Monday, June 2, 2008

Digitized Content is Changing All Business Models

Digitized music content changed the cd business, Tower Records is no more, and consumers purchase digital downloads for their iPods.

The web has brought news and entertainment information directly to the masses and consumers have responded by purchasing less newspapers and magazine subscriptions.

Amazon has been pushing their Kindle as the device to replace the printed book, digital downloads of your favorite author. Borders Bookstore is facing extinction as revenues from the brick and mortar business drops.

And now we look at digital video downloads and a potential shakeup of the two tier model for revenue to the content networks, license fees and advertising fees. As cable programmers are willing to provide full length episodes of their shows through the internet, consumers can bypass their cable line-up for their web line-up. And as set top boxes and TV sets get open access to the web, those same shows can be seen on their big screen TV.

Most likely, the long tail of content programmers will be the first to embrace this open distribution platform as they receive far less in license fees. Larger networks may be more reluctant unless they can replace the loss of license fees with another revenue stream. Perhaps taking back the local spots offered to cable operators is one way to offset that loss.

Will cable operators look at this shift as an opportunity to charge more for access to high speed. And will their business model also have to change to replace the cable piece of their business with another home application, say security protection. Already profit margins on the cable business is lower than either telephone or hi speed. If cable operators successfully prepare for this change in applications, their profitability can continue to thrive. New business opportunities utilizing the pipe into the home and combined with incremental wireless is cable's future.

It seems inevitable, given how digital content is changing other businesses, that it will also change the cable business for video content. Cable programmers and cable operators need to strategize for this impending shift to remain competitive and rlevant to the consumer. To be forewarned is to be forearmed.