Cable Networks Will Be Last Old Media to Face Digital Destruction

According to Peter Chernin, former head of News Corp, cable networks should also worried at how the digital age will destroy their business. "Whether niche cable programming can survive and thrive in a streaming on-demand video world 'is the single biggest question facing the media industry,' Chernin said Wednesday during a roundtable discussion USC Annenberg School for Communications." And he is 100% right! Cable networks have been leading a charmed life, blessed with at least two revenue streams, advertising AND subscription. Broadcast, on the other hand has had to rely on advertising only, although that has changed too as these same companies own both broadcast and cable and have used their leverage to get higher subscription fees for their sister networks. Digital distribution has the potential of hurting the cable subscription model by reaching directly to the consumer. Without this huge chunk of revenue, cable networks would be in serious trouble, unable to afford their programming.

And Chernin should also be held responsible. His role partnering News Corp with NBC has led to the creation of Hulu, a web-based streaming media aggregator of broadcast and cable shows and films. Cable's response has been TV Everywhere, an authentication model designed to only allow streaming media programming to consumers who also purchase cable TV. But as long as Hulu and TV.com offer free programming, it will be a losing battle. And should they try to convert themselves into a fee-based service, they will be competing with themselves and their cable partners who will most likely re-negotiate their deals under this changing environment.

Cable can win this game, but they need to build a better mousetrap, enabling programming to be seen absolutely everywhere and across any device - TV, pc, cellphone, etc. Convergence and portability of an authorized signature. And this content should include both live, DVR, and VOD. Makes you think that maybe a network based DVR could be the first step to making this accessibility work most efficiently and effectively. Otherwise, the consumer will gravitate to the cheapest source and all parties will be hurt.

Jury Still Out on Leno

Until all the premieres are out and viewers settle into their viewing patterns, I will withhold judgement on the success of The Jay Leno Show. It is said that because the show is inexpensive to produce and fills 5 hours of programming a week, a small rating can still generate a significant return. In fact, "With just a 1.5 rating, "The Jay Leno Show" could make $300 million a year for NBC". That is assuming that it is reaching the right demographic and that advertisers see value for its dollar.

While there are many who have voiced their criticism on the content, the audience size is really what counts. If it generates enough audience to get a sufficient CPM, then all will be good. Or will it? Can The Jay Leno Show be syndicated like a scripted show? Will the audience watch a rerun? Will they buy it on iTune or watch it with ads on Hulu? Does the show have any ancillary value to compete with other scripted series or is it simply a stop gap to keep Jay from switching to a rival network?

And so I withhold judgement till Thanksgiving cause then I think it will all shake out.

Online and Radio Up, TV Still Most Credible

Not all old media is dying. In fact, according to a recent study, radio usage for news and information has grown. In fact even magazine usage grew slightly while newspaper and TV consumption dropped. Online usage has grown especially among the younger demos and is considered a credible source for factual content. "Not surprisingly, the research also found that the younger the respondent, the more reliant that person was on online sources." Online usage growth was also found by the higher educated and higher earning population.

Is any of this surprising; perhaps just that some old media (radio and magazines) still have some lags in them. New media will continue to find ways to converge the past into the future. Think Sirius on the iPhone and newspapers and magazines on the Kindle. At some point in the future, everything will be consider online and will instead be defines as audio, video, text, or some form of all three.

Convergence On The TV Screen

Viewers are watching TV differently today. The rise of VOD, DVR, and internet viewing of video programs, along with the new HD screens has given TV manufacturers an opportunity to put the integration back into the TV set. "Improvements to the processors in TV sets are making it feasible to run Web applications on a TV without the need for a special set-top box, such as those offered by TiVo Inc. or Apple Inc." And with the web running on TV screens it brings more flexibility and the opportunity of more choice directly to the viewer without a black box standing between programming and screen. TVs from Sony and Vizio and others are now appearing with web access. Still there is a long way to go. "Yankee Group analyst Carl Howe said TVs are still lacking is a compelling user interface for the Internet. 'On the mobile phone it looked like it was never going to work until Apple's iPhone took off. That needs to happen with the TV,' he said."

This change is happening fairly quickly. Just look at how cell phones and blackberries have adapted to web browsing and video in such a short time. The TV screen seems the next to go and cable needs to proactively defend its turf. Cable has stood behind their clunky converter boxes, with poor interfaces and limited information flow, and have created a disgruntled population. The attitude toward cable companies seems to mimic the bad attitude felt toward the phone company decades ago.

"It's not clear whether consumers, long accustomed to the distinction between the 'lean back' mode of television and the more engaged mode of the PC, will welcome the introduction of interactivity into the television." And I agree; but that is not the only piece that will drive this change. A friendlier interface, faster response, as well as a better search engine, recommendations for different members of the family, choice, and the ability to "move" content from one screen to another (i.e. Slingbox) are other reasons why this convergence will take place and be embraced quickly. Cable needs to get onboard quickly or they will simply find themselves losing their cable subscription revenue business.

