Charlie Rose interviewed a USA cable exec last night (11 23/09) about her part over the years in taking the network to its current success. Here's a link to CR's main site. She attributed USA's current success to its two streams of revenue as well as good people and management. Right now, this structural difference in cable companies is overwhelming the business model for broadcast TV.
I remember thinking to myself "wow, do they see the bridge out ahead?", and I immediately recanted (to myself) because even if they do see the change coming they probably would not acknowledge it. The hard truth about long term trends is that very few who are wrapped up in their development are ever willing to acknowledge dramatic change is coming in advance (unless it is good) no matter how many solid (fundamental) reasons are in your face demanding attention.
The success of cable TV's business model was touted this week in both the NYT and on this respected nightly show as being a result of their two revenue streams. Cable TV is crowing about its success because of revenue from selling advertising and also from revenue from cable systems paying for the programming (and that money comes from your monthly payments).
That cable networks are counting this revenue from cable systems as a given is a likely sign of reliance on a trend that, remarkably, stands alone as unaffected by the larger changes in the media universe. If you can remember the late 70's you can remember the first cable boxes being offered into homes at very reasonable prices with free HBO. Collectively we bit and the hook for endlessly higher monthly payments was set firmly. Free TV was made to be a joke over the next couple of decades (as Choice was seemingly teased in our faces) and the utility-like nature of cable became established. If you can remember that you also remember ATM's introduction into the mainstream with free use and no mentions of transaction fees for years. Rather than have this sound like a bitch session about fees, it is the opposite. Both of these new technology oriented services offered great utility in our lives and we collectively adopted them and made them a part of our everyday lives.
So why am I now suggesting the opposite will soon develop for cable TV?
Let's step back and examine the larger perspective:
The US and much of the world is in a period of social correction. Part and parcel of these times is recession that results in a reordering of the allocation of social capital (and financial capital) to things that really matter most. (that's as big picture as it gets as far as people are concerned) In the industries that serve us we also see a consolidation or re-allocation of capital in these periods that is appropriate with the social trends most impacting the market for those products or services.
As we move our thoughts into the market for content use, we must first acknowledge the largest trend: Choice. This is the era of Choice....a time when the consumer chooses what they want, when they want, where they want it, what modality they want it in, and eventually there will be more choices. The power dynamic switched from broadcaster to consumer because of technology and this simple switch is changing all of the economics of the industry serving us our content needs. The change can be examined one industry at a time but when you connect the dots.....cable is next. I suspect the protected business of cable TV may take a big fall when the air comes out of the bubble. Do not expect loud noises when this happens. It is much more likely to mirror Newspaper's initial quiet screams amid difficulty as revenue is fractionalized and competition increases substantially.
Think about the flow of change we've seen in our media construct (as a nation) already:
The record label business lost its dominating power over consumers with recordable CD's. When the internet connected us all the slowdown in revenue accelerated because of several consumer centric reasons. The momentum in the music business is now back in performances and the emphasis is off recordings.
Newspapers felt the heat of the digital environment as display ads declined consistently and eventually the rise of Craig's list, Ebay and others like it effectively made local classified ads almost obsolete (not yet).
Magazines too declined almost in tandem with newsprint's ad model and as content moved online the slope of their decline sped up dramatically. Cries over the death of journalism are very loud right now. Journalism won't die. Ever. But it will change.
Radio has suffered mightily because of greed from the period known as "consolidation". Leverage has been a national disease over more than a decade and the leverage built up within the radio industry has poisoned its product and made it incapable of competing with digital music choices. The current leadership cannot see how to serve the debt dragon and also the real customers that bring in the ratings that bring in the revenue. It is an impossible conflict of interest that will eventually be cleared one way or the other.
Local TV stations were also swept up in the period of consolidation too but not to the extent that radio has experienced. Programming is expensive to create and margins have been siphoned off to pay debt owed for consolidation that was supposed to make the industry better and more competitive. Eventually, history will have a sharp opinion on this matter but for right now, let's look at cable TV's business model and the change in the years ahead:
The internet has brought us new channels of Choice in all of these forms of media. The quality levels vary widely but what is clear is that free content, less cluttered content is more likely to get a chance to impress. The US is accustomed to paying cable TV bills but as the USA cable exec mentioned last night, they stream content but they also are careful about how much they stream. USA like other cable companies stream because that is what their market wants. The trend of Choice is driving the industry. More and more streaming will be the modality of Choice. More and more we are not going to pay exorbitant monthly cable bills because content will come from other directions. Large monthly cable bills are socially inefficient. Right now, if you are a cable exec that surely sounds preposterous. Nothing right now points that way. Where is the tipping point? If you are in any other media related enterprise you can see the logic based on recent history. Cable is sitting on a ledge. Any subscription supported media that also subjects you to advertising is on a ledge right now. This blog is a tool used by me to develop the ideas around media's evolution. Millions of people in the US blog on the general to the specific. It is content in a content hungry world. For every interest there is more content than ever before. Granted the quality levels differ greatly but, what really matters is that people want and use more content than ever and pay for it less than ever. It is all part of a larger process of innovation. Technology enabled deflation hurts right now but it will make us all better at what we do.
Cable TV is next to experience the technology inspired deflation that has affected the entire media construct in the US. Some will view that as bad or painful and the rest of us will see it as needed and an important change in a positive direction. It is not about being with us or against us. It is about what really matters, or is most beneficial to the US as a society. Business enterprises are tools for markets (filled with people). If the people benefit, then the business will too. Cable's protected markets (by way of great barriers to entry) are more threatened then ever. The PR this past week can be interpreted as a warning to those alert to contrary market signals. I am sure Hulu is listening.
One small irony to note in this prediction is how the TV broadcast business built an impressive ad sales business since they only have the one source of revenue. The cable business, relying on subscription fees, allowed a slightly (different) less developed sales model with different infrastructure. Somewhere down the road, however, the sales model will be naturally automated because choice will eventually remove dayparting in lieu of targeting and such a change will require sophisticated updating. When this happens the pendulum may swing back well beyond the medium point as far sighted enterprises employ their existing, smaller sales channels in new endeavors. It is worth thinking about if you are on that side.
Is cable a bubble?
No but, most social trends are better seen as expressions in the context of the other larger trends they are a part of, and cable is the next domino to tip in what might be called the industrial revolution of media.(On the other hand, if you think the values associated with TV and radio properties prior to the dot com meltdown in 2000 were bubbles, then you may think cable systems and networks are overvalued right now)
All of this is in somewhere in the future...how far? Most people still think to tune in for specific shows and until Choice is clearly given to me otherwise, I will follow old ways. I would like the Choice to be free of their schedules, and so would you. That's why its going to happen. (DVR's are not The Ultimate solution.)
Eventually, cable conglomerates are going to split up just like individual radio and TV groups will along division lines that make the most sense in order to specialize and maximize efficiency....though not like in the past. Sharply declining revenues in the cable realm will be the lead-in to that period. During that time, politics will figure because it is easier to first influence politics than it is to change to what markets want or how you do business. All this will really do is slow down the inevitable and make room and time for new competitors to organize. In the end, the search business will have a great deal of involvement. More next time.... Dave
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