The following post is written by Henry Blodget. Henry is the CEO, founded and writes for the influential Business Insider where this post was originally published.
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-foward through them on DVRs; There's no subtitute for TV ads. And 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, eventually, reality intrudes, 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 and fun options emerging at home: Internet, video games, Facebook, IM, DVDs
- New ways to get TV content other than traditional TV companies: Hulu, YouTube, iTunes, Netflix
- Video-story options for advertisers beginning to emerge: Hulu shows, for example (But NBC, et al, making a lot less per viewer now than they do on TV)
- 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, we 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 TV consumer's perspective, it can't happen soon enough.
You can read more of Henry Blodget's (and others') writing on The Business Insider where you can find stories like:
I would love a la carte TV. There are so many channels that I never watch that just take up space.
i only watch tv on my big screen
@Christopher… yeah? and? The Internet will be there too. It’s not only limited to desktop PCs, laptops, and mobile phones anymore. The box you plug your TV into, or quite possibly your next TV itself, will be Internet connected.
This is a very interesting read on the situation. The problem I see is the timeframe to get to where the newspaper industry is today. TV has a far more dominant share than newspapers, and has for a very long time. TV has much further to fall, and I just don’t see it happening in 5-10 years. Maybe 10-15, and more likely 15-20, but 5-10 just doesn’t make sense when you look at the growth of TV vs the growth of the internet.
But I do think this is the future at some point, and it’s definitely a reason I’m not looking to get into broadcast if I can help it. Broadcast will be the first to go.
Ultimately this is probably the end game, but since most folks in the US get their high speed internet access from companies that also provide cable television service (where they likely make far more money/customer) my guess is that monopoly choke point will be able to be successfully defended for quite some time.
This is a good thing.
i cut my cable four years ago because most of the content I get is online. Just have free TV (outdoor antenna before and after the DTV switch) for sports matchups,local news and two shows..well three.
Online content will continue to be the place. Networks and cable just dont get it yet.
well if they didnt cancle eveything i would tune in i just got showtime and let me tell your there shows are better than network tv
Now the only problem left is the bandwidth caps from your ISP….
What is killing newspapers is the idiots that went on billion buying binges right before the bottom fell out. New York Times spent a billion to buy the Boston Globe. Now they’re whining about losing money – but it’s money going to the banks on outrageous loans.
Content will suffer if there’s no advertisers. Last few times I’ve watched a film on Hulu – all they had were PSAs instead of real sponsors. Sure that’s OK for an ancient AIP film, but a TV show with a budget of $5 million per episode? Although the advertising dollar is shrinking simply because businesses are failing. Car deals won’t be churning out the big bucks for a while. And the new owners of Bud are cheapskates. Don’t expect them to sponsor the Superbowl with a dozen buys.
Expect a future of reality shows that cost next to nothing – plenty of Poker shows.
And sports are vanishing off free TV. Yesterday they announced the Rose Bowl of 2011 will be on ESPN and not ABC.
And isn’t Netflix also killing the video store business and art house theaters?
keep putting reatily shows and you lose me as veiwer and i will turn to cable to watch there shows
^because there are so few reality shows on cable…?
I doubt it will happen that fast. I think Broadcast is in much more trouble than cable right now. I agree cable needs to be thinking of alternatives.
Also for this to happen, ESPN would have to start selling their product ala carte. Until then this isn’t likely.
Corey3rd, your complaint gets me to what I’ve envisioned for a long time – Open source tv. A show with a budget of $5 million an episode? Imagine 5 million fans kicking in a dollar apiece per episode. Just like there have been experiments in musicians and authors bypassing the middle man of record or publishing companies (and like online computer game delivery service Steam is letting video game developers bypass major publishing and retail companies), programs could be developed and delivered without studio control. I told this to the Moonlight fans when they were complaining about having X million viewers no one wanted: kick in a dollar or less per episode, deliver it online, and you guys could still have your show. That’s the future I and others are seeing – direct to the public, no middleman. It suggests LESS reality tv to me, not more: decisions won’t be made solely on attracting a certain demographic of viewer. Enthusiasts could deliver niche content as opposed to attempting to maximize profit by producing generic fare.
Your sports problem – what you’re complaining about is now you’d need a cable subscription to see the Rose Bowl. But in the future you’ll just have to pay to see the Rose Bowl, which’ll be a lot cheaper. That’s happening now with some sports. Other than the U.S. and World championships, this season no figure skating competitions were shown on tv. However, a web site sprang up that for a subscription fee (rather like a season ticket) offered not only all of the major events aired in seasons past on tv, but many minor events, interviews, highlights from past seasons, etc. all delivered over the Internet. It’s rather ahead of its time.
I think broadcast TV is more of a dinosaur than cable. Like ESPN, for example, has great video got catching up on highlight (with ads) and their ESPN360.com is showing a lot of live games now.
The real problem for me is Comcast and whatever cable company I deal with. I don’t want to have to pay for 15 sports tier channels just so I can get the NHL Network. I hate that.
Joseph,
The only problem with your idea is that viewers won’t be contributing to just one show. If it’s a series, say with 20 episodes, that’s $25 that one person would be contributing. Plus, how many of those 5 million fans will watch on the Internet? 1% of them?
I do wonder, like Corey3rd, if content will suffer. TV is already experimenting with coproductions from Canada, UK, Colombia, etc, but even if the stories are good, many of these shows have a “cheap” look to them. What if viewers still want shows that have that expensive look like “Heroes” and “Lost”?
Maybe in the future no one will care as much as we do now about scripted shows. Maybe scripted shows are the mark of the mid 20th, early 21st century, to be swept away in the dustpan of history, like old Vaudeville.
if there is no way to save then why is showtime doing so well with there stuff?
The idea of “viewer supported TV” is done – it’s called The Sopranos, The Wire, Dexter – all those shows on HBO & Showtime. But that’s the not from people clicking paypal buttons. That’s from people subscribing to the channel.
People chipping in to help Marillion make a record is small change compared to the budget of an episode of a TV show. Plus they’ve been around for decades before making this plea to the fans. You can’t have the crew waiting around for those final dollars to trickle in like a PBS pledge drive.
People like to look at pretty pictures. We’re not going to settle for a bunch of ugly cheap productions for our constant viewing. We needs a little beauty on the screen with nice lighting and proper framing. Even the reality show people discovered that element when they jumped on making The Hills junk on MTV. It should also be pointed out that a lot of channels are using reality shows as a way to make sitcoms on the cheap – like Gene Simmons Family Jewels or Hogan Knows Best.
But no matter what happens – we’ll always have reruns.
Well, they are making way to much money as it is, time to make do with less
But
“The lousy content creators will disappear. No big
loss. And no big change.”
And not bloody likely. The majority of viewers are dumb, they don’t want to think too hard. Proof? Turn on the boob tube!