Sunday, March 22, 2009

The Future of Cable-TV

There's a bit of a discussion going on between Mark Cuban and Avner Ronen. It started with someone writing an article about boxee, the company that Avner heads.

Mark seemed to take exception to the article, and posted, "Why Do Internet People Think Content People Are Stupid?" Avner then followed up on his blog.

I've been thinking about Cable and Broadcast TV for a while. I find myself agreeing with Avner, that the Internet will allow customers to have a la carte access to shows and channels.

First off, why would this happen? We only need to look at PVRs to see where it is going. PVRs are changing the relationship between broadcast networks, content creators and viewers. Currently, a PVR changes how a viewer makes use of the TV network. They can watch any show they are interested in, regardless of when it was broadcast, or even if they know it is being broadcast. People with PVRs timeshift TV shows, frequently watching a show up to a week after broadcast. This change in viewing habits is showing up in the TV show's ratings, with some shows seeing a drop of up over 30% viewership as their viewers record it for later viewing.

What happens when the majority of your customers have PVRs? They no longer watch "whatever is on". They will watch the shows that they want to watch, when they want to watch them. The broadcast schedule becomes less important. In fact, it doesn't matter when the show is broadcast anymore. Your viewers will automatically follow the show through scheduling changes.

Some consultants say that people will still want to watch the show during the broadcast slot so that they can talk about it the next day at work. That is true, there is some pressure to watch a show as it comes out, but it doesn't need to be watched immediately. It can be watched just as easily +1,+2,+6 hours later. The person could even elect to watch the show the next morning over coffee or on the way to work on the train.

So, if the timeslot doesn't matter, what does that do to a broadcast network? Frankly, it turns them into two things. First and foremost, they are aggregators. They decide what it is that you are going to watch. Second, they are a very efficient one to many data network. Because of their sunk costs in the form of spectrum and transmitters they are able to deliver content to homes across the world cheaply.

Now, remember, in the world of the PVR, it doesn't matter when a show is broadcast - it'll be found and recorded. This lowers the value represented by prime-time slots. Everyone is watching TV at that time, but it isn't needed to show them pre-recorded content. It also increases the value of the 2-6AM slots. The time when a broadcaster would usually send out a test-signal or infomercials are now perfectly positioned to show syndicated content.

Remember, it's all about feeding the PVR. You want to fill their viewing hours with _your_ content, not the other guy's.

So, we're not in a world where insanely popular shows are broadcast to people's PVRs at 2AM on a Monday morning. Just in case you think this is crazy, this is exactly how bittorrent works with background downloaders like TED (torrent episode downloader). TV shows show up on the pirate networks in the middle of the night, and are available for watching on your local PVR a couple of hours later.

So, now that they're feeding your PVR, what happens next? Aggregation. The networks provide aggregation and editing services. They are tastemakers. The only problem? They demonstrate this taste through their line-up and schedule. As I've already shown, the schedule is unimportant - people use PVRs. That leaves only the line-up. Those "up-next" teasers for the next show? Of little value - the viewer can't watch the next show! So, the line-up also becomes unimportant. There is no way to package shows to make viewers more "sticky". They will choose shows from networks a la carte. Again, we can already see this behaviour - both on PVRs, and bittorrent. There are also better "tastemakers" than networks. They're called bloggers. There are a lot more of them, they are the reviewers of the Internet age. Even better, they are perceived as more trustworthy, because they don't review things for a living. True "tastemaking".

In the world of the PVR, syndication is dead. In the world of 500 channels, how many versions of CBS do you need? How many times a day do you need to watch the same episode of "The Simpsons"? If your viewers have a PVR, the answer is you only need 1 instance. All those cable networks that are syndicating your shows to fill in their schedules? If you put those shows on your own network, with your own ads, you can have that revenue too.

So, the value of syndication has just collapsed. There's only room for one copy of each episode per week (perhaps even per year). All that revenue broadcasters get from cable companies for retransmitting their channels? Gone - the cable company only needs one, and they'll take the local one - they can frequently get that for free.

Let's recap. We've killed the schedule, aggregation and syndication. We have just turned a local TV broadcaster into a broadband pipe that specialises in delivery of video and audio content supported by local advertising.

Does that sound familiar? It should. It's an ISP running a rewriting HTTP proxy, that inserts advertisements into pages that its customers view.

At that point, the model shifts. Content producers sell their own advertisements and purchase time on the broadcast networks. This is how I see it proceeding:

  1. Content producers sell their own advertisements.
  2. They put their back catalog up on the Internet at VoD.
  3. They make the content available on a P2P network.
  4. In markets where they have significant penetration, they purchase time from the local broadcasters, and feed that information to their customers.

Now that would be an interesting synergy. You watch a show on Hulu through Boxee. When you are finished, up pops a dialog box "Would you like to schedule this show for recording in your area?". If you select yes, it instructs your local PVR to record that show the next time it comes around.

All of a sudden, there is a continuous flow between Internet VoD, P2P and OTA (or cable) broadcast. Each with their own strengths.

That'll be cool.