The Changing World of Video and Old Business Models
The main point in Henry Blodget’s piece is that the traditional broadcast, advertising supported video distribution model is dead and traditional content distributors (cable companies but also telcos) will have to change their business models. Content providers will go directly to the consumer via the Internet. Content providers will no longer have to go to cable companies to negotiate distribution agreements. If they don’t change their business models soon, they will go the way of the newspapers which are losing all kinds of eyeballs (in fact, newspaper reading is down substantially from what it was just a few years ago).
Of course, Blodget is right in one very important sense – in today’s broadband world with higher capacity, more capable and more diverse devices, and more ways to connect, especially via the Internet – business models cannot remain static. So the question is whether traditional providers of access to content – cable companies, broadcasters and increasingly telcos – are capable of adapting their business models.
But another question is what are the business models that will work? And more fundamentally what is “content” in this new world? Is it just commercial video content which is what Blodget seems to imply? And can non-traditional content – such as consumer generated content – become valuable and generate substantial revenues (YouTube is still losing Google lots of money and it is primarily about user generated content)?
First, the traditional business model for video distribution has been broadcast TV with mass market audiences and large scale, undifferentiated advertising. It arose during the “mass market, manufacturing” era of the mid-`1900’s where products and services were all developed for a largely undifferentiated, mass market. It was advertising supported, as we all know too well. The old cliché was that half the advertising dollars spent were wasted but no one knew which half.
That model has been changing on both the product side and the services side for quite a number of years. Increasingly, communications networks and technologies allow for the development and use of more targeted types of content. The technology now allows for “prosumers”, consumers who both create and use content. And content today is no longer just video based or commercial. It is also computer and applications based - meaning gaming, social networking and mobile and online applications of various kinds. Communications is content too - in other words people talking to each electronically in the myriad of ways they can today. Text messaging is content and it growing rapidly as its cousin, Twitter. So the range of content consumed today is far different from what dominated in the old broadcasting days.
Second, advertising is changing too. Targeted advertising is much more feasible today and advertising related to search, for example, now more closely matches the content people are searching for. As a result, it is a growing and successful medium.
Third, there is no longer just one screen – the TV – as Blodget suggests. But he forgets the third screen – mobile devices – which are increasingly robust, and attached to networks that can distribute more and more content. With the arrival of 4G networks in the near future, there is no reason that mobile screens won’t be just as important as the TV and PC are today. Maybe more so, especially for live events which people don’t want to miss no matter where they are, like sports.
But all of this content is not easy to find today. Yes, search is better than ever but you still are primarily doing searches based on metatags and text based identifiers. True video search – looking video content and identifying a scene, clip or video based on an actor, a scene or a musical number in the video – is not possible. In a world without channels, better search capabilities for video content are needed. I would argue that despite Christopher Anderson’s “long tail” argument, it is still important to have aggregators of content to make video and applications of all kinds easier to find. Convenience remains a strong driver of consumer demand and fulfillment. Not everyone wants to be a “tech geek” to search online for content.
In point of fact, cable did help change the broadcast TV model. The broadcast model was based on limited channels, mass market TV programs, and linear, time based programming. Cable exploded that model so today, niche programs are common, diverse programming options are the rule, and time shifting is common. It is true broadcast TV viewing time is going down but total TV viewership is increasing. It just that today, more of the viewing is done over cable networks than broadcasting networks. At the same time, online video consumption is up – and it is now more common for people to no longer just view two minute video clips – which used to be the rule a few years back. Now it is not uncommon for people to watch hour long or even longer videos via their PC. Why? Partly because broadband is more widely available but partly too because it faster and more capable. And the PC screens people are watching are now often big – such as the 24 inch iMac or HDTVs that today often build in Ethernet connections. And just as importantly content providers are offering TV shows and movies online.
So, yes, business models have to change. And on demand will continue to grow in importance. But we do have the all important “third screen” – mobile networks – and as they evolve, I think you will see more and more content going over mobile networks, especially for time sensitive content like sports events. Growth in access to online services due to the emergence of smart phones is already exploding according to the Pew Center.
Further, applications are an important form of content too and Verizon is already moving to partner with applications developers to offer their wares on our mobile networks, especially over our 4G network.
We are also working on technologies to make it possible to integrate the “three screens” and watch content over mobile, broadband and TV networks. While these ideas are in the formative stages, I think we will have a big role working with content developers to distribute their content over our networks.
It is still very early days too in terms of figuring out how to do advertising in this new world. More targeted ad systems are very possible and while there are privacy issues involved, the industry is moving to address them with voluntary standards. Advertising remains a valuable medium to help pay for content and targeted it so it meets consumer interests while being more efficient and effective for the advertiser is very important. And local advertising remains very important because it is so relevant and we are a significant player in providing local advertising through FiOS TV.
Our FiOS TV system is also built on technologies our IT group has developed for organizing content and searching for it. Our new video interface for our FiOS TV product is superb at finding specific movies by actor, topic and date. As more content becomes available, organizing it and making it easy to find will remain a very important differentiator in the market.
Finally networks continue to have value in this new world. Prices have come down for broadband and mobile service due to competition but through bundling of these services, the companies have continued to find ways to provide value to the consumer while remaining profitable.
So, yes the old models cannot remain a crutch. Adaptation will be important but it is hard to see how broadband providers like Verizon at least don’t have many more opportunities to succeed in this new world.