Tele Vision

Every few months rumors emerge of another technology company attempting to create a new product centered around the TV. Apple’s name comes up, of course, but so does Google. And Microsoft has been experimenting with no lesser degrees of vigor than the others. They all seem to be trying to make TV smarter, somehow.

But I would argue that these efforts are misguided. Television is more than the TV set or a set-top box, or any box. It’s more than channels or broadcasters or producers or aggregators or distributors. It’s all of these things; plus more. It’s a value network of great breadth and complexity. It’s a highly modularized industry with well-defined business model boundaries and inter-dependencies. I would argue that its very breadth is what has kept it rigid and immune from disruptive change.

If you look at each technological experiment to move to a new business model, they can all be reduced to the offer of an additional or substitutive module. There is no assumption made that the content being served will change. To put it in the context of mobile computing, it’s like trying to introduce a smartphone in a world without data networks–where the only service to be served is person-to-person calling. Unlike the Smartphone which could only have emerged to leverage the Internet, TV has no “smart content” to leverage. The “smartness” has to be not in the box but in the programming.

Of course, I don’t mean there’s a lack of good programming. What I mean is that there is no innovation in what a program is–the job it’s hired to do. The way it and its distribution fits into a person’s life. TV programs have not changed for half a century. They feature the same genres, the same duration, the same business model, the same series, format and scheduling and the same value chains as when “I Love Lucy” premiered in 1951. They assume people watch TV during the same time each day (while doing nothing else.) They also assume people are equally influenced by brand advertising and that audiences are largely homogeneous.

Contrast that with other media. The song, the book, the game, the newspaper even the movie have gone through consumption changes which have been supported by disruptive innovations. The portable music player, the ebook reader, the console and the mobile phone and the internet in general have all allowed consumption to conform to new usage patterns. The jobs that music is hired to do has changed dramatically. These re-definitions of what media is used for caused dramatic changes in both the production and distribution and hence the way value is captured in media.

TV, it seems, stands alone and immune.

So it’s not hard to understand why technology solutions have largely failed. Every attempt to make a change in a part of the value network has affected another part, which has led to resistance and reversal. Even Hulu, an innovative distribution method for content, owned by a group of incumbents, has had to scale back ambitions as the incumbents throttled it. Apple TV faces a stone wall of restrictions on distribution due to the inter-locking contracts content is bound by. Google TV has been largely shut out for the same reasons.

And I won’t delve deeply into the fact that TV is intensely parochial. There are few if any global brands, programs or regulations. Every country, region, city and town feels a need to localize its content and offer obstacles to external sourcing. Governments engaged with the industry so long ago that they’ve become co-dependent.

Only one experiment is entirely independent of the current network: YouTube. YouTube does not rely on current programming. It has allowed a new set of producers and new form factors to emerge. It’s still very rough and incomplete as a solution but it may get better. The growth is phenomenal and the business model is sustainable[2].

It’s hard to provide an illustration of how important this separate network effect becomes, and how long the time frame can be. The only proxy I can draw on is the story of how Voice over IP has grown in comparison to voice traffic over the switched network. The following chart shows how three types of traffic have grown in the US between 1997 and 2015 (est.): Interstate and Intrastate Voice (left column) vs. Internet traffic (right column) with IP voice inset inside Internet Traffic (areas represent relative traffic measured in Terabytes/month)[1].

The estimate for 2015 shows that Voice over IP will reach 23,000 terabytes/mo. while PSTN voice will consume only 26,000 TB/mo. A negligible difference and one which will likely be in favor of IP over a global scale. The tail indeed does wag the dog.

The only numerate conclusion that can be drawn is that the growth of internet consumption is so vast that it swamps other forms of media, even if within the internet, media itself is a minor component.

So as far as having a vision of tele-vision, the answer is not to graft technology onto an archaic value network, but to build a new value network around new technology.


  1. Source: Lampert, O’Connor & Johnston, P.C. June 16, 2011 Ex Parte via … The Tail Wagging the Dog–A comparison of PSTN and IP traffic from 1997 to 2015.
  2. I note with some dismay that Google feels it needs to dabble in the current value networks. Nurturing YouTube is a far better use of its resources.
  • Terry

    Excellent article. Minor spelling mistake: "The tail indeed doe wag the dog."

  • As a counterpoint, though, look at the UK. Every terrestrial channel, as well as Sky, the major pay-tv provider, provide on-demand services which cover pretty much everything they show in the period in question (usually the last week or so), as well as huge portions of their archives. Obviously, the major difference is that we have a state broadcaster which doesn't care about the profit motive, and sure enough it was the first mover. What's interesting, though, is that the commercial channels have managed to copy – even improve upon – the BBC iPlayer, so once that disruptive force was introduced, adapt or die still applied.
    So effective have these services been, I'm surprised no major tech company has decided to target the UK market. It's what the US could be in 5-10 years, but right now the best you can get is a PS3, which ships with dedicated apps to load all the players.

    • PS3 is great but region limitation still applies. To me PS3 is a disruptive force for TV, but I consider myself as an advanced user – since Sony has locked down its console for offline content quite a bit. That is my use case – I use it mostly for video streaming of local network content. Time spent on that scenario far overcomes time spent on TV channels.

      However, I see PS3 as a huge potential. More TV-like aps and really smart YouTube interface could make it big.

      • Horace Dediu

        How is PS3 going to reach 1 billion users? No gaming console has sold over 100 million units. In terms of changing television, if you can't reach 1 billion users there is no hope to being disruptive.

    • barryotoole

      "It's what the US could be in 5-10 years…"

      Not really; we don't have a BBC to emulate.

  • david

    The biggest disrupter to the tv model is the trend to 'everything, everywhere' for content. The titles come to the fore and the broadcaster desperately tries to stay part of it. Once the studios can go end to end with their customers, the key IP value of unique content will ruin the broadcaster models.

    • doug

      Excuse me for being dim, but what do you actually mean by end to end and key IP value of unique content?

      • david

        Sorry for sounding so convoluted.

        By end to end, I mean once producers/studios can easily connect their shows directly with their audience via different platforms, the broadcasters becomes just another distributer. The profits go to whomever owns the intellectual property rights to the programmes – the unique content – the producers.

  • You end with: "So as far as having a vision of tele-vision, the answer is not to graft technology onto an archaic value network, but to build a new value network around new technology."

