Most of this discussion has been focused on the blocking of Google TV this month by the networks five months after the launch of Google TV. However this has laid the platform for a wider industry discussion on the future of TV.
The television is about to become the latest medium to get a major makeover at the hands of the Internet. Already more than half of Americans are watching TV and surfing the web simultaneously. But another trend — giving connectivity to the device itself — is going to fundamentally change the business models around television and the way we consume and interact with content - Mashable
“The idea that they would take and fight for money from their distributors, who generally are the same ISPs that Google TV delivers content over, and then offer the exact same shows for free through Google TV, or any aggregator that expects that content for free is probably one of the dumbest concepts ever” – Mark Cuban - How Google TV Could Hand Netflix the entire streaming universe
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. - Henry Blodget Sorry, there’s no way to save the TV Business.
[update 12-10-2010] “35 hours a minute is the equivalent of over 176,000 full-length Hollywood releases every week. Another way to think about it is: if three of the major US networks were broadcasting 24 hours a day, 7 days a week, 365 days a year for the last 60 years, they still wouldn’t have broadcast as much content as is uploaded to YouTube every 30 days.” – The YouTube Blog
As I have said before if you think Google and the arrival of the internet is responsible for the decline in newspaper industry you are wrong – the rise of the direct marketing industry has had far more influence on the decline in newspaper and magazine advertising revenues – and I suspect we will see a similar things happening in the TV industry. This isn’t because the TV is dying or becoming obsolete it is simply because advertising is evolving form the old model of browse with us and buy from them to browse with us buy from us or, put more simply, See it, click it buy it!
- US Advertising Trends 2000-2007 (Source:NAA)
There are two facets that need to be explored when discussing the future of TV. The first is the box, the second is the broadcast medium.
I’ll deal with the box first because this is where Google TV plugs in to the future of TV.
The history of the box is a very simple one. It began life as a furniture piece that allowed you to what the new free to air “radio with pictures” entertainment at your leisure. The future of TV arrived in the early 1960’s when we witnessed the roll out of the first plug and play devices (Think: 1/2inch VTRs) these devices went mainstream in the 1970’s (Think VCR’s and Atari games consoles). Since then we have seen a steady evolution of increasingly sophisticated plug and play devices (Think: Playstation, xBox, DVD, Blue Ray, TiVo). The arrive of Google TV and Apple TV is just the next step in the evolutionary cycle so clearly despite all the hype streaming out of the valley we are talking about evolution and not revolution.
If we want to begin talking about the future of the box then we should be looking at new technologies like 3-D TV and Displax’s Skin Technology. Skin for example is a far more interesting idea than Google TV because here is a display technology that not only allows us to share the experience of interacting with the medium as a group but also allows us to turn any surface into an interactive display. With Skin we are no longer limited to thinking of TV as furniture. With Skin our TV can almost become any object or surface we can imagine.
“Electronics companies and entrepreneurs must understand the psychology of the couch. It is the one location where people want to be entertained, often passively. They spend all day in front of phones, e-mail, Twitter and Facebook. When they kick back on the couch, the last thing they want to see is a list of unread e-mails and a loading screen. That’s why a winning way to make and market connected TV in 2011 is delivering content, not apps.” - Mashable
This of course leads us on to the impact of the 7th screen and how the mobile phone is redefining our consumption of media.
The potential impact of mobile phones on media consumption habits has been debated in telecom circles since the early-1990’s however the metrics that were gathered by the industry prior to the introduction of the iPhone suggested that the mobile phone was never going to be the next mass media platform. As we can see from these 2008 mobile revenues from Australia’s market leader data represented 2% of the pool and the bulk of that wasn’t video or games it was email.
Breakdown of Telstra’s Mobile Revenues (2008)
Customers may have been influenced by the TV ads pitching mobile content but their actions suggested they preferred texting to watching movies on their phones. Indeed if we cross reference the other industry data that was available at that time then watching Mobile TV represented less that 0.2% of mobile revenues for the average Telco.
