One of my favorite writers is Ben Thompson, the author of Stratechery and a self-described “business strategy nerd.” I sorta resemble those remarks, but Ben is on a whole other level than me. Still, I know enough to appreciate his perspective, and when it comes to media/advertising, I think… maybe… we can go toe to toe. Anyway… I listened to Ben’s most recent piece on Google.1 It got me thinking a bit about the future of TV, and so I thought I would organize my thoughts a little and turn it into a post. I mention Ben up front (pun kind of intended) because he has heavily influenced what I want to say.
I tend to think of business strategy as a narrative. A story about a company, or an industry, or a marketplace, that is compelling, convincing, and makes sense. Because I was initially trained as a lawyer, I am much more comfortable with using words to tell that story. I am not opposed to numbers, and I think a good strategy has to be supported by a model —numbers — as a way to at the very least, reality check the narrative you construct. No matter how good a story you can tell, if the total addressable market is say $500MM, and getting 50% share would be a huge stretch, your story can’t be describing the next Google!
I am not going to be doing any numbers here, so take my “story” about the future of television with a grain of salt, maybe a pillar of sale (biblical!). But here is the story that makes sense to me about the future of television. I am a bit of a student of media history, so I will try to ground what I think will happen, in what has happened before.
The Three Basic Components of a Media Business
I see three basic components to a media business, regardless of what monetization model (advertising, subscriptions, PPV, etc) you choose.
Content
The first is content. There has to be something to watch! Content comes from studios, from leagues, from teams, from captured current events, and in today’s world… from ordinary people too. Good content is hard to make. Indeed in many ways it is like capturing lightning in a bottle. Even the best content makers (or choosers) in history have a portfolio of both hits and misses. Think of it like baseball, the best hitters only succeed less than a third of the time.
The content business is complicated. You have the creative talent, the people who conceive of a story and bring it to life. The more technical talent, the photographers, editors, sound people, effects people who help execute the creative vision. Then there are the people who in essence are a blend of creative overseers, and project managers, who lead and coordinate the creation of content, managing the myriad details of working with a large number of people on a common creative endeavor.
There was a time when the expertise for making creative content resided largely with the studios. That is no longer the case. Rather than carrying people as staff, studios moved to a freelance model, where they staffed up based on need. They did this largely to save costs. But as always, there were unintended consequences. Creating a large pool of unattached people with experience and expertise for hire made it very easy for new entrants into the business. Imagine how hard it would have been for Netflix to scale up original production if we were still on the studio system?
Today, with the reduced costs of filming, editing, and effects driven by ever more powerful, ever less expensive digital technology, and a large pool of professionals and a massive pool of semi-professionals available to make TV content, we have… a lot of content! Some of it good! The future of this part of the TV business is abundance.
Distribution
The next component of the TV biz is distribution. How do you get the content to a viewer? TV started out with local stations transmitting content from very powerful radios to individual antennas in and on people’s homes. Aggregations of stations became networks. TV’s would “tune” to stations by adjusting what frequency they were set to receive.
We had a limited number of networks because we had a limited number of stations. There were a number of constraints, but one of the big one’s was the limited availability of radio spectrum that could be used for TV broadcasting. Spectrum was and is a scarce resource with lots of different businesses seeking to use it. The FCC manages the licensing of radio spectrum to theoretically maximize the public’s interest.
With the build out of cable infrastructure, and the growth of satellite infrastructure, this constraint was greatly diminished. You didn’t need stations all over the country to distribute a network, and so we had network proliferation. Still, just as there were limits to how many stations could broadcast over the air in a given locality, there were limits to how many networks a cable company could jam into their wires.
Generally speaking, all of the networks are running at the same time down the cable wire, and the cable box tunes in whatever network you want to watch. It is an extension of the broadcast model, in some ways, rather than an outright replacement. I am grossly over simplifying, but essentially all networks were flowing down the wire to all set top boxes at the same time, just like all stations were broadcasting in the air at the same time.
The internet is different.
Internet distribution allows the end user to fetch whatever content they are looking for, on a one to one basis. Internet connected devices do not “tune” to a desired network that is continuously pumped in. This eliminated many of the key physical constraints on content distribution. Rather than needing the bandwidth to pump many networks in simultaneously, you just needed the bandwidth to handle one “network” at a time, and redirected the use of the bandwidth to whatever content you wanted to watch.
The beauty of the old model was that once you built out your distribution, your costs didn’t scale up with the size of the audience. But it had limited network capacity. The beauty of the new model, the internet, was that you had virtually unlimited network capacity. But your distribution costs scaled up with the size of the audience.
The massive build out of internet infrastructure has created substantial downward pressure on the costs of internet distribution, mitigating the costs of scaling up a large audience. I say mitigating, because these issues are still significant. Large live events on the internet, with a large number of simultaneous viewers, are still challenging, and much more reliably handled by the old distribution system. But every year internet distribution gets cheaper and better. It is not a profound insight to say that the future of distribution is the internet.