    On first read, I fell into the trap of envisioning repackaging standard programming for my consumption but then realized that what you are saying by "create a new value network" is creating new types of programing, new types of advertising, and new types of delivery method that completely disrupt the existing system (a larger approach to iAds perhaps?).

    Certainly we could argue the groundwork for this has been laid as the Internet has overwhelmed traditional media consumption and changed habits dramatically. This is/was required first to break such entrenched behavior by consumers. Devices like Tivos and Slingboxes also helped break the time and place-dependence for TV programming consumption. It has become a given to see programming when and where we want to (except for live sports).

    What I am having a hard time envisioning is what that new means of delivery are. Saying "over the Internet" sounds too mundane at this point. I certainly keep hoping that Apple will offer a subscription service that allows me to pay a reasonable monthly fee and see what I want at my own choosing. But I suspect that is too simple of an approach for real disruption. It would of course disrupt local cable providers (Comcast et al.) and open up more competition in that field but even that might be too small a market to be interesting and the cable companies too often control the pipes (of course this was said of the telecoms too before the iPhone). Many developed countries don't have the monopoly system of cable delivery that the US has so there might be less of a need or possibility to disrupt this in the same way. So what new delivery methods are possible or completely redefining options are there? I look forward to suggestions from others.

  • Mauritz

    In my opinion the biggest disruptor to television is the internet. As the internet was emerging people lost interest in television.

    • Doug

      Do you mean the physical appliance or the broadcast content when you refer to television?

  • CndnRschr

    Steve Jobs has, at various times, described TV as a dumb box which broadcasts to people who are not looking to interact but to absorb. That's how I see my TV. I don't watch a lot (news and drama – I watch movies via ATV) and when I do sit in front of it, I am in a largely non-thinking, relaxed mode. The iPad is my casual interaction device, the TV my couch potato device. TV content reinforces this. Of course there are lots of productions that make you think and cater to knowledge (even pseudo-knowledge such as Discovery TV) but the majority of shows are designed to engage at a low level (soaps, comedies, quiz shows). These are the money-makers for advertisements as they are dirt cheap and are familiar. TV is not and will not be "high brow". It is designed to provide low effort entertainment. We, as viewers, are attracted to this medium because it is un-challenging. The best we might hope for is an easier way to customize delivery so that we do not have to sort through (and pay for) stuff we don't want. That, in of itself, is an obvious advance and the reason we have not gotten there is because the incumbents current business model is incompatible with the concept. The vision of FlipBook Video is showing what could be done, if only the networks could find a way to make money from it. They are addicted to selling us a sack of stuff we mostly are not interested in and we buy it for the occasional gems. It's nuts!

  • Rubén

    I would say that in this case, history teaches us a valuable lesson.

    The most succesful disrruptive companies in the last decade have been TiVo and Netflix. If you think, both of them offered VoD (albeit with a different hardware implementation).

    Owning the content (HBO, AMC, etc…) AND the distribution network (i.e. Internet wich happens to belong to no one) is key to conform a disrruptive attack in the low-end and in the no consuption (teenagers, 20-something…) segments.

    Contrary to what happened in the music market, this time owning the content creators (or at least an important share of them) is mandatory for Google or Apple if they are to succeed in this businesses

    • EWPellegrino

      Tivo may have been disruptive, but it wasn't successful, their market cap is a measly 1.26 Bn. Netflix was disruptive and successful, it destroyed Blockbuster and built an 11Bn business off of doing so.

      If owning content creators was key then Sony would still own the PMP market and would be in the catbird seat for digital movie distribution.

      • Horace Dediu

        Netflix was disruptive to DVD retail rental but it did not affect the TV value chain (yet). Consider that the iPod/iTunes disrupted CD retail but it also completely collapsed the music value chain as well (and the home stereo component industry, etc.)

    • Horace Dediu

      Where is TiVo now? Netflix has had an impact, but is it disruptive? I'm on the fence as it still depends on the goodwill of the current value network.

      • CndnRschr

        Netflix only has its broad content as a hedge by the content providers against Apple. I'd bet that the content agreements specifically include termination should Apple (or Google) become significant shareholders. This basically hamstrings Netflix. I would also question whether a company is truly disruptive in an economic, long term sense, when they are hardly making money. They are a $12 billion company but have a P/E of 57. The profit for Q1 was $60 million on $704 million revenue. In 2010, Comcast made $15 billion profit on revenue of nearly $40 billion. Netflix made $320 million profit on $2.1 billion in revenue in 2010.

      • Nalini Kumar Muppala

        Let us not forget Netflix's intent to get around incumbents by bidding for original content such as "House of Cards" against HBO. Not sure if the original content will scale compared to the long tail library of movies and TV shows.

      • handleym

        "Where is TiVo now?" This is a really interesting question.
        In your copious free time, Horace, I suspect there's a fascinating story here. Why did TiVo, selling a product that everyone loved, not become more of a behemoth?
        I can offer up the usual sorts of hypotheses

        – greedy TiVo sat on its laurels, and even as people wanted more powerful systems (multiple TV tuners, ability to add external storage) TiVo gave it to then begrudgingly at huge premium. Others swept in and offered the same at much lower prices. Variant of this idea — if you charge people a subscription that is obviously bullshit and offering no value, your customers will hate you with a white hot passion.

        – poor innocent TiVo did not protect its ideas with IP, and so after all its initial research and validating the market, competitors of all sorts, whether in the CE or computer or cable box market, came in and "stole" its ideas.

        – the cable TV companies, learning from MS' "embrace and extend", co-opted the idea in a way that was irresistible to most Americans.

        But I don't know which of these (or none) is true.

      • Ted_T

        The cable companies giving out "free" DVRs is what killed TiVo. (And as you point out people were paying TiVO a subscription fee anyway, so giving some more money to the cable company hardly seems like a big difference.)

        What contributed was the move from analog to digital HD — at this point for the TiVo to work on premium cable channels you needed one or more Cable Cards installed in your new, expensive, HD TiVo, which the cable company makes as difficult as possible, pretty much relegating the HD TiVo to tech geeks. But tech geeks have other choices like HTPCs/Macs with DVR hardware from Silicon Dust and software from Microsoft or Elgato — which is even geekier, but a much more powerful setup in terms of what your can do with you recorded content and ability to record vast numbers of programs simultaneously.