Battle Lines Drawn in FCC Net Neutrality Fight

"The gloves are off. Julius Genachowski, Chairman of the FCC, announced new guidelines to formalize the concept of net neutrality. " And so all content needs to be treated equally, emails and videos, small files and large ones get equal attention to the consumers' home. "The FCC is charged with responsibility for managing the airwaves, bandwidth, and communication in this country. Genachowski is simply working to address emerging technologies and the changing landscape of communications to adapt and evolve in a manner that is fair to both providers and customers." So why is everyone up in arms. Clearly it is not as simple as it appears.

What sounds fair at first blush is really quite complicated. Imagine two people trying to sit in an airplane row. Both should have equal rights to their seat, but what if one is grotesquely heavier than the other. The seats may fit both, but one is clearly affected by the other. It creates congestion, slows down movement, and may even create more problems. So is the case with the pipeline for the web and the "clogging of the pipes". Smaller files may be harmed simply because they are sharing the pipe with fatter files.

Perhaps it is more indicative that the size of the pipeline needs to grow or that a more efficient manner of delivery needs to be created so that file size is much less an image. That may be the better approach to making the web equal and open to all. Net neutrality sounds like a short term fix to a longer term problem.

Who Might Buy NBC

Like sharks circling their prey, media companies are smelling blood in the water and itching to bite. Vivendi is looking to unload their 20% ownership in NBC and GE may be faced with a decision, buy, sell or spin. "GE has already said it is unlikely to pay the $5 billion to $7 billion to buy back the stake, which Vivendi acquired in 2004 as part of the merger between Universal and NBC." Spinning it off into a new company may show its valuation to be less than it is and open itself to an acquisition. Seeking a buyer outright may allow GE to get more money for their piece.

So the question is, if NBC is for sale, who could the prospective buyers be: Time Warner, Comcast, Liberty. Funny how the names mentioned all are cable companies. I guess, despite competition, cable operators are doing ok. Distribution and content seem to go together. GE doesn't have that distribution business to support holding on to NBC; the others do. The synergy between content and distribution is only getting stronger. Perhaps too there should be another name added to this list: Verizon. It seems the best way to compete in this new media world. So spin the wheel and pick your horse cause this race could potentially go down to the wire.

Tweeter Makes Money For Others, Not Itself

First individuals, then companies got into the habit of Twittering to share the latest and greatest news about themselves and their opinions. It has enabled a customer dialogue, although personally I have found little use or interest in it. But it has become a great marketing tool, pushing revenues and profits north, except for one, Twitter itself. "Lack of earnings isn't stopping Twitter's founders from shooting for the stars. Earlier this year, it was widely reported that Facebook offered to acquire Twitter for $500 million of in stock and cash, but the co-founders said they turned down the offer, holding out for more."

So the thinking must be that there is more dollars out there than in the buyout offer. And getting Facebook to make an offer means that Facebook would rather join them than beat them. So how will Twitter turn itself into a moneymaking machine. The obvious is to use either an advertising or subscription route or both. But will Twitter's "fans" accept ads with their tweets or will they turn away. Twittering on the computer leaves room on the screen for ads that can easily be overlooked; but Twittering on a mobile device may be more problematic.

And can a free service be turned into a subscription service (Variety thinks they can do that) and grow that way. Twitter faces some huge challenges to right itself while others have successfully deployed it to serve their other profitable businesses. Perhaps too, the Facebook offer was simply not high enough. "Numerous rumors of acquisitions by giants such as Apple and Amazon rise and disappear like the tides." We will have to wait and see but my vote is that Twitter needs to take the money and run.

Could NBC Be For Sale

NBC, owned by both GE and Vivendi, may potentially be put for sale. According to this report, "Jean-Bernard Levy, chief executive of Vivendi SA (VIV.FR), left open the possibility Wednesday that the company will exercise its option to unload its 20% stake in NBC Universal, the media conglomerate that is majority-owned by General Electric Corp." Will GE buy the Vivendi shares, will it lead to upheaval and possible takeover bid? Clearly, the challenge of working in a partnership hurts when the parties no longer work well together. Let the fireworks begin.

Irony Alert: Companies That Depend on Ad Spending, Spending Less Themselves

The LA Times reported, through TNS Research, that media companies, despite needing advertising to drive revenue in their balance sheets, are spending less to promote themselves. How ironic. "Walt Disney Co., News Corp. and Time Warner Inc. all reined in ad spending in the first half of the year. Spending by Time Warner was down 11.1% to $574.3 million; Disney expenditures were down 11.7% to $517.6 million; and News Corp. cut its ad spending by 6.9% to $672.3 million." These same companies might need to brace for a similar downsize in their own financial statements.

It is obvious why it is done, but it also can create a downward spiral. As revenues drop, companies reduce spending, including ad spending) to make the net profit higher. But lower spending reduces awareness, key to higher purchasing. Without this marketing, revenues continue to inch lower and costs get cut again. A vicious circle. Smart companies take the risk that future spending will turnaround the trend and are willing to take a short term hit in profits for long term profitability. How long ad spending drops will depend on the confidence these companies have that they can affect and return higher growth. I hope it is soon.