 |
 |
 |
 |
 |
 |
 |
| |||||
November 14, 2005The media flurry of the moment is new delivery systems. The world is changing overnight! Everything must change! Anything can happen!
Bullshit.
It is amusing - and sickening - that I have found myself accused of being a Luddite because I believe that an understanding of the power of delivery windows is critical to maximizing revenues.
"Luddites were highly trained individuals whose careers were destroyed by technological progress. This progress was treated as inevitable and uncontrollable. The Luddites therefore occupied the only remaining intellectual position, which consisted of rejecting technological progress." - John Ralston Saul
Fortunately, I have no stake in slowing technological progress. Quite the opposite. I have worked on the internet exclusive - by choice - for more than eight years now. The opportunities that this medium presents is what makes the internet compelling… and such a threat to traditional media.
But the problem in this environment is that simply assuming that progress that is "inevitable and uncontrollable" is a really lame business practice.
I would argue, in fact, that the internet bubble of the 90s was the perfect example of this. Companies like Enron thrived on the illusion that anything of value could be turned into a commodity, including emerging technologies, like space on the internet. Time-Warner submitted to an AOL takeover because even though the stock price for the world's largest ISP was massive, the hard assets were not nearly as significant as those of Time-Warner, but AOL's power was determined to be "inevitable and uncontrollable." And instead of trying to maintain a realistic view of the overall stock market valuations of new technology companies, people greedily chased grotesquely overvalued stocks in the hope that the future for them was inevitable.
The entertainment business is somehow more digestible to people when they allow themselves to believe that the business is random and uncontrollable. It is not. Cause and effect is constant and can be charted, albeit more specifically by people who have numbers that are closely held secret from the media and other prying eyes (especially those who have the right to a share of the profits).
While Bill Goldman is 100% correct in his most famous turn of phrase, the industry has become more of a corporate game, so there are things we do know. And when the big gambles are made, no one knows anything. The lower the risk, the higher the certitude about the minimum success of a picture. This is why the flattening - not bursting - of the DVD bubble has everyone so panicky. Predictable numbers from last year has become smaller… but make no mistake… there is still a ton money there… just not the same money.
History reminds us that change is inevitable. But it has always been controlled. The few who have a clear vision of the future are at a distinct advantage. But we also know from history that those who charge forward in an uncontrolled way are destined to lose their shirts as they become the examples of how not to do things.
But I am sick of discussing the film exhibition issue. For now, let's look at television. Journalists are wetting themselves with enthusiasm about video viewed on the iPod and the model of selling individual access to reruns. And, of course, all of this is just print for tomorrow's birdcage.
You want to giggle with glee about people paying a dollar to watch last week's Desperate Housewives on their television or iPod? Go ahead, sucker. But we live in a DVR world that makes those ideas ridiculous.
Novelties always fade. And while systems to make the backseat of your car a fully functional traveling entertainment center for your kids may well become more sophisticated and be very popular, they won't involve 2 inch screens.
Want to deal with the real future? Start discussing the end of the affiliate system for network television.
Now that's a scary conversation! That's trouble! But that is pretty clearly where we are headed. And the reason is that the notion of local affiliates, which started as the way to build a network, is now a hindrance to the future of the next generation networks (even though the stations themselves still tend to be very profitable).
Is there a reason why networks shouldn't own the 7p - 8p slot? Well, there are currently rules about such things. But why should the networks be restrained from broadcasting Wheel of Fortune (or whatever syndicated show) instead of each individual station at 7:30p? How hard is it to imagine further deregulation in a cable/satellite universe of hundreds of channels?
What will happen when The CBS Premium Channels hit DirecTV and/or Comcast in 2008?
This channel does not exist, officially or otherwise, right now. But as you look at the idea of networks trying to figure out new ways of further monetizing the shows that they build into hits, this is a far more reasonable future than people paying $1 a show.