  • Of course, I don’t mean there’s a lack of good programming. What I mean is that there is no innovation in what a program is–the job it’s hired to do. The way it and its distribution fits into a person’s life. TV programs have not changed for half a century. They feature the same genres, the same duration, the same business model, the same series, format and scheduling and the same value chains as when “I Love Lucy” premiered in 1951. They assume people watch TV during the same time each day (while doing nothing else.) They also assume people are equally influenced by brand advertising and that audiences are largely homogeneous.

    Not so. Twin Peaks, Babylon 5, Murder One, and a few other shows in the '90s pioneered a new kind of TV show: long-form dramas (soap operas don't have "plots" as such). You have to watch every episode in order to understand them, you're rewarded for watching multiple times, which means VCR/Tivo or regular repeats (which cable can do, broadcast can't). That meant that most of these shows rapidly moved to cable, with no commercials, with cable subscription fees paying for them. The HBO, Showtime, AMC, etc. shows that everyone now follows are a new art form less than 20 years old, and the business model's 35 years old.

    Distribution beyond cable's been harder, but the season box sets sell very well, and most shows have same-day release on iTunes season passes. Over the next few years, most of the content producers will realize this and either make better contracts for Internet distribution, or jump ship from the cable networks entirely.

    • EWPellegrino

      I'm guessing that Horace means something that is technologically distinct from a traditional TV show rather than artistically distinct. Something akin to the recent iPad hit multimedia version of 'The Wasteland' by T.S. Eliot.

      I actually think you have a good point though, 'Twin Peaks' failed (economically) because the distribution mechanism couldn't support it. Even recently we still see potentially successful shows like Firefly and Carnivale die early because of essentially problems of marketing. We've also seen the beginnings of program makers experimenting with alternative distribution, 'Dr Horrible's singalong blog' springs to mind.

      • david

        Don't you think that Carnivale and Firefly died because they didn't successfully the intended audience's imagination? They were just too niche but they're hugely important – along with series like 'John From Cincinnatti' or 'Deadwood' or 'Rome'. They push boundaries in what can be achieved and prevent tv drama content from being homogenous, predictible and dull.

      • EWPellegrino

        No, this is a failure of the market. Consider Star Trek, a series that managed only 3 seasons before being killed, and then went on to spawn a multibillion dollar franchise.

        Channels buy shows that they think advertisers will like. Advertisers buy shows that they think valuable demographics will iike. It's not a well oiled system for creating content that consumers want.

    • Horace Dediu

      You make a very good point. Programming has evolved. I was going to also write that the biggest change was that reality shows and unscripted material coupled with cheap editing and production tools in general has had a dramatic low-end disruption to the production side of the business. But these changes have had minimal impact on distribution. As you point out, they actually caused distributors to gain power.

      At the same time we're seeing over-service in sports programming with many popular sports being placed out of reach of mainstream consumers. Service bundling, HDTV and other "innovations" have also been sustaining. Overall, these forces seem to be pressuring the value network but it's still remaining relatively unchanged.

      • CndnRschr

        I'd argue that "Reality TV" is evidence of devolution back to the primordial soup of TV.

    • if we were to replace IP voice, in the right graph, with IP TV content — we would have an interesting situation, at least in the US.

      The same, small, group of companies control the size of both circles.

  • MattF

    I think there is an opening in the TV-world– just about every person I know who still subscribes to premium cable channels says that it's because of sports. Not movies, not news, not 'long-tail' programming on cable channels, not local programming. If someone offered comprehensive sports coverage for $10 to $20 a month, they'd clean up, IMO.

    • Horace Dediu

      But think about what that would entail. ESPN receives $10/mo (approx.) from every cable subscription whether that sub watches sports or not. Cable is such a huge revenue source for the sports franchises that they have no incentives to undercut the bundling that sustains everyone else.

      No matter which way you turn, this system is locked up in a mutually co-dependent embrace.

      • barryotoole

        True. Further examples are CNN and HBO. You can watch both of them on mobile devices, as long as you have subscriptions for them through cable.

        I look forward to a day where programs can be subscribed to via a service such as iTunes, and can be watched on the TV or a mobile device. There can be bundling of your choice, say, a discount on 5 programs, or every one you add to the first.

        Who knows, this may be the future of Apple TV or a possible iTV.

      • ESPN is a content aggregator/middle man. I know you are aware of the MLB at Bat app, for iOS*, Android, WP7, BBOS, WebOS, did I leave any out? (*including native iPad app)

        It's the entire baseball season in an app.

        This is how the TV industry might be disrupted. Content owners and creators selling directly or almost directly to the consumer. It's too bad that Apple is asking for a 30% cut of in app purchases, because this could be very attractive to TV and movie producers. It would take product placement to the next level. It still might, but 30% is asking a lot, if the in-app purchase is actually for a physical object that must be manufactured or grown, then shipped.

        Maybe this is Amazon's plan? They could go at it from the other end, and split revenues from sales generated from programs/apps on the rumored Amazon tablet.

  • Set Top Box (STB)… when was the last time we saw a TV, Set, with a Box, "Rabbit Ears" or anything else on Top of it… with the possible exception of a thin Wii sensor (or somesuch).

    I find it humorous that we have difficulty describing what we want the TV to be — when we can't even [properly] describe the TV we already have. One or more SBBs, Set Bottom Boxes, control, modulate (and sometimes repurpose) the signals that arrive at the home.

    The TV signals are often delivered by the same company who provides us with Internet, Land Line Phone, and Cell Phone services.

    We, the consumer, want to:

    1) participate in the control of the TV signals (channels/shows/content) that arrive, concurrently, in the home — say, a NasCar race, a movie, an episode of Two Fat Ladies, Local News…

    2) be able to distribute these individual shows, via WiFi, to Devices to Locations throughout the home:
    — Devices such as Home Theaters, Communal TVs, Personal TVs/iPads…
    — Locations such as Family Room, Kitchen, Bedrooms, Garage, Basement, Front and Back yards

    3) Be able to, individually and intuitively* select the content we want when we want it

    *It is interesting that a 2-year-old infant can operate an iPad — but cannot operate a TV remote.

    4) in an ideal "content world" there would be no need for DVRs, PVRs, TiVos, SlingBoxes and the like — we would not need record (or is that hoard) content as it would be deliverable on demand — exactly where we left off accessing it..

