Ty Braswell, founder of Creative Digital Strategies, is a consultant specializing in growing mobile TV revenues for companies including the NHL and Major League Soccer and was Virgin Records VP of New Media during the early Napster years.
Working for the very hip Virgin Records back in 1999, I saw first hand how the Napster phenomenon decimated the old school music label model. It made me a keen observer of how digital disruption evolves as broadband access gets better. Disruption for radio and print followed music. And now television is headed for a big reset. 2010 was the first year of declining US cable subscribers.
As pundits debate the SNL Kagen report that estimated over 300,000 people canceled their cable subscription in 2010, the bigger concern is the Credit Suisse survey that estimated that 30% of Netflix subscribers aged 18-24 are using Netflix in lieu of cable. Think about the ramifications. We saw a similar trend in the music biz when college students were the primary audience for Napster. Like a generation of people who abandoned $16 CDs, these young Netflix subscribers might never use cable. For the cable industry, they are the new lost generation.
Netflix has over 19 million subscribers in US and Canada, with a majority choosing to stream video over 250 different connected devices. Netflix users generate over 20% of US peak broadband usage. Where Netflix is headed is clearly stated on its website: Every TV in the world to be sold with a Netflix app.
Analyst Brian Marshall estimates that Apple currently only sells about 475,000 video rentals daily through iTunes, compared to the 5 million daily rentals seen by Netflix. But add to the mix the fact that the new Apple TV sold 1 million units in the first 3 months, 3G iPhones are coming next month on Verizon, and that the next iOS 4.3 upgrade will enable apps on iPads and iPhones to stream video via Airplay, and Apple gets more mojo to grow that rental business. If Apple can grow rentals like Netflix, Marshall believes TV and movie rental revenue from iTunes could exceed $1 billion annually within 5 years.
Samsung is claiming 1 million app downloads to its connected TVs, and Roku has sold over 1 million internet boxes for TVs. Hulu TV has more than doubled its revenues from last year to $260 million. Microsoft and Sony are also locked in an aggressive battle for the living room with xBox Live and Playstation Network competing to deliver TV and films. Google clearly wants in on this market too. Its Google TV had a rough launch, but don’t count it out of the race.
All of these new offerings are enabling whole new ways to watch TV that are more flexible than just sitting on your couch. With Netflix, for example, I can easily start a movie on my iPhone, pick up where I left off with my iPad and then finish the movie on my big screen via my Apple TV when I get home.
Telecom carriers are also rolling out faster mobile broadband in 2011 via 4G networks, which will deliver a better TV experience on mobile devices. As a result, users will expect even more control over how and when they watch video content.
These changes pose a difficult hurdle for some TV executives. Acknowledging that the audience is now in charge is a 180-degree turn in their business model. Many executives just don’t get it, which is creating enormous opportunity for innovators. Smart executives will become bilingual and develop robust conversations with their customers.
Raising prices on CDs when the Napster revolution was in full swing was just one of the missteps of the music industry. Getting a price hike this Xmas from Time Warner cable just after I bought my Apple TV and connected my Netflix and YouTube accounts in my living room gave me déjà vu of my last years at Virgin Records when the world was changing beneath my feet.
The first salvo of the major television disruption will happen around sports programming. If you want to pick one content category to watch where television is going, it’s always sports. Sports built the conventional television networks, cable, satellite, online and now mobile. It’s a key reason why folks pony up to get cable, and without it, the cable operators will have a hard time keeping subscribers.
ESPN gets a $4 monthly bounty from every cable operator. Imagine if the anti-cable backlash reached a fever pitch with sports fans organizing a Groupon + Kickstarter style protest to deliver an enticing financial proposition: Millions of fans promising to pay ESPN directly $12 a month if they can get all the ESPN programming on any screen without being a cable subscriber.
Sounds far-fetched? Not really. Imagine if the NFL does have a lock out on March 3. This could be a perfect storm to change the behavior of the television audience and drive millions of new viewers to discover TV content online. According to the New York Times, “Of the 50 highest-rated programs during the 2010 calendar year, 27 have been NFL games, including 8 of the top 10.” And don’t underestimate what the Facebook nation can deploy, especially if the protest is targeted globally to avid and displaced sports fans.
2011 will be the most significant year in the history of television. We are days away from the tipping point. Industry leaders who fail to organize with their competitors will see their business evaporate. Digital natives are already becoming comfortable and savvy getting TV and movie content illegally.
2011 will be a very good year for people in the business of television if they realize that television as we know it has gone away. For the start-ups and their investors, a tremendous opportunity has been created: Whoever teaches the television industry how to monetize content and make it easy to access will become the next big thing. The audience wants the content, but they want it their way, not dictated by a cable operator, a TV scheduler or even a DVR. It needs to be seamless and reasonably priced. Netflix and Apple already have a head start in the distribution channel but there is money to be made in a variety of areas of this $500+ billion global TV business, from digital distribution to content licensing. The future is now for the new TV.
If you’re an innovator, this is a great time to be in the television business because, as Stanford economist Paul Romer said, “A crisis is a terrible thing to waste.”
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