Fake Steve Jobs chimes in on the Apple iTunes vs. NBC brouhaha last week with some insight into why TV is doomed.
Reading it, you get a sense that the real Steve Jobs feels somewhat similar:
[Y]ou run a television network. Now let’s think about this. What the f*ck is a television network? It’s a system of affiliates designed to help carry a broadcast signal across the wide continent of America on airwaves and into television sets owned by millions of people. In essence, you are in the distribution business. In the second half of the twentieth century you had the great good fortune to be granted a kind of limited monopoly over the distribution of a very valuable commodity. There were only so many airwaves, hence only so many networks. There were way more advertisers than there were channels to carry their advertising. So you sat there with your choke-hold on the garden hose, controlling the flow of programming and getting fatter and fatter and fatter.
It was a wonderful system. For you anyway. Except that it had one huge flaw. Which is that for you guys, the middlemen, to get rich, you needed to f*ck over the people at both ends of the value chain — the consumers who had no choice in what they watched and spent years being fed mountains of dog shit, and the producers of content who were at your mercy and had to negotiate with this tiny number of networks who operated, let’s be honest here, as a kind of cartel.
It’s over now. Your business model was a historical anomaly built on scarcity of a valuable resource and the willingness of a small group of network operators to not slit each other’s throats and to collaborate in exploiting the content producers.
All right, that is one damning accusation. Fake Jobs suggests that Apple has become the digital distribution choice du jour, and that over time, traditional content producers will favor turning to Apple, in lieu of ABC, NBC, CBS and FOX (basically) for distribution. In his words:
You know what the new network is? It’s me. I don’t think people have quite figured this out yet, but just as Pixar was once a medical imaging company until I decided to make it into something completely different — ie, the most important entertainment company of the 21st century — so Apple is not really a computer company anymore, or even a consumer electronics company. We’re a network. We take content and distribute it out to millions of people, who play it on handhelds (sold by me) and computer screens (ditto) and yes, maybe, sometimes, on actual TV sets. At one end of the value chain, the consumer end, people have already voted. They like my system better than yours.
At the other end it’s trickier. We don’t deal directly with the content producers. Instead, we have to deal with these network gatekeepers. But why? What value are they adding? As far as I can see the only thing the networks add is an extra step and a big scoop off the margin.
The producers of content don’t like the TV network system but can’t quite see the way across the divide into my digital world. Some musical artists, like Prince, are figuring it out, but they’re isolated examples.
I’m not saying I agree or disagree with the entire argument he’s making, but the boldfaced part is something I’ve actually encouraged technology companies to do:
- I wondered why MSFT did not get into the content business again (incidentally, in the post announcing GE/NBC’s $250M New Media Fund, something, Fool.com agreed a couple of months after our suggestion.
- I demonstrated why and how the stock market would immediately reward both MSFT and Apple if they bought the record labels.
- I dubbed digital media the new software.
Anyway, let’s continue, Fake Steve adds:
Trust me, however, when I tell you that TV and movie people will figure it out too. These are not stupid people. And they are not un-greedy. Which means their desire for more money and more control and more freedom will lead them to apply their energy into figuring out how to get out of the plantation the TV networks have created for them. They will break free. Mark my words.
The talented ones will go first. Bad news for you, TV networks. You’ll be stuck with the shittiest creators, the timid ones who don’t dare cross the chasm. Your shows will get worse and worse. Your sitcoms will grow lamer, if that’s possible. Your reality shows will grow stupider.
Interestingly, a lot of the online video producers such as Next New Networks, My Damn Channel etc. draw from the smartest folks in TV: Next New Network, for example, was founded by Herb Scannell, former Vice Chairman of Viacom.
Judging by the growing heap of reality TV slop on the tube these days, you wonder if Fake Steve is right about the impending, further decline of TV. To drive his point home, he focuses on news:
What’s left? You’ve already gutted your news divisions, which was a truly moronic move since that was the only place where you really could continue to add value. Your news shows will continue to devolve into not-really-news Fox-style argument shows where retarded bullies like Bill O’Reilly come on the air and shout at people because some gangsta rapper has a deal with Pepsi, or argue with straw men about whether we should put more troops into Iraq. Where once we had Edward R. Murrow and Walter Cronkite, we’ll instead have John Gibson and Sean Hannity ranting about patriotism and calling people names. All heat, no light. Well done, TV networks. When you finally die, the world will celebrate. Because you’ll deserve it. Totally.
