Television, Like Telecom Will Have to Make it Up in Volume

Categories: Internet TV,New TV Technology

Written By

March 8th, 2008

1287073309_826b4c77b6_m.jpgIf you're as old as I am you can remember a time when a one hour coast-to-coast long distance telephone call might have set you back $20.  Of course I can remember when America Online cost $6/hour during "off peak" hours and much more during the middle of the day.

MCI took on the great AT&T and the long distance telecommunications sector changed forever. But they did ultimately make it up in volume (and then made it up in spades with mobile telecommunications AKA cell phones).

The same thing is going to happen with television ultimately.  It will take a while but it is certainly bound to happen, though for different reasons.  For years and years television networks completely controlled the distribution of their programming.  We did not live in a digital world and the only way to get television programming was - via the television.

Those days are gone.  While to some extent legacy thinking still reigns with the big television networks and studios, it seems more to me like the same thing that happened with the music industry in the digital world.  Trying to hold onto the old revenue streams as long as possible instead of figuring out how to make it up in volume.  The music industry still hasn't figured this out so far as I can tell.  It's the reason Apple and iTunes are so often vilified by the recording industry, everyone else's loss was ultimately Apple's gain. 

Now it's happening again with video content.

TechCrunch's Michael Arrington spoke out about a Fortune Magazine article on the Hulu online video service that will soon be launching. More interesting to me than Arrington's blog post (which I mostly agree with) were the comments and how (seemingly) some Hulu-ites were attacking.  In one of the comments Arrington responds to one of the commenters with:

"..pretending that bit torrent is something that Hulu doesn't need to think about is like pretending that we're winning the drug war."

I agree 100%.  While it's probably true that many people will always try to steal stuff instead of pay for it if there is little to no risk of getting caught, primarily I agree with it for the same reason I knew MP3 was going to be a big deal.  It gave people full control about how they used the media. It also did something else that had devastating impact on the former revenue stream - it allowed you to buy a song (or whole compilation of songs - hard to call them albums or CDs when no physical media is involved) and never have to buy it again. It became so easy to make multiple copies for your own use, that buying it once was good enough. 

Having full control over your media is a lovely thing.  For me, control of my video media means I get to decide when and where to watch:

  • 1. On my big screen TV in the living room, or any other tv I have
  • 2. On my computer(s) or from any computer where I have Internet access
  • 3. Or even on my iPhone - and I love watching video on my iPhone - it's amazing what an immersive experience it can be

Video, like music is heading to what will ultimately be a very uncomfortable place for the producers of the content.  Why?  Well because without full control, in order to get full control you need to:

  • 1. Watch it live (if you don't have a DVR)
  • 2. Buying DVDs
  • 3. Pay for DVR service
  • 4. Download from iTunes or other services
  • 5. Get something like a Slingbox or have a computer with something like Orb installed on it

With the notion that cost of storage space (hard drives) and bandwidth continues to get cheaper and cheaper this is bad, bad news for a lot of revenue streams that exist today.  In the new world storing every single episode of your favorite program will someday mean that the odds of you ever buying another DVD (other than to use as very, very cheap storage) will approach zero.  That's bad news for the networks and studios because DVDs add a lot of profits to the bottom line. 

The technology will evolve to a point where there will be one device you need in your house that will handle everything, recording, storage, the ability to watch from someone else's computer, and one button clicking to put stuff on your iPods or iPhones (or whatever your portable media player of choice is) in a set-up that's optimized for  whatever device you're watching on.  For example, if I'm watching on my big screen, it's in high definition, if it's on my iPhone, it's optimized for the smaller screen where a much smaller (compressed) file can be used.

As with the music business where it certainly was not the recording studios who wound up taking advantage of the sweeping change to digital media, I don't think it's going to be the television networks and studios (same for movies) who make out like a bandit on the digital video landscape.  In fact, just like with music, I think it's Apple (via iTunes and some future version of AppleTV that doesn't exist yet) who will make out the most.  I think that's the real reason why NBC Universal left iTunes in a huff last fall.  NBC claims they wanted control over pricing (they wanted to raise the price from $1.99 to between $2.99-$4.99 per episode), but it doesn't take a Rhode's scholar to figure out that if that's what NBC really was going for, when it bolted iTunes for Amazon Unbox, the price would have actually gone up from $1.99 per episode.  It didn't.  

