Venture Capitalist Mark Suster of GRP Partners has been giving a series of talks on the Future of Television and why he is investing heavily in the market. It’s an interesting presentation and I encourage everyone to watch this clip.
Mr. Suster is saying what most people outside of the television industry are saying: technology has lowered the cost of production, marketing and distribution to the point that the industry is ripe for disruption. Broadband and 3G/4G penetration, connected devices, cloud storage and delivery, and an explosion in social and mobile applications are training consumers to expect content delivered when, where and how each individual prefers. I have written several similar posts (see here, here and here) The days of gathering around the TV at 8pm on Thursdays to watch NBC are over. I would argue, similarly, that the days of paying $99 a month for a cable package will one day be over. So there is tremendous opportunity for new entrants to offer a better cheaper product and capture a piece of the $31B TV production market, $35B broadcast market and $94B cable/satellite market.
The question though, is just how fast this disruption will take place and what form it will take. There are many great start-up production companies that are making cheap, engaging content (Next New Networks, Machinima, Smosh, etc.), making distribution easier (Justin.tv, VidCaster) as well as making discovery and consumption of online video more enjoyable (Boxee, shelby.tv) in addition to (relatively) established players that are building the online video market (YouYube, Vimeo, Netflix, Roku, etc.). This kind of innovation makes it easy to think that the days of Comcast and the Studios are numbered. The thinking goes that if traditional media companies don’t embrace consumer demands for unbundled content and offer direct, a-la carte pricing these new entrants will simply replace them.
In fact, traditional media companies are already starting test these waters. HBO GO and WatchESPN are two great examples of cable broadcasters building very slick direct-to-consumer products that could easily switch to a direct paid model, thus cutting out cable companies and giving consumers what they have been asking for. BUT this is not going to happen. At least not soon. While HBO, ESPN and the other cable nets might fear cord cutting and the influence of these new online start-ups, they don’t fear it anywhere near as much as losing the multi-billion dollar affiliate fees they receive from the Comcasts and TimeWarner Cables of the world. It is classic innovators dilemma. Traditional media companies are large, publicly traded firms that have quarterly forecasts to meet. If anyone was to seriously offer a direct-to-consumer option, the cable companies would drop the channel and The Street would eat them alive. So as a result, you get short-term, status quo thinking that has already decimated the music and newspaper industry. Which, unfortunately, I feel is bound to happen to the television industry.
However, the breakup of traditional television will not happen over the next 3, 5 or maybe even 10 years. While stats show online video becoming mainstream, it will not replace traditional television until mainstream content is widely available. The niche content that so many great start-ups are producing and distribution is just that, niche. There is a massive passive audience out there that just wants to watch CSI and Dancing with the Stars. They will migrate online as the content does. That content is controlled by incumbents, who, as described above, will not jeopardize their current revenue streams.
So, in short, I agree completely with people like Mark Schuster that there is tremendous opportunity in video and that traditional players are poised for a down fall. However, I think those traditional players reluctance to migrate online and go direct to consumers, will delay (not avoid, but delay) a massive shift in the market for many years to come.
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Super smart stuff here. HOWEVER, do not forget–that although “traditional players” own the biz–they are paid for in large part by the advertisers.
The future of television as we know it will be paved by the advertisements. Frankly, it’s not about the content or what the consumers want. Just ask Facebook about that one. It’s about how quickly advertisers build models that will provide big numbers for marketing campaigns. If the numbers are there–the brands will follow. And, if the brands want the ads (online or otherwise), the television giants (in whatever form they come) will scramble to give those brands what they want. The future is online for savvy marketers. I believe the content shift might be more in the 3-5 year range than in the 10. You can correct me if I’m wrong in 2017.
@theslynch, great point, however the most profitable television channels are those with hybrid revenue (cable affiliate fees and advertisers). In order for the mainstream content I’m talking about to move fully online pure online advertising would have to make up for not only lost cable/broadcast advertising, but the loss of stable affiliate fees. It would also have to do it in a short time frame, because what I’m saying is that traditional players are not willing to sacrifice short term losses for long term viability. You’re absolutely right though, brands are demanding targeted and traceable advertising, and that will push things more interactive.
Point taken and agreed–excellent point on a.) hybrid revenue models being most lucrative and b.) traditional players not willing to sacrifice short term losses. Still, I’m optimistic. Let’s don’t discount paid search–YouTube–geez–cloud convergence. With Google TV on the horizon (pointing to one of your more recent posts), the position for online advertisements/marketing campaigns is so sweet, I keep hearing that song in the back of my mind…”how sweet it is to be loved by you.” The metrics, Kevin, are going to be a media buyer’s wet dream.