The Winter of Our Content Distribution Discontent

The Windmills of My Immediate Mind

Media Business Strategies – David Polakoff

“The Winter of Our Content Distribution Discontent”

Leslie Nielsen, as The Captain, in The Poseidon Adventure, answers a boat phone and asks, “What is it, lookout?”

The lookout responds, “On the port bow…I’ve never seen anything like it. An enormous wall of water is coming at us.”

I see that wall of water as two metaphors in the media/entertainment industry.  First, the wall of water is the technological devices and enhancements that are flooding the marketplace and changing the means of content delivery.  Second, the wall of water is the tide shift in consumers’ control to demand of their content providers how, when, where, and at what price the content is served.  Water seeks its own level; let’s consider the state of supply/demand equilibrium of content distribution.

We’ve seen how technology has changed newspapers, as readers swapped paper consumption for electronic consumption; the news eyeballs still exist, but the business and revenue models have shifted.  Music moved from compact discs to digital downloads, with the same revenue model challenges as newspapers, though with Apple providing the dominant solution and gaining a great deal of power, in the process; much to the content providers’ dismay.  Book retailers are seeing their world shaken as books move to reader devices, with Apple, Barnes & Noble, Amazon, and others competing for hardware and software dominance; Barnes & Noble’s on-line sales of digital books now exceed those of traditional books sold online. We even see technology further disrupting brick and mortar retailing, as shoppers use mobile price comparison access to instantly find a store’s shelf item, potentially at a lower price, whether at another retailer or on-line.  The television industry sees their wall of water coming.  With the transformational experiences of these other business lines as weather alerts, both channel providers and cable/satellite distribution providers are both clinging to their lucrative business models, yet slowly adapting to rapidly changed consumer behavior.

While the bundling of services (cable television; internet access; voice over the internet; DVR; etc.) had helped cable/satellite subscriber retention efforts, consumers are no longer compelled to be hostage to the bundle, as price competitive and more convenient alternatives have become available.  So programmers and cable/satellite providers have developed TV Everywhere, so that a subscriber can “pay one price” for their channel programming and access it from any screen they’re using.  Conceptually, this is a great plan that will stave off some of the subscription churn, but it won’t hold the full tide at bay; there are too many competitors arriving and TV Everywhere has not come fast enough.

The fundamentals of the channel-distribution business will need to shift.  While Verizon and ATT have already introduced competition to the traditional and dominant cable/satellite service providing companies, Verizon claims that their 4G wireless network will be a “modest substitute” for cable/satellite and other distribution choices.  Additionally, Alphaline (Sears), Amazon, Apple, Boxee, GoogleTV, Hulu, Netflix, OnLive, Playstation (Sony), Roku, Sezmi, Slingbox, Tivo, Vixio, Vutopia, Xbox (Microsoft), and YouTube are amongst the names with hardware devices and/or internet based products to put internet/wireless accessed content on consumers’ screened devices.  Making these hardware devices “plug and play,” offering an intuitive and easy on-screen access to the programming, assuring a reliable and robust on-screen experience, offering a variety of content (and within reasonable access windows to their theatrical and/or broadcast and cable/satellite cast premiere), and at an attractive price, will be key factors in the transformation of the traditional content offering and delivery models.  There will likely be several winners, but the historic players will not be able to maintain their stranglehold dominance.

Whether these new delivery means and content deals destroy or shake-up the traditional, linear television schedule is for another column; but my initial prediction is that it will remain; though channel providers will have to be sure they measure all viewer usage and not just linear usage (the premiere, repeats, and DVR plus three days playback) for their advertising clients.

Consumer behavioral changes are being driven by rapid adoption, affordability, and their new found convenience in content consumption.  Consumers’ lifestyles have changed, partly through social and economic forces, but also by the conveniences and value propositions offered by the devices.  The quality argument notwithstanding, there is an avalanche of content available, in all genres (games, user-generated, traditional channel programming, websites, etc.) and consumption is up because of the ubiquitous opportunities for the user to consume the media at their convenience.  And, if content is unavailable, the frustrated consumer simply moves on to that which is available; either tossing aside their original thirst or patiently waiting until it is available (e.g., “next day” on Hulu; or “in 30 days” via Netflix). The thirst for convenient content consumption will only increase as traditional and nascent technologies enhance their products and as new products are introduced.  The easy to use, accessible, affordable product will be the most attractive.

Now, the traditional business model still feeds channel programmers and channel distributors with tons of cash, so both camps will continue to prop up the levee as long as possible.  But with the DVD cash cow already starting to run dry, other elements of the traditional model will also soon be impacted.  The tipping point for legacy businesses moving to new business models, which retain existing customers and attract new ones, and which generate sufficient revenue streams, is the Holy Grail.  This is a huge challenge for mature stage companies, but it is critical for survival and they have to move, lest they travel to the cliff’s edge, as print and music have done. Consumers have decades of frustration and disdain for cable companies, so they’ll jump ship at the first opportunity. Channel programmers, whose bread and butter are affiliate revenue (advertising revenue, withstanding) will irk the ire of their consumer/fan base if programming content can’t be accessed however the consumer demands.  Hence, the broadcast/cable channels slowly making more programming available off the traditional distribution pipes. This process will continue and not ease.  Starving these outlets for content will eventually prove futile.

The Poseidon Adventure had six survivors of the ship’s tsunami encounter, from a full cruise ship’s worth of passengers. The six survived because they followed a maverick in their quest to survive.  The content providers and the content distributors who innovate with some maverick ways will similarly survive the media landscape’s tsunami encounter.