For more thinking on Apple's role in all of this, see Steve Jobs' and Apple's Four Keys to Total World Domination.

I'm pretty sure a lot of the existing revenue streams outside of advertising are going to dry up, but giving people full control of their media in a simplified way will be something folks are going to be willing to pay for.  The business will change a lot, and I believe people will pay for services that seamless liberate their media so they can easily use it wherever they are, whenever they want to.  All kinds of weird a la carte options will probably arise, you'll be able to subscribe to specific shows instead of specific networks and on an a la carte basis. Or you'll be able to pay a lot more (but probably no more than I'm paying for my cable programming now, ~$100/mo) and effectively have the Internet (or something like it) as your DVR, and "On Demand" for anything you've ever purchased...forever.  Someday.

The networks and studios aren't going to like it, but I think like the telecom industry, they'll make it up in volume.

 
  • http://yahoo.com Jenny G.

    Wow Robert, you are so right on about the future of TV watching, but why can’t the networks’ executives realize this, and act? I don’t get why shareholders don’t wake up and revolt against CEO’s w/o any innovative ideas to profit from the upcoming full digital revolution. I was born in 1985, and feel so lucky to be digitally literate, so everything you just blogged about is really happening with me and most of my friends. Remember AOL ?.0? Good times :-) I’m not an ageist, but as a realist I believe if your too old to want to adapt your business to the new digital wave, then move on to Florida already! I feel so disgusted when failed CEO’s walk away with MILLIONS of dollars, because they were allowed to retire, or their contracts didn’t hold them accountable for sinking stock prices. MY solution? More women on the board!

  • http://yahoo.com Jenny G.

    Wow Robert, you are so right on about the future of TV watching, but why can't the networks' executives realize this, and act? I don't get why shareholders don't wake up and revolt against CEO's w/o any innovative ideas to profit from the upcoming full digital revolution. I was born in 1985, and feel so lucky to be digitally literate, so everything you just blogged about is really happening with me and most of my friends. Remember AOL ?.0? Good times :-) I'm not an ageist, but as a realist I believe if your too old to want to adapt your business to the new digital wave, then move on to Florida already! I feel so disgusted when failed CEO's walk away with MILLIONS of dollars, because they were allowed to retire, or their contracts didn't hold them accountable for sinking stock prices. MY solution? More women on the board!

  • http://tvbythenumbers.com Robert Seidman

    Jenny, since none of the network execs are calling to chat, I can’t presume they’re not realizing it. I suspect the desire to preserve existing revenue streams as long as possible is a factor.

    More and more stuff will be made available digitally, but only Apple/iTunes seems to be on a (legal) path to giving people full control of their media.

    I think the answer is it just takes time. I doubt we’ll see Moonves, Zucker et al heading off to Del Boca Vista anytime soon! ;)

  • http://tvbythenumbers.com Robert Seidman

    Jenny, since none of the network execs are calling to chat, I can't presume they're not realizing it. I suspect the desire to preserve existing revenue streams as long as possible is a factor.

    More and more stuff will be made available digitally, but only Apple/iTunes seems to be on a (legal) path to giving people full control of their media.

    I think the answer is it just takes time. I doubt we'll see Moonves, Zucker et al heading off to Del Boca Vista anytime soon! ;)

  • http://tvbythenumbers.com Robert Seidman

    Jenny, since none of the network execs are calling to chat, I can't presume they're not realizing it. I suspect the desire to preserve existing revenue streams as long as possible is a factor.

    More and more stuff will be made available digitally, but only Apple/iTunes seems to be on a (legal) path to giving people full control of their media.

    I think the answer is it just takes time. I doubt we'll see Moonves, Zucker et al heading off to Del Boca Vista anytime soon! ;)

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