The Future of Television – Part 90210

kinnon —  January 27, 2006 — 4 Comments

We Canadians have just come out of an Election – and the Election Night coverage from Canada’s networks was very well done. (We watched Global TV for most of the evening.) This is what networks are able to do well – great reporting, interesting pundits, brilliant graphics – but is that enough of a future for them. Not according to a study by IBM researchers as reported in today’s Globe and Mail.

In as little as five years, the global industry could be drastically altered by the rise of alternative ways to watch television, such as downloadable programs and TV streamed over the Internet, say a group of researchers with technology giant International Business Machines Corp.

In a recent report I co-wrote on the CES convention, I commented that the convention was really about “any content, anywhere.” Keynote speeches from Bill Gates, Yahoo’s Terry Semel, Google’s Larry Page, Sony’s Sir Howard Stringer and Intel’s Paul Ottelini all turned their focus to content delivery.

While showing content that was available on an HD screen, a computer screen, a PDA or even a phone, Gates stated:

There’s a lot of themes there, themes of personalization, themes of empowerment, themes of everything moving to the Internet. What is telephony moving to the Internet? That’s voice. What is TV moving to the Internet? That’s Internet TV or IPTV. People have to have confidence in these things, automatically backed up, security built-in, very reliable systems . . . and easy connections, connecting to people, connecting up to devices, a very strong way of driving through all these different scenarios and making them very simple.

One of the “any content, anywhere” services Gates spoke of was Starz Entertainment’s Vongo. As Starz Senior VP, Robert Greene puts it:

“We see a market out there of people who are saying, ‘I want to choose what I want to watch, control how I watch it and watch it wherever I am.'”

It’s no surprise that Yahoo’s Terry Semel would echo this content mantra in his CES keynote – he joined Yahoo in 2001, after twenty-four years with Warner Brothers where he built the company into “one of the world’s largest and most creative media and entertainment enterprises.” Semel knows content is king (or maybe that should be “Kontent is King™“) and has focussed Yahoo on that reality with its Yahoo! Go service.

In his keynote, Semel stated that boomers grew up in an era where other people were the content programmers – network programmers, local station managers, etc. Today, internet users are the programmers. They decide what content they experience, when they experience it and on what device they choose to use. “We’ve moved from mass media to my media.”

Intel’s VIIV (which rythmes with “Jive”) platform is designed to get that content wherever you want it. As Intel CEO, Paul Otellini put it “It’s designed from the ground up for the Digital Entertainment Experience.” And, not content to just build the hardware, Intel has partnered with a number of Hollywood producers to create ClickStar.

“ClickStar will target the millions of broadband consumers worldwide thirsting for a richer and more flexible entertainment experience. A typical ClickStar user will be able to enjoy full-screen high-fidelity films conveniently on their big screen TV from the comfort of their living room or on-the-go via their laptop. ClickStar’s core mission is to become the leading online destination for premium entertainment, designed to give consumers a direct connection to their favorite stars and to give filmmakers a direct connection to their fans while providing a new way of experiencing home entertainment that is highly personal, very affordable and always flexible.”

Of course, Google wasn’t about to be left out of this party and Larry Page used his Keynote to announce the Google Video Store – also known by some pundits as the “You’ve Got to Be Kidding, If You Think You’re Competing with iTunes Store”. As I commented elsewhere, Les Moonves was over the moon with his excitement for Google’s Video Store:

“It is truly great to be here and be part of this amazing presentation. Google and CBS. CBS and Google. Who would ever have thought those two brands would be together on the same stage at the same time? It’s pretty amazing.”

What’s truly amazing is that a company as smart as Google could build a web store as ugly as their video store. (Which has been improved, but still…) But I digress.

Although not at CES, the company behind all of this was the former industry lightweight and now, King Kong of Kontent™ delivery, Apple. Much of the excitement of the “any content, anywhere” mantra can be linked to Apple’s iTunes and iPod success. Apple launched their iTunes Store video downloads on October 11th of 2005. By January 10th of this year, they had sold over 8 million video downloads. Video content that is only 320 x 240 in size, providing the viewer with the equivalent viewing experience of watching VHS when played back on a Standard Definition monitor. Apple, with a limited catalogue, has shown that there is a huge audience for internet delivered content – and people are willing to pay for that content. [See UPDATE 3 Below]

DesignTechnica cites a recent study on the impact of Apple’s video download iTunes Store:

A new report from ABI Research finds that Apple’s move in late 2005 to sell television episodes and video through its iTunes Music Store marked the “big bang” for online video, although the new distribution channel will still need as long as five years to catch up with traditional avenues.