Mobile Media Revenues
For the customer mobile media was just another fashion accessory. Bling for their phone. We witnessed similar metrics coming out of YouTube (Think: putting a future of BlipVerts into context) where video content on the web constituted about 2% of all video consumption. At that time people spent more time watching videos on their mobile phone than on the internet (See Nielsen’s Three Screen Report).
So at the moment – putting aside Flurry’s recent study Is iPhone the next American Idol? – it’s probably safe to say that the future of TV looks like TV with plug and play devices attached to it. Put another way people will probably do more with their TV tomorrow than what they are doing today. The real question is will they be doing that with the TV broadcasting industry or with somebody else?
“The future of TV is TV. That is what consumers want. Consumers have made their choice to spend money on new HDTVs. Why ? Because they want to watch TV” – Mark Cuban The future of TV is TV.
While I was in Western Australia last week I took time out to take a personal tour around the “new” ABC TV and Radio broadcasting studios in Perth. Built in 2005 the studios where designed “to meet the technological challenges of the 21st Century”. Needless to say the very expensive, state of the art television studios today quietly gather dust as most of the technology and the space is underutilised because there is neither the human resources, production budgets or programming requirement to justify “firing up” the content manufacturing plant when all you need to do is switch on the satellite feed from the eastern states and/or overseas.
In military parlance the complex was designed to fight yesterday’s war and is ill suited for fighting the battles facing 21st century mass media.
The industry isn’t blind to the problem. The TV networks are very much aware of the financial impact of the MobCon and how it’s not just destroying shareholder value in the newspaper game but across the whole media industry. It was NBC Universal’s CEO Jeff Zucker who first coined the phrase turning Analog Dollars into Digital Pennies.
Ironically the challenge isn’t distribution, there are more channels than ever before and the arrival of digital has improved the AV quality. The challenge is in content. A future of professional sport, 24 hr news cycles, reality TV and endless repeats isn’t going to cut in the long-term.
The challenge TV also shares with Newspapers and Magazines are to make their linear and cyclical programming formats relevant in an increasingly asynchronous world. Their audiences simply don’t have the time to sit around and wait for TV to deliver linear content. They want it all and they want it now and they want it free.
“It goes without saying there’s a whole generation of folk that has either grown up, or are growing up, on the Internet. Their consumption and online behavior is going to be predicated on a distribution medium whose basic premise is abundance. They will find, curate and consume on their own terms, on their own choice of screens and on their own time.” GigaOm There is No New Media: It’s All New Consumption
Broadcast Now’s The future of TV: meeting the digital challenge is an excellent industry insider’s view of how the industry is shaping up to meet the challenges ahead. For example we have Matt Locke suggesting that games are still doing what TV has always done: telling stories using the screen – though perhaps Mark Cuban is closer to the mark with his idea that both TV and the games industry is in the business of curing boredom. What we do know is the TV industry hasn’t looked at interactive, massive multiplayer or social gaming as a commercial or creative opportunity, which is a huge error. Indeed when ever I talk to my old commercial TV production peers they talk about a potential future of creating interactive narratives totally unaware that the gaming industry has been doing this for decades. When they think of games they still think of space invaders even though Lara Croft made the transition from console to silver screen nearly a decade ago.
In the tech blogs most of the discussion continues to been focused on the future of content…
“How do we (Hollywood) prevent Google from using the Internet to destroy the “television business” like it destroyed the newspaper industry?” – CrunchGear Hollywood Deathly Afraid Of Google TV’s Potential To Upend Television Business
The problem Apple faces is the same problem that everyone faces: content agreements. Hollywood is proving much harder to convince than the music labels were. In a few years, if DVD sales keep falling and cable revenues start decreasing, they’ll be more receptive to new options. TechCrunch – Why This New Apple TV Makes Sense — For Now
Features and Functionality…
What of Google TV and the like? Again, if it’s anything more complicated than your standard cable TV program guide this will go the way of Wave: a nice a idea that gains zero traction in the real world. – Crunchgear
or, simply the pending demise of DVD Rentals and Cable…
“The cable tv industry is no stranger to competition. Cable survived competition from the DVD rental store. (Blockbuster filed for bankruptcy. Apple just killed the optical drive in its new laptops.) Satellite TV providers DirectTV (18.7 million customers in the U.S.) and Dish Networks (14.3 million customers) have some loyal customers, but haven’t been able to stop cable. But, the internet will be a tougher challenge.” – TechCrunch Internet TV and The Death of Cable TV, really
I remember first encountering some, if not all, of these arguments back in the late 1980’s when I attended a demonstration put on by IBM at the dawn of the multimedia revolution. The demo? Video served across a network or the video store of the future as it was pitched back then.
