The Pipe & The Straw

High definition set top boxes, mobile TV, digital radio – all contenders for the future of media, right? Well, not exactly. It can be tempting to assume if something is digital it must be good. But there is a more subtle pattern at play. If you want to understand how traditional media is being disrupted – the key is not technology but audience behaviour.

South Korea is about as close to tech nirvana as it gets. Step on a subway, and you will see commuters mesmerised by tiny television tuners embedded in their mobile phones. The number of mobile TV users in Korea has reached 10 million in just two and half years. But as they and other mobile TV markets are discovering - there is trouble in paradise. Despite the hype of digital broadcast - no one is actually making money. Advertising on handheld devices in Korea accounts for a mere 0.2% of broadcast media advertising.

It’s becoming a familiar paradox. Around the world, governments and big companies are sinking billions to build new digital broadcast infrastructure. They are hoping that the lure of higher resolution, better sound and more channels will cover the costs of implementation and provide a bridge to the future of radio and television. But the funny thing is - innovation is already happening. Just not on broadcast.

There is a critical and frequently overlooked difference between broadcast transmission, and content delivered by the Internet. Broadcast is about beaming content to a particular audience at a particular point of time. On the Internet, content is broken into lots of small pieces, stored in the cloud and reassembled when people actually request it. True – at present it is less reliable and lower in resolution than digital broadcast - but it is also infinitely more flexible and adaptable.

Think about it. In February this year, ComScore reported that American audiences watched ten billion videos on the Internet. That is a huge number, but even more tellingly most of that consumption didn’t occur on websites controlled by TV networks but rather on YouTube. Community is a big part of the YouTube experience. Audiences can not only watch online video when they want - they can break it up, share it, embed it, blog about it or even remix it into new forms. Digital broadcasting might look prettier than its analogue predecessor – but the audience experience is fundamentally the same as it always was.

I like to think of the difference between broadcast and the Internet using the analogy of a pipe and a straw. You can pump a hell of lot of volume through a pipe, but its not particularly flexible. A pipe is fixed, pointing in one direction, and only has two settings – on or off. Now a straw, on the other hand, won’t let you draw down as much volume, but you do have one big advantage. You can take a sip whenever you like.

Broadcast is not going to die anytime soon. For a start, it’s a very efficient way to distribute content when combined with clever recording devices. If you own a digital video recorder at home, you will know what I mean. Mobile may soon experience a similar time-shifting renaissance. One of the reasons that Japan’s mobile TV service based on ‘1-Seg’ technology has been popular is because broadcasts are DRM free. Consumers can choose a TV show from an electronic program guide and record the show onto a memory card in their phone to watch later.

Time-shifting is a neat trick, but it doesn’t solve the tougher dilemma facing audiences – deciding what to watch or listen to. In a world of infinite content choices, the real issue is discovery. And that is better achieved on the web. Broadcast networks are programmed by professionals, but content on the Internet is organised by audiences themselves. Today’s teenagers don’t discover content on radio, they use social networks like Myspace, imeem, Facebook or MOG. Applications like Last.FM or iLike learn from the music you listen to and recommend other songs you might like based on other users. Buy TV shows on iTunes, and you can see other content that people with similar tastes to you have selected.

That’s the power of audience networks.

If you a major media company today, digital broadcasting may look like the obvious next step. But actually, you would be better off focusing on the more disruptive technology of web distribution. Broadcasters have done a pretty good job of using the web as promotion for their core assets. Now the real job is to turn it into a platform in its own right. In the last twelve months, the US TV networks have taken action – making some of their prime time schedule available as a free web stream the next day after broadcast. It’s a start, but not enough.

It’s inevitable that all the world’s entertainment will be available free on the web. Most of that content is already there – uploaded by audiences themselves – it’s just not particularly well organised. That will change. And traditional broadcasters need to quickly figure out whether they are going to be the ones to do it.

Comments

[alan jones]

Great post Mike, while the television industry has been focusing on delivering ever-higher resolution and more channels of sound, the new web audience is already proving they don't care - they are quite happy with the web's low-res, low-frame rates and crap sound.

Choosing what you want to watch, and when, having it recommended to you or bookmarked by friends, choosing the kind of device you consume it on: who wouldn't choose that over traditional TV programming in HD?

