Over–the-air network broadcast bands were assigned and regulated by the federal government as traditional television reached critical mass in the early 1950s. All revenue to pay for content came from advertising. Because only ABC, CBS and NBC and their affiliates were authorized to provide and distribute commercial programming through the public airways (Fox came on board in 1986), the revenue model was very profitable. Demand for advertising dramatically outpaced the supply of available ad inventory over time, even as ad-loads increased.
Cable systems emerged in the 1970s/80s. Though available ad inventory expanded, the lower ratings of cable maintained a favorable supply and demand equation for the old and new networks, as new advertising dollars poured in with a lower out-of-pocket cost of entry. The system was expanding, but was still quite closed. For networks to reach rural areas where the cost of laying cable was exorbitant, consumer satellite delivery services DirectTV, Dish and Echostar were launched in the 1990s.
In the early 2000s video content began to be distributed through streaming Internet services, and as bandwidth and Wi-Fi capabilities expanded, the closed system for TV began to open up to the expanded, open version that I call T/V (television/Video). Companies like Netflix, Amazon Instant Video, Hulu, Roku and Apple TV arrived as new producers/distributors/curators of long-length content.
For now, Hulu is the only major service that sells video ads. Google’s YouTube is the giant of short-form video streaming and user-generated content, with a prolific base of advertising. And now the likes of HBO, Showtime, CBS, Dish, Viacom and even possibly the NFL are breaking ranks with the traditional distribution systems through expanded streaming services.
So what can we learn from recent history in this and similar sectors where distribution channels have opened?
Successful companies are those who can manage change and best serve their customers. In the long term, three things should separate the winners from the losers:
1. Focusing on the consumer and continually improving utility, speed, user experience and convenience (and possibly design, a la Apple). T/V providers should look at what music and streaming “radio” entries Pandora and Spotify are doing: taking what consumers most want (music) and using a freemium model (free with ads, less or no ads with a subscription). Even with ads, the clutter factor is much lower than terrestrial radio or linear television demands of consumers.
2. Having no fear in passing along efficiencies and improving the buying experience for consumers. T-Mobile and Sprint are doing this and disrupting the telecommunications sector. We all saw the pit that the music industry fell into when it tried to overprotect its non-digital (records/CD) profit margins. A little venture called Napster met consumer desires so dramatically, the music business is still trying to recover.
3. Inventing, developing, licensing or buying next-level technology and business opportunities. ABC bought ESPN, Comcast bought NBC, and the applied synergies have put their sports programming franchises in a very strong position. And it’s not all acquisitions; we are now in an age of frenemies and co-opetition as shown by the many merchants who partner with Amazon to grow their business. There are also many smart and capable programmatic advertising tech companies and exchanges ready to bring new ad buyers and buying process efficiencies to T/V.