I'm not. I would certainly choose the $30 option - and pay for the service I actually use, which is 4 tv channels about 10 hours a week, home phone voice mail and email. Bask in your glory, Mr. Monopoly Revenue Stream, while it lasts, just like i did with AOL, I am going to kick you to the curb at my first opportunity...... and I am going to sabatoge one of your hub boxes to get even for the three years you stole my money and insulted me. 3 day long outages, weeks of fuzzy reception and slow connection when you added additinal sub's to our splitter. I'm not mad, but I will get even.