According to ABI analyst Mike Wolf, “At this year’s CES, gadgets took a backseat to the bevy of announcements by large online and content players. The flood of online content announcements from Google, Yahoo and others shows that after years of hesitation from the larger media players, the market for premium content online is finally beginning to take shape.”

Retrotv-2So, what’s in store for television broadcasters? Probably the best voice in this discussion is that of Terry Heaton on his POMO Blog. In an article on the recent WB/UPN merger, Terry comments,

We’re deep into an enormous business disruption for the television industry, and nobody should be surprised by this or anything that happens next. The ship is sinking, people. In some cases, it’s oh so slow, but it’s going down just the same, and these big companies have no choice but to be “creative” in working their spreadsheets. It’s their ballgame. Disruptions in distribution alone are bad news for network affiliates of every stripe. A broadcast tower is a long way now from being the only game in town in terms of distributing television.

And in Canada, what does our broadcast industry do in light of this reality – they run to the government, of course.

The Canadian Association of Broadcasters has asked the Canadian Radio-television and Telecommunications Commission to regulate video programming on cellphones, ensuring there is still room for domestic content and local advertisers.

“It’s about the fundamental business model that has supported Canadian television over the years,” said Glenn O’Farrell, president of the association, which represents CTV, Global, CHUM and other networks.

“The advertising model is very much being put to the test by these new technologies . . . The question is how effective will it be if Canadian consumers can also access the same programming from non-regulated sources.”

Canadian networks could lose advertising dollars to viewers who download shows from U.S. or British networks, for example, rather than watching those same programs on Canadian channels.

“The CRTC is going to have to pay a lot more attention, on a go-forward basis, to the fragility of the economic model supporting television,” Mr. O’Farrell said.

The CAB is Dreaming in Technicolor if they think they can regulate the content Canadians want to watch. The fragility of the broadcast industry’s economic model is a reality that they will only be able to solve by embracing the change and figuring out how they can monetize their services – while providing their potential viewers with “any content, anywhere“. And they have a lot less time than the five years suggested in the Globe article to make this happen.

UPDATE: Get the IBM Executive Summary in pdf. Read Terry Heaton’s take on the story (and his comment below.)
UPDATE 2: And here comes my favorite book pusher, Amazon, via ArsTechnica:

Variety pulls together reports from a variety of movie industry sources who say they have been working with to set up online delivery of movies for an end-of-April launch, and although Amazon spokespeople refused to comment on the story, the multiple sources lend credence to the scoop, and it all makes too much sense not to be true. According to the uniformly unnamed sources, Amazon’s vision includes a try before you buy model, where you could download or stream a movie for a fee, and apply that fee as a credit towards the purchase price of the corresponding DVD, should the content tickle your fancy.

UPDATE 3: From Diane Mermigas in the Hollywood Reporter:

Such hit primetime series as “Desperate Housewives,” “CSI: Crime Scene Investigation,” “Survivor” and “Lost” command about $440,000 per 30-second advertising spot, which implies a $26 cost-per-thousand rate. With a typical 17 million viewers and 13 minutes of commercial time per hour, one episode of such a hit series generates about $12 million in gross ad revenue, he said. (She is referring to JPMorgan Chase analyst Spencer Wang)

By comparison, even in the worst-case scenario — with 20% of TV viewers opting for downloads, 100% of which overlap with existing programs — downloaded episodes of such popular series can generate an estimated $15 million in revenue.

“The main reason is that the $1.44 in download revenue per user (or 70% of the $1.99 per download) is greater than the estimated 57 cents in advertising revenue per user generated under the current model,” Wang said.

The content owners take from downloading is nearly the same that a commercial-fee TV series episode generates from a DVD boxed set, according to Nielsen Entertainment analyst Larry Gerbrandt, who has done the most exhaustive analysis of on-demand program economics to date.
[NotBillable – a blog read favorite]

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A television editor, writer & director since 1978. A Christian since 1982. More than a little frustrated with the Church in the West since late in the last millennium.

4 responses to The Future of Television – Part 90210

  1. Great stuff, Bill. You’re dead on the money. And thanks for the link to the CAB whinefest. I’m going to blog about it too.

  2. Terry,
    I look forward to reading your comments… as always.

  3. I just want to say thanks for reading NotBillable. Since I really enjoy (and learn a lot from) your blog, it’s flattering to be mentioned.

  4. Irene,
    I learn lots from you, as well. Thanks for blogging at Notbillable. And, BTW, are you familiar with Roy Williams, the wondrous Wizard of Ads from Buda, TX. (Just South of Austin.) I’ve learned lots from Roy and his Wizard Academy.


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