    5) Lets call this freedom of access [to content] — as opposed to freedom of consumption [of that content]. The content owners and distributors deserve to be paid.

    For this Freedom Of Access to happen, at least in the US, The concept of TV as a Utility/Monoply by CableCos/Content Owners/Content providers must be abandoned.

    The Internet, as mentioned in the article offers the greatest potential to provide Freedom Of Access.

    Unfortunately, in the US, those same Utility/Monopolies that constrain our access to content — also constrain our access to Internet bandwidth.

    Should the interests of the Utility/Monopolies be threatened by alternate access/delivery of Content through the Internet — they need only to Cap our Internet Usage to mitigate that threat.

    I don't pretend to know what the answer is — but the Internet will not be able to deliver competitive content as long as the competitor(s) control both the access and the faucet on the pipeline that delivers the Internet.

  • freelancefox

    I completely agree with this perspective on why connected TV efforts have failed thus far. I wrote something very similar to this myself 6 months ago. My piece began by saying "Out of all the evolving forms of media that we hear about these days, the format that has fundamentally changed the least so far is the television." To say that I agree would be perhaps an understatement, because I've been trying to figure out how Apple—or anyone—would disrupt the television industry this entire time.

    I believe that for anyone to make headway in television, they must essentially muscle out the traditional players in content delivery, the broadcast companies, and instead connect the customers directly to the content providers. This, of course, will be done over the internet rather than over traditional television networks. This would essentially give Apple or whoever the ability to present the content in the most user-friendly way. Rather than content existing as a point on a graph where the axes are 'channel' and 'time', content would be free to exist on demand, in whatever form Apple saw fit.

    The metaphor used to present this content to the consumer is immaterial to your article, but personally I see all content, from Netflix to NBC, presented as 'channels' in horizontally scrolling feeds. Consumers could then arrange their channels in whatever order they like, approximating the personal connection that you feel when downloading and arranging apps for your iOS devices.

    For this approach to succeed, the player attempting it would need to convince the content providers to get on board first and foremost, which I believe only Apple could do at this point. They have both the cash and the clout to use equal parts reassurance and force to get their way. Reassurance, of course, that they will provide the content providers with a more direct, more powerful, and thus more profitable connection to their viewers.

    The rest of the details, like hardware etc, are certainly mystifying. I'm trying to write an article encapsulating this entire issue, but the sheer size of this topic is constantly throwing me off.

    • Isn't this the same situation that was faced in the book and music industries? How were they disrupted?

      • Horace Dediu

        Partly, the hands of distributors were forced by piracy. In the case of books, concentration of power in the hands of one retailer caused a value shift. Amazon forced a move to ebooks.

        In both of these examples, the forces were external to the value chain. Innovations never emerged from within.

    • Maybe what Apple should is design an "open" solution defining content-access and content-delivery — then lobby the US Government to allow open competition to deliver that solution.

    • Horace Dediu

      I used to think this as well but I realized that disintermediation of distribution was not enough. The show producers are obliged to maintain sometimes exclusive relationships with distributors and when push comes to shove, they always align with the interests of the network. No aspiring actor wants to become a YouTube star. No director thinks he'll make it big on Hulu. Compare that with Apps where devs are keen to make hits for App Stores.

      Unless talent itself is drawn to the new value network, you're doing it wrong.

      • freelancefox

        So the way you see it, it's going even deeper than the content studios to the producers and actors and directors themselves?I think that's a fascinating way to approach the issue, but the trouble comes when you begin to propose what such a network would look like.

        I guess what I'm struggling with is the wide disparity between semi-revolutionary platforms like Netflix and Hulu that currently provide a certain amount of freedom by giving customers licensed content on demand, the traditional network production companies that are inexorably tied to that network (say NBC, HBO, etc), and the revolutionary but parallel channels like YouTube. Apple should aim to work alongside YouTube but will obviously need to reign in those other two constituencies. Netflix and whatnot will obviously jump right on board, assuming Apple doesn't push them away with their own streaming model, but then what of the network model?

        I find it hard to fathom that if Apple approaches the networks with a killer deal, and an honestly friendly one at that, that the content providers wouldn't act in their own best interests and choose to open up their content. They may begin to lose their traditional broadcast revenue over time, but that will be recouped with roughly equal volumes of potentially more valuable business in this new interaction paradigm, or in your language Horace, on this new value network. The end result will be a higher volume of business at a higher margin.

        This is all with Apple at the helm, who I believe is acting in everyone's best interest—besides the cable companies of course, but they're archaic. They don't belong in this new era. I think customers everywhere are yearning for a day when they'll be able to call Apple for support rather than their awful local monopoly cable company.

        I think I sidestepped your argument, Horace, but I don't see how your model of drawing the talent itself is any simpler than what I'm proposing. I think either way Apple has to make the content providers want to switch, and the way they can do that is by offering a better way, like they always have. I think we agree fundamentally but disagree on process to create such a network.


      • "I find it hard to fathom that if Apple approaches the networks with a killer deal, and an honestly friendly one at that, that the content providers wouldn't act in their own best interests and choose to open up their content."

        In every business Apple touches, incumbents are disrupted and business models go out the window. Do you really think a critical mass of the current value chain would agree to anything Apple proposes? I think they're terrified, and rightly so. "Opening up their content" is the absolute last thing this industry wants to do.

        Remember Jack Valenti? "I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone."

        30 years ago, sure, but that knee-jerk reactionary instinct lingers.

      • Hmmm…

        Are you suggesting that TV content creators, with the right setup, would be more successful (greater sales, name [brand] recognition and profits by distributing through App Stores?

        I hadn't thought of that for TV distribution.

        I have a friend who is working on her first CD — all original compositions sung and played by her — She's very good!. If she publishes through the traditional channels she would realize approximately 10% — or $1.99 for each $19.99 CD sold.

        I suggested, that she might be better off publishing it as an App where she would get 70% of the sales price.

        Of course the traditional channels provide promotion, advertising, etc…

        I do not think that an App for each CD Album is the right approach (or for books or magazines). Nor, would it be right for TV show content.

        Maybe, something like a Bookstore app, a Music Store app*, a TV Store App, A Live TV App, an Event App… where the creatives could provide a portal through which to sell their content — current content, archives, reserve/subscribe to future content/events. Promotion could be contracted/provided by the "store" or a service like Stickam to livecast the creative.