Discovery
You have content. You have distribution. But you need people to know about and find your content. That is discovery.
In the early days of TV, newspapers and magazines (anyone remember TV Guide?) published a grid setting forth what shows were on what networks at what day and time. In addition to marketing (on network and off) this was how people discovered shows. The primary user interface was simply the channel number of the station they wanted to tune to, and the dial on their TV set that displayed all the numbers.
Cable took advantage of two key innovations. The first was to make changing channels electronic. This allowed viewers to go from channel to channel without leaving the living room sofa and gives them a UI with more channels than could fit around a dial. The second innovation was making the programming grid electronic, always available, on-screen, with the touch of a button. These innovations made it possible for people to manage the 100s of channels ultimately available on cable. (Though they typically only used about a dozen.)
The explosion of content on the internet has made discovery a nightmare. In my opinion, solving the challenge of discovery is the number one opportunity in media today, and the key to the future of television.
There are essentially two dominant models (or combinations of these two) for content discovery on the internet. The first is search. How many times have you sat with your remote control in hand, and you can’t remember which service has the show you want to watch? What do you do? You search. You search in the Apple TV UI, you search in your Smart TV UI, you search in the Roku UI, or… you pull out your phone and search, mostly likely with Google.
The other model is curation. This was how Yahoo started, with literally human beings making a massive index of the internet. While some curation still happens by hand today (“the top shows streaming right now!”) much curation comes from an algorithm/machine learning/AI inserting content into a feed. The user interfaces for services like Netflix, or MAX, or any of the services are basically feeds of curated content, some of it determined to be appealing to you by a machine, some of it a priority for the service itself.
This is the nightmare. Every service has its own UI, and is limited to helping you discover content on that service. Gone are the days where all of the content available to you on your TV was discoverable, and essentially one click away, through your cable service. Sure you can search for content with Google, but if you want to watch it on the big screen, you have to transfer those search results into actions with your remote control. That often means navigating to a specific service, then navigating to a specific show. Hardly one click away.
As Ben Thompson notes, Google is probably in the best position to solve this problem. YouTube represents a large chunk of viewing today. And YouTube TV is the largest virtual MVPD (virtual cable, a cable like service coming over broadband), in the US, and likely the world today. This gives Google the ability to make a single UI that allows viewers to discover content across YouTube proper, as well as traditional TV in one seamless interface.
But of course that leaves out every other streaming service. This is a huge gap, but there is a possible solve. Google (like Amazon) is trying to get other services to integrate with them. They call it YouTube Primtime Channels. This product allows “users to subscribe to and watch content from various streaming services like Paramount+, Starz, and AMC+ directly within the YouTube app, offering a centralized experience for on-demand TV shows and movies.” Notice what’s missing? No Netflix, no Disney+, etc.
The pitch to services to do this integration is that it will reduce their customer acquisition costs. That’s the upside. The downside is the complexity on sharing information about the customer for advertising and marketing, the possible dilution of the service’s brand, and possible loss of autonomy.
Because of YouTube, Google is in the best position. Other companies, like Amazon are exploring this approach too. I have to believe that Neflix has looked at it too. They have the largest sub base, and the most mature and robust UI — that’s a lot to offer a potential channel partner. But of course today all viewing on Netflix is of Netflix’s content. Integrate a channel partner and you will have viewing on Netflix of other people’s content. Netflix will have to decide if its worth or not. And Disney, with Hulu, Hulu Live and Disney+ could maybe attack this opportunity too.
I am skeptical that Google can pull it off. Honestly, I feel like they don’t build good products anymore, and have degraded some of the good products they previously built. I find the current version of core search to be an over commercialized mess, for example. And… has anyone even heard of YouTube Primetime Channels?
It feels like Google has reached the stage in its lifecycle where it will buy innovation rather than build. It recently announced its largest acquisition ever, $32B for cybersecurity firm Wiz. You would think that cybersecurity would be a core competency for Google, so they could build not buy. The fact that they bought is very telling.
So… if Google cares about owning the future of TV, and wants to buy their way in… there are lots of places to go shopping. Frankly, they could probably buy the whole Walt Disney Company, and establish the terms for how Google PrimeTime Channels works for other services — we will give you the same deal we gave ourselves. Disney today represents less than 1% of Google’s total market cap. Alternatively, how about just ESPN? Sports is always a big driver, and ESPN dominates sports.
What’s the future of TV?
The future is an integrated platform where you can easily find any video content with a minimum number of clicks or voice commands, regardless of what service owns the content. It could be Google, maybe Amazon or Apple, remotely Disney. Who knows? But let’s call it… Shangra-La.