The New York Times reported on one step in that direction this weekend, headlined of course with the 99 cent PPV concept, but quickly getting to the meat… CBS is considering a move to try to force cable and satellite companies to pay for the network to be on their delivery systems. We've been through this from a different angle as Time-Warner Cable and Disney fought over how much Time-Warner would pay for The Disney Channel, a fight which for a very brief moment, knocked all Disney owned nets, including ABC, off the cable network. None of the networks stand alone. They are all part of a distribution maze.
There are all kinds of problems in this effort by CBS. There will be big fights. But once the major broadcast networks develop real business relationships with cable/satellite providers, as opposed to the current stand off in which both sides need and rely on one another with no money changing hands, what will the next step be?
HBO/Cinemax has about 28 million customers and generates about $3 billion in subscriptions each year.
This segmentation of the overall revenue base will change significantly as 2005 numbers come out, but in 2004 CBS grossed $7.8 billion, NBC grossed $6.2 billion and ABC grossed $4.8 billion.
$19 billion to reach well over 100 million households.
How many people would pay $25 more a month for broadcast network programming with no commercials? 100 million such subscribers would mean $30 billion a year to the networks. 70 million such subscribers are good for $21 billion a year.
But let's not keep it so simple.
Disney not only has the ABC broadcast network, but the ESPN networks, The Disney Channels, and others. You want them with commercials? That's only $4 (as opposed to the $8.33 a month suggested in the last paragraph). You want them commercial-free? That's $12. And for that $12, you also get ABC2, which has classic shows owned by ABC and ABC3, which reruns recent programming the way that HBOS does now, and maybe you get DisneyMovieChannel with Disney made product for adults from over the years.
NBC/Universal is not just NBC, but MSNBC and The DreamWorks Channel and the NBC Mystery Channel with endless Law & Order and Columbo or the NBC Comedy.
Viacom packages CBS, MTV Networks, Nickolodeon, Paramount Classics Channel, etc.
Get it?
Sony doesn't have a cable or broadcast network, but all they need is space on the cable box or satellite and they too can exploit their product, including MGM films, for "just" an extra $5 a month.
Amazingly, as I am writing this on Sunday night, a story came up on Variety.com about Warner Bros and AOL launching something called 2TV that will offer 14,000 hours of WB-owned vintage TV shows on the web with just one minute of ad time per half hour as the revenue stream.
This is a very early take on VOD and a studio monetizing old materials. But it is in the same direction I am suggesting.
So what happens to local affiliates? Well, what do you need them for? Local news. Oprah, Dr. Phil, Wheel of Fortune, etc become part of premium cable/satellite businesses. Could there be an Oprah Network? Could really be. With 4000 or more hours in the can, no show would have to place more than twice a year.
But back to the local news…
Is there a reason for network affiliates to have their own unique place on the cable/satellite dial? In Los Angeles, local channels take up 25 slots on the cable/satellite dial. Cable deals in many cities require that local channels are made available as part of a basic cable package… even a minimum cable package below basic that simply makes local channels available. But with choices to make, how many "local channels" are necessary to serve local communities?
The FCC will have to make these decisions. Because new technology will continue to destabilize the value of ads on network TV and the ability to prioritize time slots. There is plenty of money in the marketplace to drive the machinery and it does not require a significant technological leap from where we are… just respect for the power of emerging technologies.
This whole scenario, in the end, takes us back to the discussion of windows in the film business. There are radical changes coming. But they do not require throwing the baby out with the bath water.
The huge flaw in thinking on the day and date home delivery side for film is the notion that opening day is a major driver for people who are not participating on opening day now. Sure, there is a percentage of people who would like to see a film on opening day without having to go to the movie theater.
There are many new ways to exploit filmed entertainment delivered into your home. But technology is a tool, not the driver. Understanding that things have changed does not mean that you must simply change things.
Technical progress is not the danger… our fear of being destroyed by technical progress is.
