Every month, we see a headline that reads something like, “TV is Dead. Technology X Will Completely Disrupt the TV Business Model.” Yet here we are. Although somewhere between 15-20% of Americans say that they are going to drop or downgrade their pay TV service, only 1% did in 2012. Why is this?
I keep landing on the same conclusion: each link in the video value chain actually provides value. Content producers produce content we like. Aggregators screen for quality content and pull it together into channels and channel lineups that help us find the content we want. Distributors package the channels into bundles we like and deliver content in a streamlined fashion for a quality experience on our TVs, tablets and smartphones. All of them hook in with advertisers to supplement the cost of content and give us an attractive rate. Attractive rate? Then why does my pay TV bill keep going up? The answer lies within us. We continue to consume more and more video. We’ll double dip, watching YouTube serve up cat-jumping-out-of-a-box videos on our tablets while So You Think You Can Dance plays on the big TV. Our insatiable demand for content drives up the price (particularly the stuff we really like – football, Mad Men, Duck Dynasty, etc.) at a faster rate than the technology to deliver this content has driven prices down.
There is no doubt that content owners are kings in this market. And don’t think that a la carte pricing is the answer. Although you and I don’t watch ESPN XLIV, enough people do to attract advertising dollars. Enough ad dollars that the lesser ESPNs can survive – a chance they only get when bundled with the in-demand, high-cost main ESPN. Selecting only the 9 channels you actually watch would not lower your bill all that much. You’d still pay for ESPN proper – and you’d give up access to the 200+ other channels out there. So the one time you’d really like to catch The Adventures of Buckaroo Banzai, Across the Eighth Dimension on FX3 to show your girlfriend the true greatness of Peter Weller– you’d be out of luck.
The global pay TV market (including advertising) is ~$500B, and the global video OTT market (Netflix, Hulu +, etc.) is ~$3B. This is just how large the numbers have to be to get the attention of the content producers. Last year, the U.S. networks received ~$19B just from the upfronts (where brands place advanced ad buys for the next TV season). My advice to entrepreneurs planning to disrupt the digital video space – don’t try. Since you are entrepreneurs, you will completely disregard that advice. So how about this … when coming up with your solution, make sure that the business model supporting your idea provides a higher top line to content owners. The safe(r) paths to follow are to provide an incremental revenue stream above what they already receive or increase value within the traditional model – like adding features that improve stickiness to pay TV services or adding time- or context-based measurements for advertisers.
Christina James is the co-author of two books, Identity Shift: Where Identity Meets Technology in the Networked-Community Age and The Shift: The Evolving Market, Players and Business Models in a 2.0 World. She is a marketing director at Alcatel-Lucent and has 15 years experience in marketing and communications in the technology sector. She has Bachelor of Arts degrees in journalism and English from Southern Methodist University and a Master of Arts degree in American literature from the University of Texas at Austin.
Chris Croupe is the lead chair of the Metroplex Technology Business Council’s Innovation Team. As such, he focuses on the tech entrepreneurial community and how to get deeper engagement between the entrepreneurs and the decision makers at the larger tech firms in the Dallas/Ft. Worth area. Chris’ 23 years in high tech have spanned roles from Navy Electronic Technician (ET2), to design engineer, to production support engineer, to project manager, to corporate strategist to his current role as Director of Global Strategic Marketing for Alcatel-Lucent. Chris is also an active member of the Dallas World Affairs Council. Chris holds a Bachelor of Science in Electrical Engineering from The University of Texas at Austin and an MBA from SMU’s Cox School of Business.
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