        * replacing the iTunes Store app

        I can see great potential in marketing and distributing TV content (live and reycorded)) by this means

      • barryotoole

        Or, she could release her CD as an iTunes exclusive and keep most of the money from the albums/songs sold. Advertising could be done through social media and Google, as well creating a website.

      • Hmmm…

        Interesting Idea… How does one directly approach Apple to release an "iTunes exclusive." I know there are third-parties that get aspiring artists "published" on iTunes. But, I ran the numbers a while back, and there was a larger percentage — but little promotional advantage.

        My friend has access to legal and "record industry" knowledge — but an "iTunes Exclusive" option has never surfaced in our discussions.

      • freelancefox

        Indeed. I hadn't come to that realization myself, but I think that's fairly accurate. Both the increased customer connection, resulting in deeper loyalty (which I completely pulled out of my head, but I feel would prove true with research), and the higher margin. This is an assumption but don't networks get a cut of their profit removed by the cable providers? That cut can be returned to the network and the content can be directly monetized, rather than the television channel as whole being monetized to lure advertisers and/or paying customers.

      • Justin

        Actually, no, the networks (content producers, first-tier distributors, i.e., ABC, NBC, Fox, ESPN) are paid a sizable amount of money each year for access to their content. The biggest reason they are pulling back this year on access to new shows through online options, including Hulu and their own web presence, is because Comcast, DirecTV, etc. demanded it, and those distribution contracts represent billions of dollars. Funding of television production comes through distribution contracts and advertising revenue. Unless the alternative distribution you're promoting will guarantee the huge dollar amounts they get right now from their 'broadcast' partners, content owners won't likely be willing to take the plunge. And since those contracts change often, and since the distribution companies are willing to play hardball (i.e., drop Hulu or you won't be available on Comcast, anywhere in the US)… all of this leads to the industry business model stagnation that Horace discusses in his article.

    • Ian Ollmann

      I think the disruption is already occurring and has been for some time. TV won't evolve. It will be replaced by the browser and special purpose entertainment apps like video games. It just will take time for users to let go of TV, like plain old telephone service. At my house, though we could, we do not subscribe to a television service and don't get over-the-air broadcasts. All of the video content arrives by DSL (Netflix, iTunes) and plays through Apple-TV, an iPad or a computer. We don't watch sports. Local news arrives through the website of the local newspaper.

  • Kristian

    BTW We have to remember all the time that the Steve Jobs is biggest owner of the biggest media company in the world ie Walt Disney Company. Apple is not going to buy Hulu because Disney owns part of it. There is also one very bad example what happens when you mix electronics with studios ie Sony.

    • CndnRschr

      Apple is not going to buy Hulu because if it did, the other partners would tear up their agreements. Apple is the mammoth in the room as far as they are concerned. Instead of seeing a saviour, they are afraid to go to sleep in case they get "sat" on in the night. Personally, I wish Apple would quit waiting and fired a few tranquilizers.

  • anandeinkam

    Horace i couldn't understand this article and the message it conveys. Can you help me by explaining what you wanted to convey in much simpler terms?

    • Horace Dediu

      Apple and Google and Microsoft and Samsung et. al. will struggle to make successful products that depend on current Television content. This is because the current content is itself dependent on broadcast business models.

      Unless new shows are designed around new devices, offering new experiences and making money in new ways, there is little hope for any change in the vast wasteland that is TV today.

      • Ian Ollmann

        The shows follow the money. Give it time and $$.

      • handleym

        I wish you hadn't said this, Horace; I think it's a weak comment.

        First "vast wasteland" is not a helpful phrase. People want what they want, and they're not going to switch to Opera and lectures just because "the man" is no longer "forcing" them to watch _The Bachelorette_. People who want to watch intellectual material can do so right now — personally I think iTunes U is the single greatest Apple innovation of the past fifteen years — but I don't pretend to myself that most of America would be watching this stuff if only (in some vague way — false consciousness and ideology and all that) they weren't being prevented from doing so.
        Opinions about the moral and intellectual value of new content are a separate issue from distribution.

        Second, I just don't see this huge demand for new style content. We've had "choose your own ending" books for what, fifty+ years, and they're a novelty gimmick, not a mainstream genre.
        There is a new genre of this form, called video games. It is what it is, and is distributed in ways completely different from TV, but it doesn't represent the future of TV.

        Third we've had kids with internet TV access for five years or so now, and with video game access for a lot longer. I'd love to be corrected on this, but my understanding is that YouTube and video games augment TV watching, they don't replace it. Sure, at the margin TV watching goes down some, but nothing dramatic. It's not like TV replacing radio (or, in a somewhat different way, movies).

        It seems to me that people want to
        – see sports on TV. I do not understand this at all, and I'd be willing to accept that they want to choose camera angles and suchlike and so control the game they see — though, honestly, I doubt it.
        – see certains of performance competition on TV. Dancing with the stars, American Idol, etc.
        – want to laugh.
        – want to experience traditional stories, and while books and audiobooks so this well, TV can also do it well.

        All of these seem well served by current distribution models.

        TV also seems to incorporate a huge amount of stuff I don't understand — TV weather, TV "news", home shopping network, cooking shows… But there is presumably some sort of demand for this. I don't think we can argue that the existing distribution model can be improved without understanding what the existing viewers get out of these shows; and the fact that pretty much none of us reading this blog WATCH these shows means that we are exceedingly poor judges on score.

        There are very few people in America now who cannot, if they really want to, afford a DAP — and then fill it up with audio or video content from iTunes U or suchlike at a library. Likewise people who cannot afford some sort of homebrew DVR, even apart from the fact that most households have one from their cable company. In spite of this, we have huge numbers of people who watch this stuff, who simply switch the TV and watch what is there, rather than bothering to record material they know they like, and then watching that on demand. What that tells me is that there is a huge population out there that are simply different from you and me, a population that would be prefer to be fed content rather than to choose it.

        Given these facts, it seems to me that assuming that the world wants and needs a new distribution mechanism for TV-like content is simply misguided. The world already HAS hulu and netflix and iTunes and YouTube, and these (more or less, there is always room for improvement) satisfy the needs of the minority that care about what they watch and when they watch. The majority, on the other hand, seem uninterested in this sort of control, and so I don't see them pushing for an alternative to the status quo.

