Reshaping TV

A few weeks ago, the major TV net­works held sev­eral events cater­ing to adver­tis­ing, expect­ing to sell some adver­tis­ing for the fall TV sea­son. This period, called the upfronts, is gen­er­ally a good time for TV sta­tions to attempt to scare adver­tis­ers into pay­ing a lot of money for adver­tis­ing, rid­ing on the fear that their com­peti­tors might pick the best spot. How­ever, some­thing dif­fer­ent hap­pened this time: some adver­tis­ers decided to not join the dance. 

The rea­son I’m look­ing into this effect is that there seems to be a major shift under way in the tra­di­tional media busi­ness and it is one that gives only two choices to tra­di­tional media com­pany: adapt or die.

How TV works

The inter­est­ing thing about tra­di­tional broad­cast tele­vi­sion is that its model is based on large mar­ket inef­fi­cien­cies. Let me explain: When a new TV show is cre­ated, the cre­ator gen­er­ally has to pitch the TV net­work, in an attempt to get the net­work to pick it up. The net­work then goes through some analy­sis in try­ing to fig­ure out how the show might fare with its audi­ence and whether the audi­ence it attracts is one adver­tis­ers is will­ing to pay for. If they deter­mine that the show could make them some money, they agree to fund a pilot, which is essen­tially one show that they can take around to test. If that pilot looks like it has poten­tial, the TV sta­tion then orders up a few episodes of the show to put it on the air. In the process, they also make their affil­i­ates, who own a geo­graph­i­cal monop­oly on dis­trib­ut­ing that con­tent, that the show will be com­ing up. 

TV net­works make money from two sources: adver­tis­ers and fees from affil­i­ates. They use some of that money to buy the rights to a TV show, which is often pro­duced by a sep­a­rate com­pany. While the sep­a­rate com­pany may make a rel­a­tively small mar­gin on the ini­tial run of the show, a suc­cess can enable it to sell the show rights to other com­pa­nies after the ini­tial run. This is why some non-network TV sta­tion can run re-runs of older shows long after those shows are no longer pro­duc­ing new episodes.

TV is imploding 

Jeff Jarvis uses the the term explod­ing TV to talk about the cur­rent changes in the TV indus­try. I believe is con­tention is wrong: TV is not explod­ing but rather, it is implod­ing. The cur­rent model is pred­i­cated on inef­fi­cien­cies in the way con­tent is dis­trib­uted. How­ever, in a future where IPza­tion rules, TV is try­ing to reform itself into some­thing new and here, it runs into some problems.

The first prob­lem that TV net­works are going to encounter is that their whole liv­ing is pred­i­cated on some­thing being big: big shows, big audi­ences, big money from adver­tis­ers. But the new model is about small: sin­gle episodes, smaller audi­ences, and less con­sump­tion at a sin­gle time. As a result, what was once the sweet spot of 8pm to 10pm, when most peo­ple had a lim­ited choice in terms of what show they could watch, no longer exist. This hap­pened as a result of both exter­nal and self-inflicted factors.

The first exter­nal impact was the intro­duc­tion of the VCR, which allowed peo­ple to start shift­ing the time at which they watch a TV show. Tech­nol­ogy con­straints, how­ever, made it dif­fi­cult for the gen­eral pop­u­la­tion to fig­ure out how to prop­erly set up record­ing of TV shows. How­ever, enough of a crit­i­cal mass was formed to give peo­ple a taste of the con­cept. When dig­i­tal video recorders like Tivo were intro­duced, they sim­pli­fied the process and made it very easy for peo­ple to start shift­ing their sched­ule. How­ever, this still gave the TV an hedge: while most peo­ple could shift sched­ule, they were still tied to the device and didn’t know how to get the con­tent of that box. 

Enter com­pa­nies like sling­box, which cre­ated a device that took the con­cept one step fur­ther by allow­ing peo­ple to shift WHERE they’re watch­ing TV. The sec­ond bar­rier to con­tent being avail­able any­where any­time shifted, mak­ing it very dif­fi­cult for TV sta­tions to fig­ure out who is watch­ing their shows, when are they watch­ing them and where are they watch­ing them. As a result, they can no longer guar­an­tee their TV affil­i­ates an audi­ence and are there­fore find­ing some pres­sure in terms of the fees they charge those affiliates.

In an attempt to recover some of their lost rev­enue, TV net­works are now exper­i­ment­ing with putting their shows online, either via their own sites (as ABC did) or through pay mech­a­nisms like the iTunes store (which, sur­pris­ingly, Apple still calls the iTunes music store, even though it sells much more than music now). I’d ven­ture that this cre­ates another poten­tial dan­ger for the net­works. Why? Because, at the end of the day, TV net­works are just re-packagers, using other people’s con­tent to sup­port them­selves. What value do they add? At the cur­rent time, they can claim that they have the audi­ence, and they have the rela­tion­ship with the adver­tis­ers: it’s a strong advan­tage in the short run but what about the longer timeline?

