• by Philip Leigh , September 7, 2010

Over fifty years ago an Australian wrote an apocalyptic nuclear war novel entitled "On the Beach." Shortly thereafter Hollywood released a movie version. Some parents considered it so disturbing they forbade even high-school-aged children to watch it. The story shows how people in the southern hemisphere struggled to reconcile themselves to their own pending demise from spreading radioactive fallout originating in the sterile northern hemisphere after a devastating nuclear exchange. 

During the movie, it becomes increasingly evident that the arrival of the fallout is merely a matter of months. Each character's personality gradually shrinks to its essence as the eventuality approaches ever nearer. Among those characters is the crew of an American submarine that took refuge in Melbourne. Perhaps the most chilling moment comes when its first member falls ill with radiation sickness. After examining his patient, the ship's doctor simply tells the captain, "It's finally here."

Similarly, predictable Internet evolution was destined to eclipse conventional video someday. That day finally became undeniable last month when June quarter industry statistics revealed the first-ever decline in paid TV subscribers. Although telecos added TV subscribers, cable and satellite operators lost even more. The Internet's inexorable march toward video was obvious when it first ripped through the record label and publishing industries. While Hollywood may have helped avert nuclear holocaust with movies like "On the Beach," "Fail-Safe," "Dr. Strangelove"and "Seven Days in May," so far it has been much less effective in reconciling itself to a need for Internet adaptation. 

While some industry observers attribute the drop in paid TV subscribers to the economy, it is more likely an incipient secular trend. For example, the economic downturn began two years ago, yet TV subscribers continued to grow until June. Insteadl the most impactful changes over that period were innovations and trends encouraging consumers to watch more Internet video on devices ranging from TVs to smartphones. Examples include initiatives by companies such as Netflix, Apple, Amazon.com, Microsoft (Xbox), Roku, Boxee, Google, and TiVo. Similarly, more consumers became aware that the rapidly growing number of flat panel TVs in use may be handily mated with laptop computers and other appliances in order to conveniently access Internet videos on the televisions.

Simultaneously the amount of Internet video became more abundant and available at lower cost. For example, TV show rentals via iTunes dropped to less than a dollar last week, and Amazon.com followed suit. Equally important, the amount of "long-tail" content Web sites like YouTube have continues to grow exponentially.

Like personalities in "On the Beach," Internet evolution unmasks the essential character of video incumbents. Unfortunately most are revealing a disappointing lack of innovation. Instead of using the Net's inherent capabilities creatively, they're attempting to transplant old models into new media. For example, they shrank Hulu's ad inventory and placed more content behind an unpopular pay wall. Yet the Internet could empower Hulu to use collaborative filtering and other proven techniques to better target ads. Improved targeting could generate bounties from online sales for merchandise featured in such commercials.

Instead of embracing the Internet for such innovations, the CATV industry's Project Canoe is trying to develop its own form of addressable advertising. Yet the project is woefully behind today's state-of-the-art on the Net. Furthermore, it will never be able to match the universal acceptance of the Internet Protocol. It hasn't a saint's chance at a political convention of catching up. Essentially it's nothing more than an attempt to "reinvent the wheel" for the sole purpose of protecting an outdated and inferior business. 

Finally, like some "On the Beach"characters, many industry executives are beguiled into believing what they want to believe. They underestimate the ability of new content to become popular if they choose to proscribe their own from the way Net consumers want to use it. Much as the broadcast networks disparaged cable channels 30 years ago, these executives are fatally minimizing the threat from newcomers.