The Revolution Will Be Televised, and You Will Pay To See It - Jonathan Bokor - MediaBizBloggers

Ever since the first video clips began appearing on the Internet, there has been a rising crescendo of opinions predicting that the Internet is the future of television, and that the established order would be swept away by newly born companies that would harness the power of the Internet to remake the business of video. According to this view Old Media didn't get it, and their inability to keep up with new entrants would lead to them becoming dinosaurs, lapped by startups that would use adaptive streaming, cloud computing, targeting, collaborative filtering, and any number of other technologies to revolutionize TV.

Well, many of those technologies may power a revolution, but those new entrants won't be doing the revolutionizing.

Technology will have a very important impact on how we consume video, but technology is not the dominant factor in determining who gets to call the shots - the business model is. And the current business model for pay television, whereby you pay your cable, satellite or telco operator about $65 a month (give or take) to go out and aggregate a whole bunch of channels for you, is probably the most powerful and resilient model in media. About 85% of U.S. households, no matter how much they complain about it, take that deal every month. Even the worst recession in 80 years hasn't put much of a dent in it – overall the number of homes that have cancelled their pay TV subscription looks to be pretty modest.

The reason we all keep paying, and will continue to do so for many years to come, is that it's a great deal. You get an incredible array of entertainment, produced by some of the most creative and talented people on earth, available 24/7, on too many channels to count. And while many complaints are heard about the quality of today's TV, the average number of hours watched per person goes up every year. The original programming wave that has revolutionized basic and premium cable channels by pushing the envelope of acceptable broadcast standards has spawned a string of popular and critical hits like The Sopranos, Mad Men, The Daily Show and Damages. You may not like all of the shows on TV today, but chances are you like enough of them to keep paying your monthly bill.

Of course, if you could get enough of the content you like for free or at significantly lower cost, you might reconsider. There is a lot of free content on the Internet, although it's mostly broadcast network content, and even then you can't get every show. Netflix offers DVDs of past seasons of most of the good cable shows, along with a smattering of shows that you can stream. With those two avenues, you can put together a decent "cord cutting" package for about one fourth of your typical cable bill (assuming you pay for broadband anyway). Not bad, but you don't get access to the current season of most basic cable shows, or any premium cable offerings. Moreover it is less convenient and the video is lower quality. Of course you can get access to current season shows on iTunes and Amazon, but those cost $1.99 an episode, cutting sharply into your savings. Perhaps some folks might like this deal and go ahead and cut the cord, but there's no indication today that they're doing it in droves.

Here's where the champions of the Internet as the future of TV will call me a dinosaur who doesn't get it. "The movement of content to the Internet is inevitable" they'll say, "the genie is out of the bottle and new business models will develop to migrate all of the content to the web". On this point I don't disagree, as I believe that most TV content will migrate to online and probably mobile as well. The question is which companies will be the ones to bring it there, and the answer is becoming more evident every day. It will be the same cable, satellite and telco companies that 85% of America cuts a check to every month. TV Everywhere, or whatever name your particular operator gives it, is an ingenious plan to maintain the dominance of the current business model for a long time to come.

Pay TV operators take the position that if they're going to continue paying subscriber fees to cable channels, they want the shows appearing on those channels to only be available to their subscribers -- whether they are delivered on TV, online or mobile. As a result, they will insist that TV Everywhere be the sole online destination for cable network programming. The owners of those cable channels are grumbling, but they have generally come to the realization that Hulu and others like it will not generate anywhere near enough revenue to make up for what would be lost by even a small decrease to their subscriber fees. The cable channels will grudgingly agree, and all those Internet upstarts will find themselves unable to get rights to the cable shows viewers want.

That leaves the programming from the broadcast networks, which is freely available on Hulu and a few other sites. But as I've previously pointed out (Web Video's Lower Ad Load Is Unsustainable), ad revenue from online viewing doesn't look like a big enough revenue stream to sustain the broadcasting business model, so in the long run CBS, ABC, NBC and Fox are likely to move towards seeking subscriber fees from the cable, satellite and telco guys as well. When that happens, you're likely to see Hulu either put up a pay wall or be absorbed into TV Everywhere.

So as much as I admire some of the ingenuity and creativity of the upstart companies focused on online video, Old Media still has a lot of life left in it. Web companies with good technology will succeed as vendors to Old Media, but they won't be calling the shots. Yes, technology will revolutionize the television industry, but unless Old Media fails to harness that technology to properly implement TV Everywhere, you'll be paying the same old cable, satellite or telco provider to see it.

Jonathan Bokor is a consultant specializing in monetization strategies and business development for both digital media and traditional media companies. Jonathan can be reached at jbokor@yahoo.com.

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