      • barryotoole

        I disagree. We use the present model because there is no other choice.

        How many channels of the 'Top 120/200/250' do you actually watch, and why should you be forced to watch a show at a time determined by the broadcaster's convenience?

        Wouldn't it be better if we are able to choose, and pay for, only the programs we like, and watch them on a device, place and a time of our choosing?

      • handleym

        Dude, it's not good enough to say “the current system does not work for me”. The debate is not about what barryotoole wants from TV.Regarding your question,I watch ZERO of the'Top 120/200/250' channels of cable. I- watch broadcast TV (no cable) via three EyeTV tuners hooked up to a Mac Mini as DVR AND- a vast amount of iTunes U content.But I am not foolish enough to claim that I represent the average viewer.If you disagree with me, tell me which of my assertions are wrong. Not wrong for you, but wrong for the American viewing public.Look, if you want to watch (for free!) only the shows you like, YOU CAN ALREADY DO SO. It's called a DVR and OTA broadcasts. It's what I do.The fact that most people are not doing so is PRECISELY MY DAMN POINT.

      • Justin

        I disagree, but for very different reasons than you might think. The core of your argument is sound, and the fact is, most people will either watch what's on, or not at all. The problem is that the business model itself is starting to founder. Advertising rates are dropping through the floor, because fewer people are actually watching television, and the effectiveness of television advertising is declining. Premium distribution subscription rates are dropping because people have less reliance on television as their primary form of entertainment, and are less satisfied with what they find. Ultimately, the legacy model of television distribution only worked because a truly huge number of consumers were tied to it for very significant amounts of time.

        The first step in the decline of this model was, and remains, the sharp increase in low-production-cost programming. The competition programs you mention, so-called 'reality' television, and at the expensive end of the spectrum, situational comedies are all cheap to produce, easy to market, and therefore represent a better solution with reducing viewership. The viewership that remains are used to event-oriented viewing (i.e., live sports) and so content with low repeat value, such as contests (which have less value once the winner is known) can be sold as sensationalist events to increase one-shot advertising revenue. The old days of getting quality scripted dramas, which made their money not in the first airing, but in syndication, are fading quickly. Unfortunately, as the trend continues, and the quality of content goes down further, so does viewership, leading to further exaggeration of this trend.

        I think what Horace is arguing for here is a transition to a new model that allows for the production and distribution of the kinds of content the rest of us want. I happen to agree with him that there is a market for that, and that in fact a large segment of the existing public would embrace it, if it was so simple as to require no more effort than their TV. This is the problem – one that an app approach, or some other model yet to be invented, will have to solve. The vast majority of consumers, who would individually happily pay $1-2/month for access to pick-your-favorite-network on an a-la-carte basis (which, incidentally, is in the range of what the distribution networks pay on a per-subscriber basis) have no way to do it. If they did, and if that resulted in quality programming (whether they prefer soaps or good Sci-Fi), I contend that a true market disruption could occur.

      • handleym

        I like the style of (some of) what you are arguing, because you're making actual falsifiable statements. But I think you are wrong, andI would love to see your claims backed up by numbers.It seems to me that:(a) the subscription numbers are better than they have ever been. There has been a minor dip over the last year or two, but that appears to be more the result of the recession than of long term trends. If any long term trend can be seen here, my guess is that the one that matters is one that no-one has mentioned — digital OTA broadcast, at the margins, made OTA broadcasts of good enough visual quality that some people found it worth canceling cable.(b) the cost of cable continues to riseThe OTA advertising dollars have fallen over the past few years, but by small amounts (of order 3%pa) except for NBC's dramatic fall, which suggests management incompetence at one network, not industry-wide issues. Again, it seems to me, these numbers reflect, as much as anything,the recession, andbetter (for some purposes) advertising alternatives, but nothing more.Reality TV and high profile game shows (So You Think You Can Dance, America's Got Talent, etc) seem to me not a reaction to declining revenues, but the way the business has always been, the way all businesses have always been — you try to reduce the costs of your product, while increasing its price and popularity. US TV saw a means to this end, jumped on it, rode it into the ground (in the case of reality TV), and is in the process of doing so (in the case ofhigh profile game shows). American Idol, for example, was Must See TV for a few years, and has dropped to “agghh, if I have nothing better to do TV” recently. Simon Cowell may resurrect the form for a few more years with The X Factor, but long term I think it's time has passed for now.Finally to complain about the lack of quality scripted TV is ludicrous. There are as many, and excellent, dramas and comedies, as there ever were. Friday Night Lights? House? Glee? Modern Family? Parks and Recreation? Happy Endings? And that's just OTA.TV has ALWAYS been 99% crud, and 1% other. The difference is that, until maybe the mid-90s, that 1% other was also crud, now it's pretty spectacular. And I personally don't see a pattern of that changing.The bulk of the money spent in TV, just like in movies, is spent on salaries, and much of that on high-end salaries. This means that the business has different economics from what most people intuit. What will drive the nature of future content is the power struggles between management and the talent (in turn, split into writers and actors, with different interests) NOT technology. If revenues really are on a long term downward trajectory (something, as I've said, I'm not convinced of) there's an awful lot of slack that can be picked up simply by slowly reducing salaries at the high-end. Of course those affected will complain, there will be plenty of screaming and fury, maybe more strikes, but at the end of the day, Hugh Laurie is still better off with his $9million pa salary dropping by 50% than in pretty much any other line of work.Statements like “the sharp increase in low-production-cost programming” are simply not born out. What is the baseline against which you are comparing? The 50s and the Random Advertising Brand Hour featuring some mediocre host telling mediocre jokes?The 60s and I Love Lucy or Hawaii 50 and their superb production values?The 70s and Mary Tyler Moore, or Carol Burnett, or The Osmonds?etc etc. It has ALWAYS been 99% crud and 1% other.Finally, you go against your whole argument by”I think what Horace is arguing for here is a transition to a new model that allows for the production and distribution of the kinds of content the rest of us want. I happen to agree with him that there is a market for that, and that in fact a large segment of the existing public would embrace it, if it was so simple as to require no more effort than their TV.”Uh this exists. It's called Apple TV. It's a minority tasteWhat am I hearing, over and over again, is a whole lot of “the system has to change to xyz” where xyz is something that ALREADY EXISTS — and is a minority taste.People argue for free — which already exists. For ala carte — which in one form or another already exists. For on demand — which already exists. For more “quality” (however that is defined) — but already more programming of the form they want already exists than any human could ever watch.I truly do not understand any of this — it's not even pure dissatisfaction I'm seeing; it's more like a certainty that this puredissatisfaction must exist out there among the rest of the population.

