Sorry, There's No Way to Save the TV Business

It Should Take Its Cues From What Happened to Newspapers

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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 to 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. 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. You can't stuff the genie back in the bottle. And in the next five to 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., make a lot less per viewer than they do on TV).
  • More options for getting video content: telcos, cable companies, wireless companies (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 TV.

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-per-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 five 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.

Read the rest at Business Insider, where Henry Blodget is CEO and editor-in-chief.

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