We know that history repeats itself, right? While I don’t think that offline, traditional media is about to join dinosaurs, 8-tracks and virgin first-time brides any time soon, I certainly have come to the conclusion that what happened to print media is actually a diluted prelude to what TV media can expect?
I wrote Will TV companies face same fate at Print Companies? some time ago, since then, there is little room in my mind that TV’s technological and economic challenges will rape the industry at a faster rate than what was in store for print. One major reason for this, basically, was that the dot com bubble and 9/11 hit all of advertising dollars, but since online advertising was far more nascent and traditional marketers had not experimented at all, those externalities (Nasdaq crash, 9/11) affected online advertising more harshly than it did all of advertising. In technical terms, online advertising’s beta (the ratio compared to the average) was much higher so in a downturn it suffered a deeper decline.
Today, the secret’s out of the bag: print advertising is pretty ineffective, TV is expensive and random, no one listens to radio etc., and online is where it’s at. If an externality, say the sub-prime credit situation turns sour, online advertising might be affected, but TV and other more expensive (and inefficient, effective etc.) formats will be hit harder, faster, and unlike the Web, they simply will not recover.
[Side note, Paid Content has run a couple of entries on that very question, yet no one has ever suggested that online would actually win, dollar for dollar, as it would accelerate the flow of ad dollars to the most effective medium, see more of our thoughts in this post].
For the record, I don’t think the sub-prime credit situation will have a very material effect (to see why, read this post), but even if all is well in general, what can TV networks expect?
Well, print ad sales just hit a 10-year low. That’s not good. The simple truth is that online is siphoning away dollars so that even if some media companies boost their digital fortunes, these are largely coming at the expense of offline. Indeed, Digital Revenues are Never Incremental for Old Media.
Sure, when Google’s VP of [what does he do, again?] Vint Cerf warns TV executives of impending doom, it’s easy to disregard what he says as scare tactics, Viacom, after all, is suing Google’s YouTube for $1B.
Which suggests, that eventually, instead of offering $500M to the gatekeepers ABC, NBC, CBS, FOX, etc. for the rights of the content, Google might, as Fake Steve suggests, actually go direct to the content creators.
Hitherto, Google has not shown enough madness to do that, but whereas TV networks come up with content somewhat randomly and have very little track record to show that they can launch hit shows at a high success rate, via YouTube’s data, Google, can in fact determine what will work vs. what won’t.
But, there’s more: Google is already, via YouTube, signing licensing agreements with content producers. In fact, I know because as Executive Producer of WatchMojo.com and President of Mojo Supreme, I’ve signed one with them.
I’ve written about how a lot of what Google does well (technically, a couple of things, only, but still…) is a result of luck and timing, but the fact remains, their position of strength allows them to leverage these lucky bounces quite well.
What is important to note is that Google is chasing the online video opportunity better than most of the TV companies are, and that is ridiculous, but you can’t blame the TV firms, because Web Video Represents $150B market cap in 2011, but not for TV companies.
Reading all of this, I’m not surprised if you ask: If You’re Old Media, What Would You Do?
I don’t know, but as much as I want NBC/News Corp.’ Hulu to do well, admittedly, I envision Hulu.com being one more distribution point we have… but, I know one thing you don’t do is yank your shows from one very popular destination point (iTunes.com). I do not think that the action will have a great impact on either Apple or NBC… but all that proves is that distribution is now a commodity and content is more important than ever.
Historically, yanking content from ABC, NBC, CBS or FOX was the death knell for a producer, today, it’s just one more outlet, nothing more, nothing less. That’s why if Hulu.com won’t want to work with WatchMojo.com, for example of course, it’s their loss, not mine, because WatchMojo.com already reaches well over 95% of video watchers online… In that sense, Fake Steve is right: distribution has changed, as I’ve written ages ago in the commodization of distribution and the scaleability of digital content. On this front, you have not seen anything yet…
Bottom line: TV won’t disappear, but pick up your most recent newspaper or magazine and you’ll see what’s in store for the folks in La-La-Land.
In Part 2, we’ll look at the micro environment… expect that this week.
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