  • davel

    I agree. No new entrant has come in because the distribution methods are static.

    I do not know what TV needs to be, but I know what it is not. Broadcast TV has died because cable killed it. Cable offered a way to get content that you more closely identify with. Broadcast TV was like a top 10 list. You may like it, but it doesn't call you. Cable allows you to tune into sports, some broad like football or baseball and some more specific like Nascar or MMA. You can tune into movie channels like HBO or Showtime both of which generate unique content to get you to subscribe.

    However all of these is passive. In other words a show is available on Tues at 8pm. You can always tape it, but that is a bit of a hassle. There is DVR, but you still need to plan. You need an on demand DVR plan for everything except things like sports which needs to be live. You need it to go to the tv or mobile like some cable companies do with tablets.

    The problem with on demand is one of discovery. The current models let you discover things because of advertising or product placement near popular shows. On demand won't give you a platform to discover things. Although you could use a model like Pandora.

    Also they need interactivity. Shows should be interactive with the users, or allow users to create a community around it to interact with each other.

    All tv other than games are passive. But you are right, some new layer would have to be created to allow this. Also the mobile bandwidth just is not there to stream high quality video to mobile.

    • handleym

      "However all of these is passive."
      "Also they need interactivity."

      SImply asserting these does not make them true.

      I see no evidence that the audience wants interactivity for most shows — they like the ability to vote for contestant number 6 on American Idol, but have little interest in voting for whether Rick Castle kisses Kate Beckett or not. (You can hold a vote like that very occasionally as a gimmick, but do it too often and your show will deteriorate. It's like asking kids what they want for dinner; the answer every night will be ice-cream, and pretty soon the show will have lost all the tension and unpredictability that made people want to watch it.)

      Likewise I would guess that fewer than half of Americans ever bother to use their DVRs, and for all their faults, these are no longer difficult to use. The fact is — most people simply don't care. They are happy to watch what is on TV at 8pm on Tuesday, and claiming otherwise, IMHO, flies in the face of reality.

      • davel

        I am not saying that interactivity means that rick kisses kate and somehow that changes the outcome. My point is that TV and Cable is passive where activities like blogging, gaming, etc are active and interactive. Games have moved to social rather than solitary.

        I am not proposing the form of interactivity, but would guess that the example you state is not the form that would take off.

        What I am stating is that interactivity is likely a property of the evolution of the medium as well as the delivery of programming on demand.

        I also state that the speed of the internet today is insufficient for what I am thinking of because the pipe is too small for the content. Either the pipe needs to get faster or the content smaller. As popular as YouTube is today it is not sufficient. The quality just is not good enough. This of course is a factor of storage and bandwidth.

      • davel

        Additionally to address your point about DVR's it seems to me that Netflix has built a nice business on replacing DVD's. Yes it does not record original content from whatever channel you want, but most companies place a lot of their content online. The bandwidth does not allow the same experience as the original broadcast. But Netflix is extremely popular and gives you on demand access to content you want to view. There are exceptions as they need licenses for the content and you are limited by what they can get a contract for, but it is on demand for a subscription which is one of the properties I outline above.

  • MOD

    I have tenant, over 65 woman. Does not have a computer, or internet, or cell phone. Just a land line, answering machine, and TV with satellite dish. She is working poor, but loves her local baseball team and her church. And she lives in the high tech capital of the world.

    Upstairs tenants, young professionals, just had a baby: cell phones, dsl, but no TV.

    I think it is a generational thing. How many high-tech people even have a TV anymore, or time to watch it.

    • Horace Dediu

      It is a generational thing. A recent article in the Economist suggests the median TV viewer today is a late middle-age woman. It used to be a far younger, more homogeneous, audience which was open to the suggestive power of brand advertising. The current audience is at an age where they've already made up their minds about what brands to buy and cannot be influenced.

      It leads to a real problem for advertisers and it the main reason we have seen no "iconic" ad campaigns for decades.

      • MOD

        It will be interesting to see if Steve Jobs can disrupt the TV media, like he did cell phones, with a data package.

        The problem will be the price point. Working poor/retirees do not have extra money to spend.

    • There are 3 generations in our household:
      — me 72 years old (today – Dah, De-Dah-Dah, Dah, Dah:)
      — my daughter 47 years old
      — grandaughter 16; grandsons 11 and 12 years old

      I have a high-tech background, my daughter and grandchildren are comfortable with tech, e.g. use Pages, iMovie, etc.

      We have 3 TVs:
      — Communal TV – 46" HDTV in Family Room
      — 17" HDTV in each of my daughter's and my bedrooms.

      We watch many shows together, or in case of a conflict, separate TVs:
      — Sports (mostly live): NCAA Brackets, soccer, NASCar, football, Triple Crown, baseball, hockey, basketball
      — News: cable and local
      — Series (appropriate for viewer ages and interest): AI, MadMen
      — Movies
      — Historic Events: Space Launches, Hurricane Irene, 9/11
      — Miniseries: The Civil War; Jazz; Roots; Lonesome Dove; John Adams; Thomas Jefferson; Napolean
      — Reruns
      — Educational: travel, cooking, science

      We also have an Airport Express, AppleTV 2, and a media library of about 900 movies, 300 Podcasts, etc.
      — Classic Movies
      — Home movies
      — Instructional: e.g. FCP Training

      We all have iPads

      In our case, TV does not appear to be generational or technical thing — so much as interest and demand oriented.

      Ideally, each individual will be able to select the content of interest, when to watch it and device on which to watch it.

      The missing link is the inability to stream Cable TV content to our iPads.

      • I meant to mention that the Cable TV UI/UX is just awful — really, really awful!

      • MOD

        Maybe Steve Jobs has a chance then. Methinks the TV media is afraid of what happened to the music media.

      • MOD

        Happy birthday 🙂

  • poxybowsy

    Horace, please add an author byline to each article on the main page. Up to now, this would have been wasted space, but it has recently started to matter.

  • This post made me think of other things that are the same way — things that have accumulated many self-protective ”servo-systems” which counter any disruptive force with an equal or opposite force thereby maintaining the status quo.