A big cash investment in a large HD LCD and all the components necessary to provide the HD program input and sound/vision output is something that the >35 generation will do for the bragging rights alone. The <35 generation shies away from spending that much on anything, much less something that can only do one thing - deliver television.

Few of them even aspire to own the home containing the room featuring the wall such a system might be hung on. It makes much more sense to them to also use their laptop as a TV, or their phone.

I can see free-to-air continuing but its margins will shrink as big brand budgets continue to move online in order to have more of a targeted, interactive relationship with their customers. That shrinking of margins will force the networks to reduce the average cost of production, reducing the quality of programming, which will in turn drive more users online.

The only way to save a broadcast media company is to admit this is unstoppable and start producing content for the new medium first and foremost, using your broadcast network primarily as a marketing tool to drive your audience there - flip the current network strategy on its head. If you do it first and execute well, you might build a bigger business than the one you have now.

But you won't: the immediate revenue loss is too hard to justify to shareholders and the ongoing investment in broadcast infrastructure is an oil tanker that takes years to turn around.

So in the future, free to air broadcast television will hold about the same position in the minds of marketers and consumers as talk-back radio does today. Not gone, but not quite the powerhouse it once was. A medium of SMS-to-win single-camera gameshows, of $1,000 giveaways between programs to try and keep you watching, of a thousand insta-celeb lives all trying to out-outrage each other. All these program types are on broadcast now, some of them even in timeslots that were once premium programming. But in the future, they will be all there is to watch on broadcast TV.

[Craig]

I was at my Chinese friend Charlie's house over the weekend in Beijing. He's 28 and just moved to a new apartment.

Rather than installing cable or buying a satellite dish to watch overseas TV stations (Hong Kong-based Phoenix TV in particular is typically not available to Mainland residents via cable), Charlie has installed an Internet-based set-top box that streams all channels to the huge flat screen in his living room.

When not watching TV, the screen projects the "desktop" of his laptop. Besides traditional TV, Youtube also looks great through Explorer. Charlie paid a set-up fee and "scramble-breaker" fee that was less than buying a small dish (US$300)

The thing that shocked me is that Charlie is not a technie in the least. He hardly ever uses a PC. Pirate Internet TV looks on the verge of going mainstream in China.

[Bill Bennett]

You're right. However, to some extent commercial TV was already collapsing under the weight of its business model before this came along. That model still harks back to a time when 28 percent of a nation's households watched the same movie on a Sunday night then went out the next day and purchased the advertised breakfast cereals or whatever was on display during the commercial breaks.

I'm picking that very few of today's commercial TV executives have the wit to take onboard the lessons from, say, what happened as the online world stomped all over the music industry's business model. My guess is that they'll start by try ingto erect King Canute-like fortresses and barriers to stop the incoming YouTube tide. DRM won't work. Legislation won't work. Government regulation won't work. Threatening customers won't work. Propritary technologies won't work

[Kate B]

Nice article. I'm not sure the best bet for the broadcasters is to become content organisers (surely the organiser has got to be impartial - let the audience network decide?) - but I agree they better make damn sure their content is discoverable. My question is, who pays for production? Sure technology is breaking down the barriers to distribution, but there are still big financial barriers to production of high-quality content. It still costs millions to create a decent drama series.
If broadcast TV ad dollars dwindle because its all free on the net, who pays for production? Google? YouTube? Maybe we'll see all sorts of companies financing programs, or maybe we'll just see an infinite choice of cheap-to-make content.

[Paul r]

Mike, great posting thanks. Your views resonate particularly with the 'Social Web' - an emerging platform and database enabling innovation and creativity by users and service providers.

I noted your challenge to broadcasters is to "turn [the web] into a platform in its own right". That too resonates strongly with the emerging 'cloud computing' trend.

Have you given any thought to the sustainability of 'communications and media' business models under development by some telco's. I'm thinking here of IPTV in particular and as well as ISP-style VoD over closed systems. What do you have to say on trends in telecommunications? Anything you mind have to say on the inter-dependency between broadband infrastructure providers and content providers running services over the top would be of interest too. Hmmm, am I asking too much - sorry!

I was also interested to note the digital divide issue that Alan Jones raised. Good point.

[commentfree]

All well and good in most countries, the UK already have phone, internet and television on demand set up in one common service. Until Australia catches up with the rest of the world as far as broadband speeds / costs go, you can forget about anything like that working here.

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