The TV Business Is Toast

by Henry Blodget

The traditional TV industry -- cable companies, networks, and broadcasters -- is where the newspaper industry was about five years ago:

In denial.

There are murmurings on the edges about how longstanding business models will come under pressure as Internet distribution takes over. But, so far, the revenue and profits are hanging in there, so the big TV companies don't really care.

Specifically, the TV industry's attitude is the same as the newspaper industry's attitude was circa 2002-2003: Stop calling us dinosaurs: We get digital; We're growing our digital businesses; We're investing in digital platforms; People still recall ads even when they fast-forward through them on DVRs; There's no substitute for TV ads. Traditional TV isn't going away: Just look at our revenue and profits!

After saying all this same stuff for years, the newspaper industry figured out the hard way that you can't stuff the genie back in the bottle. And over the next 5-10 years, the TV industry will figure this out, too.

Here's the problem in a nutshell:

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.

Specifically, TV business models for the past half-century, from broadcast to cable to satellite, have been built on the following foundation:

• Not much else to do at home that's as simple and fun as TV
• No way to get video content other than via TV
• No options other than TV for advertisers who want to tell video stories
• No options other than cable -- and, more recently, satellite -- to get TV
• Tight choke-points in each market through which all video content has to flow (cable company, airwaves), which creates enormous value for the owners of those gates.

And now, slowly but surely, look what's happening:

• Other simple options emerging at home: Internet, video games, Facebook, IM, DVDs
• New ways to get TV other than satellite/cable: Hulu, YouTube, iTunes, Netflix
• Video-ad options beginning to emerge
• More options for getting video content: telcos, cable cos, wireless cos (soon)
• Fewer choke points in each market: With an Internet connection anywhere in the world, you will soon be able to get to almost anything. And not just to your computer -- to your television.

Thus far, the TV industry has reacted to these changes the way most people would: By trying to port its existing model to the new world and maintain its hold on power and money. This is why we're getting so many ridiculous, consumer-unfriendly TV solutions, such as:

• Market-based control over what you can and can't watch (thanks to contracts with local cable companies)
• No live-streaming of lots of popular video content despite the fact that this would grow the audience (same reason)
• Time-shifting of popular shows (don't want to cannibalize more profitable TV audience)
• Hoarding of video libraries that could be easily available, watched, and monetized online
• Single episode downloads that expire after 24 hours
• $150/month "triple-play" solutions that come larded up with absurd taxes, fees, and service-charges, most of which go to pay for crap we don't want.

All these Band-Aid solutions will eventually fail.

http://www.huffingtonpost.com/henry-blodget/the-tv-business-is-toast_b_216243.html