• by Michael Kokernak , April 13, 2011

The battle cry that has been resonating throughout the Internet world was that "video was theirs" once net neutrality passed and bandwidth increased. It made for a fairy tale story complete with villains, heroes, and buffoons. During the depths of the recession, many of those that owned TV content came to believe in these doomsday predictions, with a few even protecting their downside by investing in Hulu.

As this depressing notion festered, the cable and broadcast industries were trudging into the final stages of the digital rebuild. You see around the time of the passage of the Telecommunications Act of 1996 there were over 11,000 cable systems in the U.S. that badly needed upgrading.

Cable systems were literally built by cattle ranchers, and small-town businessmen, who each secured franchise agreements on a town-by-town basis. The strategy back then was to "fence in" your competitor by building systems all around their service areas (usually divided by town borders). What developed was a nationwide grid of non-interoperable cable plants.

The Telecom Act triggered cable consolidation. As ownership rights were shuffled and reshuffled, it took over 10 years to redraw the cable map into service areas encompassing large centers of population. As Internet consumption began impacting cable systems construction crews were simultaneously scrambling to build out new service areas.

Up until now the argument has been that traditional media had stymied progress by way of the gatekeeper advantage. The gatekeeper perception has also kept most technology investors out of traditional media. But isn't the rapid adoption achieved by the Cablevision streaming iPad application proof that new technologies can achieve "network effect" through cable systems?

I think multichannel video providers are turning into new media technology hubs, and in time they will become increasingly attractive to entrepreneurs with new ideas -- especially since many of the Internet business models are now starting to seem somewhat long in the tooth.

Groupon, for example, primarily built its email subscriber list by signing up thousands of merchants, and in turn the company attracted consumers to their opt-in list via marketing campaigns and traditional media. In the past advertisers have had to build their email marketing lists by collecting addresses from their own websites, or perhaps point of sale purchases.

Today Groupon has pooled all that consumer interest into a massive database that sends non-targeted messages, all CAN-SPAM compliant, and allows businesses to churn the waters for discount customers. Technologists like to refer to the "network effect" of the Groupon email list as a first mover advantage.

In addition, when signing up for a web or mobile app, it has become commonplace for us to upload our email contact list, or perhaps for us to use Facebook Connect. These types of integrations have made it easier for Internet applications to achieve "network effect". In my opinion, it seems like these methods can be easily replicated by the television platform using a multiscreen approach. Besides, I am sure broadcasters are growing weary of all the billions of dollars worth of free promotional mentions they are providing to Facebook and Twitter.

While the Internet knows no boundaries and can carry the long tail to all corners of the world; traditional media is deploying apps that leverage the high viewership of popular TV content on a location-by-location basis. Both communication mediums are symbiotic; revenues for both should continue to grow, as eco-friendly money will probably enter from the direct mail sector.

Even with two-way improvements to the cable plant, networks and TV stations today are still handcuffed by their CPM rate cards. Advertisers have turned the TV commercial into a high-dollar commodity with a continually shrinking profit margin for agencies; no wonder high margins have shifted to the online world. This imbalance in the market, in my opinion, can only be corrected once cable companies have deployed hundreds (maybe thousands) of interactive advertising apps.

One of the toughest nuts to crack for interactive TV applications -- besides addressable and behavioral targeting challenges -- will be in introducing customized rate cards with revenue being shared throughout the value chain of television. This battle to realign content rights, and advertising revenue, is achievable since the groundwork has already been laid through retransmission consent; multiscreen apps might transform today's difficult retransmission negotiations into a future "feel good" moment for all parties.

Perry Sook, CEO of Nexstar Broadcasting, is widely credited with cutting the first deal for retransmission. I am sure that the uncertainty of that first negotiation qualifies it as an innovation in broadcasting. The interactive technologies that are starting to be used to link multiscreens (including mobile DTV) will at first also be looked at with an air of uncertainty; though ironically, in order to truly capitalize on cable's innovation, we might find broadcasters embarking on their own period of consolidation.