This is a relatively long post about TV, big industries and big bets. It's about different companies with business models and different motivations all converging on the biggest screen in your house and the unyielding gaggle of gadgets sitting underneath it that can drive a man to drink... or cry.
Just about everyone outside of the Comcast executive suite thinks "the television industry is broken." Content and distribution are merging. Carriage fees feed the beast. Bundling drives pricing decisions. And the big just keep on getting bigger. And that would all be fine if I could actually figure out how to set up my AV Receiver... which I think really might be broken. All the while, the web has been making room for the viral, the niche, the out-of-market and the independent. So on one hand: a remote with everything broken to pieces and in the other a browser with all the pieces waiting to be put together.
TV is not Music
Lots of pundits like to point out that the music industry's last decade foreshadows the television industry's future. But this is just lazy thinking. The music and television industries are not really all that similar. Sure they both produce entertaining content (sometimes), but their structures are really quite different. In the recorded music industry the big Labels controlled the vast majority of the industry in the Western world as well as the mechansims of production (recording, disc printing) and physical distribution. Retail was technically out of their control, but it was generally, and marketing/demand creation was very much in their control. Outside of Wal-Mart's relatively recent dominance, the Labels generally had their way. Furthermore, the primary product, the album sold at retail to consumers, was fundamentally flawed in that consumers typically only wanted a few bananas in the bunch. The rest they'd prefer not to own thank you very much.
The MP3 and file sharing killed it all: discs, trucks, stores, radio and the album. Can you imagine? All of it.
But TV isn't going through quite the same fundamental disruption. First of all, the industry is consolidated but not to the degree as music. Power is split between the content owners and the distributors. Second, the busness is quite different. While DVD sales are a fantastic source of revenue for studios, they are not the primary business. The primary business is packaging up shows into bundles (called Networks) and then selling those Networks to distributors (called Cable Companies). Then the Cablers resell those bundles in new and innovative ways to consumers... who buy them by the boatload and then enjoy the double-dip of commercial messages about 30% of the time. The sale of televised entertainment is relatively new, invented by Cablers who were, at first, simply providing a signal where previously none could be had. Remember, quite a bit of television can be had legally free of charge. Lastly, it's important to note that piracy is still not nearly the problem it is in the music business. Turning on the TV is significantly more convenient than a torrent... and convenience is the killer app.
In both industries we'll see the complete disruption of the primary, bundled product. In music, the physical album sold to the consumer is now being replaced by the 99c single and all-you-can-eat subscriptions. In television, I think digitization will disrupt the dominant bundle - the ones sold wholesale by Disney and NBC Universal to the likes of TimeWarner and Xfinity.
Goliath vs. Goliath
There are four companies who will challenge the status quo and attempt to put all, or at least most, of the pieces together in an attempt to serve the voracious wants and needs of the Western entertainment consumer:
Sony should be on the list but I just can't bring myself to put them on it. Sigh. I miss my big, yellow Walkman.
All 4 of our contenders have unique positions, assets and strengths, which is why there might be room for all of them unless one really bets the farm.
- Apple has its iOS franchise, huge retail presence (iTunes + brick & mortar), and cult of fans. Oh, and $80b in cash.
- Google owns free online video distribution with YouTube, has the sputtering GoogleTV effort, and an amazing ad business that generates gobs of money.
- Microsoft has 35m Xbox Live members around the world, the Bing business starting to fire on some cylindars and enough dry powder to start a world war
- Amazon is online retail (and dominates CE and I assume online disc sales as well), has Prime knocking on Netflix's door and the Kindle Fire ready to win Xmas 2011
- Also notably none have television content businesses which are generally tied up within Disney, Comcast, Fox, CBS, MTVN, Turner, and (very importantly) the professional sports leagues.
There will likely be different approaches
- Apple will sell a big, beautiful, possibly white-bezeled screen with a completely new interface. I'm rooting for a huge trackball. I suspect they will aim to win the future as they have been winning the present with enviable hardware margin and the delightful annuity of 30% revenue share on apps... apps... and more apps.
- Google will seek to follow the Android playbook: lots of hardware partners, free software but they want your inventory. All of your inventory. Perhaps the Motorola deal signals a sea change in thinking but fundamentally Google appears committed to a multi-partner ecosystem. AdSense is a volume game afterall.
- Microsoft: clearly Xbox is their way in, but they don't have a crystal clear end-game in my mind. Perhaps it's one giant loss leader to win the beachhead for Bing and Skype? Xbox + Bing + Kinnect + Skype is a pretty compelling experience. ("Wave to the TV and say 'call grandma', sweetie.")
- Amazon is looking to sell everything and will do whatever is expedient. If they need to spark the market then there will be a Kindle TV. There will likely be a Kindle TV. And when they put it on amazon.com it will sell. But my guess is that both the Kindle e-reader and any Kindle TV hardware really are just paths to ignite the market. Unless Bezos doesn't think the Japanese, Koreans and increasingly Chinese CE manafuterers who list their wares on amazon.com have it in them, I suspect over time Kindle will migrate to others' hardware.
- Apple wants to sell you more hardware and apps
- Google wants to sell ads for you to click on
- Microsoft wants to defend itself
- Amazon wants to sell media, electronics and everything else for that matter
The Wild Card
They *could* all survive in a global marketplace. Each could easily garner tens of millions of consumers for its "TV" offering and carry more or less the same programming supplied by the list of companies above. We'd trade out Comcast, TimeWarner, Cox, et al for new masters. That would likely be progress enough. Unless. Unless... unless someone goes in big. And when I say big, I mean really big: exclusive rights to one or many of the biggest live sporting events in the world. Live sports (and its spawn, ESPN) keep much of the Cablers' consumer base in line. Try watching your favorite big sporting events without a cable subscription. We saw this play out in satellite radio where Sirius and XM battled it out for exclusive rights for MLB, NFL, NASCAR and Howard Stern... eventually leading to overspending and consolidation. Live sports has the power to drive consumer behavior. DirecTV paid the NFL $4b for a 5 year Sunday Ticket exclusive. Comcast fights back with its Red Zone offering. If one of our Big Four contestants wanted to really go big - to try and literally win this market - it could make a play for as many of the following sports events as possible:
- NFL Sundays and of course the Super Bowl
- Summer Olympics
- FIFA World Cup
- World Series
- NBA Playoffs
- Whatever NASCAR thing is huge
DirecTV is in XX homes. They advertise constantly for Sunday Ticket. I can only assume that 25% of its subscriber base at least partly based its decision based on the availability of every, single NFL Sunday game. That deal expires in 2015. That deal would sell a lot of iTVs, GoogleTVs, Xboxes or KindleTVs. It's possible there could be one ad-based deal and one paid-access deal... but I doubt it.
It'll be good to be a television consumer in 2015.