Orga­ni­za­tions like myspace and the web 2.0 video host­ing com­pany of the week are sim­i­larly pack­agers and, while the qual­ity of the video on their sys­tems is still rel­a­tively week, one can envi­sion a future where they could eas­ily com­pete with the TV net­works for audi­ence. In some crit­i­cal audi­ence seg­ments (for exam­ple, the much cov­eted 18–25 male audi­ence), those dis­tinc­tions no longer exist and, if you extend that trend out for a decade, ABC and youtube are on the same foot­ing. The only dif­fer­ence is that ABC has con­tacts with the adver­tis­ers, where youtube doesn’t really. One can ven­ture that some­thing like Google AdSense is com­ing for the video space and this is bad news for pack­agers in gen­eral as it will rel­e­gate them into the space of just being band­width providers (and recent tech­nol­ogy devel­op­ment point to P2P net­works as not being far from being able to deliver TV qual­ity video at a per­cent­age of the band­width cost)

The rea­son I’m think­ing that the new model is bad for pack­agers is that the brand iden­ti­fi­ca­tion is now going to shows, not to TV net­works. Most peo­ple think and talk about shows, not about a net­work lineup so con­ver­sa­tions are relat­ing to Lost, the Simp­sons, or Amer­i­can Idol, each of which is pro­duced by an out­side com­pany. What hap­pens when the cre­ators find that adver­tis­ing is good enough to sup­port their effort out­side of the net­work sys­tem. As TV and the Inter­net merge (an effort fur­thered by the recent announce­ment that Tivo will put web con­tent on your TV), the con­trol is going into the hands of the con­tent pro­duc­ers, not into the hands of the pack­agers: in a future where the bound­aries no longer exist, what hap­pens if the pro­duc­ers of the Lost TV series, see­ing that they have a large enough fol­low­ing, decide that they are going to dis­trib­ute their show on their own and use an adsense-for-video sys­tem for ad insertions. 

So what’s a net­work to do?

Under this model, net­works are headed for the trash­bin of his­tory but they may have a way to keep them­selves rel­e­vant. In order to do so, they need to :

• Rec­og­nize that audi­ences will be smaller
• Focus on a core audience
• Pro­duce your own content
• Give a plat­form to newcomers

The first item is prob­a­bly the harder one for them to deal with. Rec­og­niz­ing that audi­ences are going to be smaller, means that they will have to go through painful reor­ga­ni­za­tions and shrink them­selves to fit the new real­ity. Such reor­ga­ni­za­tion are always painful but will give them a chance to move to step two: focus on a core audience.

That focus will put them, how­ever, in head to head com­pe­ti­tion with some cable TV chan­nels, which have taken than approach and have suc­cess­fully mined their audi­ence. For exam­ple, Fox News is known as the news chan­nel for right-leaning peo­ple, or life­time is known as the net­work for women. And so on and so forth. This may mean jet­ti­son­ing some exist­ing fares like, for exam­ple, the pre­sen­ta­tion of a par­tic­u­lar sport (or going to extreme, the pre­sen­ta­tion of all sports as the sports leagues are gen­er­ally the con­tent pro­duc­ers, get­ting paid large fees for their offerings).

Another tack is one where con­ver­gence, that much used but sel­dom imple­mented word, comes in. Most, if not all, net­works are part of large media con­glom­er­ate. This gives them access to pro­duc­tion resources to build up their own con­tent. Some of the net­works have already smartly moved in that direc­tion, giv­ing them more con­trol of their destiny.  

Last, but not least is estab­lish­ing your net­work as a plat­form for new­com­ers. Fox, now con­sid­ered the fourth net­work, man­aged to estab­lish itself by pre­sent­ing fares that were edgier and dif­fer­ent enough in a world where tri­an­gu­la­tion to get a por­tion of the mid­dle of the road audi­ence had dri­ven shows that were mostly bland. One inter­est­ing chal­lenge, when build­ing up on such a strat­egy is how one chooses their bat­tles. In the United States, the FCC has made it dif­fi­cult and some­times expen­sive to pro­duce more risqué shows. But what if, using their new inter­net plat­form, TV net­works were to offer two ver­sions of their shows: one that is cleaned-up for tele­vi­sion, falling under the proper guide­lines for “accept­able” con­tent, and one that is pro­duced for the freer, more unreg­u­lated inter­net. Edgier con­tent is, after all, how some cable chan­nels like HBO have estab­lished them­selves as pow­er­houses in the con­tent space. 

One inter­est­ing approach in terms of pro­vid­ing a new plat­form is that of current.tv. I ini­tially wasn’t sure of what to make of it but I think it goes to the same impulse that has dri­ven youtube to become such a phe­nom­e­non: users love to cre­ate con­tent and, while most of it is prob­a­bly not that com­pelling, such sys­tems break down the stran­gle­hold than TV net­works pro­gram­mers have on distribution.

So why this long piece?

There doesn’t seem to be much new in that piece to peo­ple who are inter­ested in that space but I would con­tend that, when you look at it in per­spec­tive, it explains a lot about why TV sta­tions are so inter­ested in end­ing net neu­tral­ity. The fight over net neu­tral­ity is about impos­ing arti­fi­cial bar­ri­ers in order to pro­tect monop­o­lies. How­ever, the new threats pre­sented by upstarts like youtube are upset­ting the apple cart and tra­di­tional com­pa­nies are now try­ing to find a way to ensure that their monop­o­lies are pro­tected. Of course, they’re never going to say it that way but, ulti­mately, the fight over net neu­tral­ity is a fight over what con­tent will be avail­able. As I’ve men­tioned in my ear­lier piece on net neu­tral­ity, the bat­tle is pri­mar­ily one hap­pen­ing around the future of the inter­net in the United States. And, in think­ing some more about it, I’ve come to the real­iza­tion that, at the end of the day, the US com­pa­nies oppos­ing net neu­tral­ity may be fight­ing not only for the ben­e­fits of the telco providers but also for the ben­e­fits of the large con­tent producers.

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