What I have seen very little of is informed commentary on what the emergence of interactive advertising and the rapid emergence of nanocasting will have on the business of broadcasting.
Admittedly there is some commentary out there… There was GM’s John McDonaldquoted by the Wall Street Journal as saying “The old days of carpet bombing the U.S. with network TV ads and expecting to reach everybody are over.” (See What Will the Future of Advertising Look Like?) and well before that we had Bob Garfield from the Ad Age and the “The Chaos Scenario”
“We have always grudgingly accepted advertising because it’s been the quid pro quo for getting free and subsidized media: free network TV, cheap newspapers, cheap magazines.” – Bob Garfield CHAOS SCENARIO 2.0: The Video
The key to understanding the future of television is to understand that the internet and by default Google and Facebook are essentially TV wannabe younger and much smaller siblings.
Where do you think the idea of exchanging free content for putting advertising on the menu came from? Radio and TV. The Internet is wannabe TV. Always has been always will be.
Now consider this point carefully. Telecoms and TV Broadcasting are one of the same industry. Both push AV content via cable, satellite or wireless. Telecoms excel at nanocasting (i.e. one to one through to one to a few) TV excels at broadcasting (one to many through to one to millions). Televison’s battle in the future – indeed today – is not with Google or the internet but with the Telecoms industry.
Put another way it looks like this.
From Mass Media to Digital Dust
On the left we have the “old” mass media that could cost effectively reach a lot of people at one time. In the middle we have the new media that can reach a few people one at a time, at sometime today or in the future, when they choose to turn up. (See Forget Freemium. Tomorrow we’ll be talking Memium)
The strategic challenge facing Broadcast TV is how far down the path does it travel towards nanocasting. For Telecoms the strategic challenge is how far up the path does it travel towards Broadcasting.
Mark Cuban put it more succinctly when he said this about the transition form Cable TV to Internet TV earlier this week: “The irony is that while you may not like paying for cable channels you don’t watch. You will end up paying for cable channels on the internet that you don’t watch as well. In this case you will be paying via higher net bills for the extra bandwidth required to stream cable channels that your neighbours like to watch“ (See How Google TV Could Hand Netflix the entire streaming universe) and in an earlier post in which he proclaimed… “Don’t Waste the Internet on TV – Protect the Future of the Internet… I want the internet to be a platform for amazing. Not Gilligan’s Island reruns” (See Don’t waste the internet on TV )
Moving forward Television could attempt to limit the expansion of the telcos by seeking to implement legislation that would limit the power of the internet to reach a mass market or it could expand it reach by embracing the internet and more importantly mobile communications and seek the legislative changes that would allow it to deliver some if not all of the services of the telcos across its bandwidth.
The reason why it would do this is simply the reality of the Analog Dollars = Digital Pennies problem. The telcos are the only ones earning Digital Dollars out of this equation. So if you want to keep earning Dollars then head for the strategy that delivers the bucks rather than the pennies.
- How Analogue Dollars equals Digital Pennies
The key to what ever strategy the TV Broadcasters choose to pursue is of course largely dependent on what the advertising industry is willing to fund.
The reality is the internet has much to teach its older sibling about advertising. After all who needs to interrupt the program when you can fill screen real estate with banner ads?
However the change in advertising the internet has delivered is more fundamental than just putting more ads on the menu.
