The Changing Face of TV

The famous off-hand remark by Lord Thompson of Fleet who in 1960 described his Scottish TV station as a “licence to print money” became a defining moment in the history of the business of TV. As sources of news and information, and entertainment, the press, radio and cinema were more complementary than substitutes for TV, and the limited number of public and commercial TV stations ensured a rich harvest of advertising revenues.  The business model may have jaded over the years, especially as new satellite and cable stations and IPTV entered the market, but it has remained essentially unchanged. Is the Internet finally going to change this landscape, and business models?

Internet is best known for by-pass. Over broadband connections all kinds of independent content becomes accessible. But the economics of content creation requires scale. One of the ironies of digital TV is that it fragments the audience, so while offering specialist and  targeted advertising opportunities – for fans of horse racing or the culinary arts, for example – it may actually reduce the money available for quality content beyond the most popular channels, reducing rather than enhancing diversity. This is because most TV stations have only finite national audiences, sub-divided regionally in many countries. By contrast, Internet, following the ‘long tail’ argument (see http://en.wikipedia.org/wiki/Long_Tail ) offers something else besides by-pass, it offers scale or global reach.

But the Internet is often highly regulated within national frontiers – not so much directly regulated which can be difficult, but indirectly in terms of who can offer what locally on a commercial basis. Local regulations can outlaw the making or the collection of payments for certain services, such as gambling or broadcast TV. Internationally, the owners of IPRs of content can sue distribution channels they consider a threat, or put pressure on their respective trade ministries to put pressure on national governments to take action. However, there comes a point, logically, when the global scale of the Internet would offer a workable alterative business model for content providers, content aggregators, etc. Why spend money fighting law suits when that money could be spent on growing markets?

The other side of the scale equation is how audiences will access this content if not through their regular subscriptions to their local broadcasters? The answers are starting to come thick and fast: in terms of devices, everything from TV-PCs, tablets, iPads and eBooks to mobile phones and games consoles. In terms of channels, Web TV stations are appearing, and social networking sites are just beginning to attract significant numbers of professional content creators and providers, “just like cable TV” according to Hunter Walk, YouTube’s director of product management (Financial Times, 17th May 2010).

But there remains a long way to go before this becomes a mass market in terms of revenues, and, by that time, the broadcasters themselves will have made moves into the Internet space. The issue of scale through the Internet will be the determinant of when and how the broadcasters will evolve their business, while the issue of by-pass will determine the balance of bargaining power between the content producers and the distribution channels:

  • More power for the broadcasters will lower their costs but increase the incentive to by-pass;
  • Less power to the channels will increase the incentive for content producers to partner with the broadcasters through whatever channels.

In a liberalized market, there are few licenses to print money left… but a lot of money to print licenses.

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