In Search Me Trust Me I said that the illusion the internet industry has tried hard to create is that online advertising is more effective, efficient and cost effective than traditional advertising. The problem is it isn’t and that’s one of the main reasons why all those content based business models suffer from the Analog Dollars equal Digital Pennies problem.
By the end of the dot com crash it was evident that online advertising and online content were mutually exclusive concepts. What appeared self evident in the traditional media proved undeniably unworkable online.
Why was this? Well the answer is very simple. The traditional media advertising model was based on the idea that you browse with us but you buy from them. Magazines, Newspapers, TV, Billboards and Radio were the shop fronts that allowed consumers to browse before going to the shops to complete the transaction. Advertising in this context was about purchasing a shop window.
The old mass media advertising model was Browse With Us, Buy From Them. The model online has become Browse With Us, Buy From Us.
What News Corp. The New York Times, AOL, MSN and Yahoo! have tried to create over the past 15 years are web sites that mirror this Browse with us, Buy from them media model. For example MSN and Yahoo! have both built very expensive, content rich Financial “mini portals” to enhance the stickiness of their sites thinking they could attract high value traffic and then sell premium advertising space to the Banks and Financial Services Institutions. The idea is you Browse online at Yahoo! for the information you need and then go to the Bank to Buy.
Meanwhile the Banks have built their own online trading platforms and the surprising thing is these platforms attract premium customers and have proven to be very sticky.
Why is this? Have the Banks provided a more compelling user experience than either Yahoo! or MSN? Partly. The real answer is the Banks have provided the customer with a Browse with US, Buy from Us experience or, put another way, an impulse driven See it, Click it and Buy it experience.
- A cross section of web sites dealing with Wealth Management
This is the challenge content providers face online. There is no value in the Browse with Us, Buy from Them offering online. The customer will just go to where they can Browse with Us, Buy from Us.
Although the newspapers and the web portal persist with their efforts to try and make the old Browse with Us, Buy from Them model work the truth is the only viable online advertising platform to emerge from the dot com era was the one developed by eBay and Amazon. That’s why classified advertising is dead. Who needs to advertise in the newspapers when eBay allows you to See it, Click it and Buy it?
This revolutionary model proved it was no longer a prerequisite to couple content with the shop window. What customers were looking for was the opportunity to discover and transact. That why today’s media is all about Find Me, Find You and Let’s Exchange
The challenge today for the Broadcast TV is industry is the same one facing the New York Times, News Corp, AOL, Yahoo! and MSN. They can no longer profit from being just the trusted advisor. They also need to be the trusted broker.
TV advertising has by and large failed to evolve to embrace this model. Yes we see the occasional infomercial that urges us to pick up the phone and buy now but we are yet to see any adoption of interactive technologies that will allow consumers to buy what they see on the TV screen in real time without leaving the couch. (See It’s the New Plastic and yes, it feels Fantastic)
Nobody can predict 100% what the future of television will be so I won’t pretend that I know the answers. But I do know that it will form a huge basis of the future of the Internet, how we consume media, how we communicate with friends, how we play games and how we shop. Video will be inextricably linked to the future of the Internet and consumption between PCs, mobile devices and TVs will merge. Note that I didn’t say there will be total “convergence” – but I believe the services will inter-operate. - Both Sides of the Table
If you want to try visualise the future of Broadcast TV then it could be anything from the “Internet on Steroids” to a niche “Home Cinema” play that focuses on high quality, big experience content that is real time – think Sports and Spectaculars rather than Movies and Docos – it will all depend on what channel you choose to tune into. At the other end of the scale will be the mobile phone. Smart personalised and portable. The TV of the future and the Smart Phone are in reality bookends of the same interactive media platform. That’s why in the future I would suggest the Broadcast TV industry value chain will mirror that of the mobile telcos today and that’s why I would suggest the smart media tycoon or investor would seek to own both ends of the media convergence value equation.
[updated 1-12-2010]
Further Reading
FCC Moves to Free Up TV Airwaves for Internet Use – GigaOm
Posted on October 25, 2010
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