    For example, our bodies keep on living in spite of the things we throw at it. American politics stays stuck in the nineteenth century in spite of the world existing in the twenty-first. As Horace says, television is stuck in the “I Love Lucy” mode. Planes and rockets stay on course with gyroscopes. And in my field, software development, things are pretty much done the same old way, in spite of it being used for innovation and disruption.

    I’m wondering what part humans, these psychological creatures, play in all this. Are they not a huge component of the servo-systems which keeps things stuck the way they are?

    Understanding disruption is understanding the human being as well. How many times does this have to be said, and how many times will it be ignored? At least Apple understands the human being incredibly well, and is able to actually disrupt as a result.

    Oh no, not those pesky “intangibles” again. Run away! Or, we can choose to look directly at them and think hard!

    • barryotoole

      "American politics stays stuck in the nineteenth century…"

      FYI: Certain political segments are 'brewing' discontent to move it back to the 18th century, when our Constitution was written!

    • Nalini Kumar Muppala

      For more examples, see "We will Always" TV ad for iPad.

  • NineYarder

    Apple is creating the tools (Final Cut Pro) and the channels (iTunes and the devices) to enable creative professionals to produce and market their products directly to the consumers.

    What is needed is a specific type of social networking software, maybe a specific genre of Facebook combined with Final Cut Pro, which will enable the networking and content sharing by creators. Then, it would be possible, for example, for a team consisting of a writer, film editor, director, producer, actors, etc. to collaborate on a "TV" production or movie, from start to finish, and distribute the product on iTunes. As a viewer, I could watch the final result, but I could also step through the production log of the entire creative decision making process, from start to finish. That would be a great way for students to learn the trade.

    California, the home of creative production, has a vast untapped potential of experienced professionals and energetic students who would be able to start a new business model for TV content, and all a person would need to get started is a Mac, a couple hundred dollars worth of software, and plenty of free time. It seems like we're almost there.

  • poke

    I think we have to stop thinking in terms of television and start thinking in terms of what uses large, multi-user displays have. Such displays afford what might be called "passive computing" – i.e., a kind of computing with weak levels of interaction. That, in turn, may require a level of "smartness" we haven't yet reached; it would have to do many things pre-emptively. It'd also have to support multiple levels of engagement: from being in the background, to being viewed, to acting on commands, to being interacted with in real time. Such a display might be used for news, weather, entertainment, etc, and television content would be relegated to a supporting role.

    There are, I think, many people who have already left television behind and they would be the target market for the new device. The market would then expand and eventually subsume the traditional television market, much the same way as phones are becoming one app among many on mobile devices. I don't think this is just about a device for the living room either. In the mobile era, we also need to ask questions about auxiliary displays in general. The same device could, for example, replace the desktop computer as a "smart" auxiliary display that communicates wireless with my mobile devices. When I'm not using it for that purpose it could show me passive content. In practical terms Apple could upgrade its Thunderbolt Display with a built in A5 processor and AirPlay. The same device could hang in a conference room or be built into a projector, etc.

  • Hamranhansenhansen

    I would argue that the consumer Internet *IS* television. What you are calling television, I would call "TV Classic" or "Legacy TV." It's not going to change, it's going to die slowly. If you look at TV and Internet together, you see the full picture, just like putting iPad back into PC numbers shows "the tablet effect." Eventually, all TV content will be delivered over the Internet. I get all my TV that way since iTunes got TV shows. It's still TV. The consumer who is watching Netflix over Wi-Fi on their iPad is still watching TV. If I watch The Rachel Maddow Show over a cable network or in the iPad app, it is still TV, still TV news. An iTunes movie is a TV movie.

    So we are quite a ways into the transition from dumb, proprietary TV networks to smart, Internet-delivered content. We are going to hit some technology transitions that are like chasms that smart TV will jump and dumb TV will fall to its death. For example, when Internet bandwidth can very quickly deliver a 4K movie in great quality and there are smart TV's to display that movie, and cable networks are still stuck at highly-compressed HD and SD. SD to 720p is not that big a difference, but 720p to 4K makes people invite their friends to see it. Another transition would be when there are more iPads and iPhones (and similar devices) than TV's.

    Another key thing is that with HTML5, you can recreate a TV channel in the browser, except the data and lower thirds and so on can be in their own layer, and can be interactive, and personalized (TV news crawl could be your Twitter feed), and localized, and of course the video is also interactive, on demand, and commercials can be downloaded once and shown many times, and they can also be interactive. So a Web browser is a better TV platform than a cable box. How long until somebody exploits that in a way that captures the imagination and makes the flat picture of Legacy TV look completely obsolete?

    • barryotoole

      True. I've cut the cord for over four years now, and watch content via Netflix, Hulu, iTunes, and other Internet sources on my 24" Apple Cinema Display. I also have EyeTV attached to my MacMini, but haven't used it that much; there are only so many hours in a day.

      I can't wait for the day when I can pick and choose the programs I want to watch on iTunes: anywhere, anytime and on any device.

  • halvi

    The business of TV is all about controlling distribution, just like the business of movies and music. Unfortunately, the music industry gave up control of distribution to Apple in a moment of panic. And conversely, the movie and TV industry have had time to learn from the music industry and maintain their control of distribution. In this context, TV, like any business protecting what they have, can and will throttle or limit innovation if they can't figure out how to monetize it for their own benefit.

    • barryotoole

      Big Music was between a rock (Apple) and a hard place (piracy); they had little choice. When things get this bad for TV content producers, things will change. Give it time.

  • dbl

    TV is just another channel, or group thereof. Ruben's comment above, "Owning the…distribution network (i.e. Internet wich happens to belong to no one)," indirectly highlights the Real Problem for me. The Internet currently does belong to "someone," assuming we regard corporations as persons: Comcast, AT&T, et al. They own it by virtue of the fact that one must pay their toll in order to receive the channel, whether TV, the content Web, music, or movies.

    "Violent success," to borrow Mr. Deidu's elegant phrase, is where Apple is headed: a wireless distribution service that offers a la carte selection and bypasses the middlemen ISPs. The "hobby" will be revealed as a prelude to the greatest disruption of all, laying to waste the blood-sucking trolls.

    After all, why dream small in black and white?

    • barryotoole

      Bubba, may your wish come true. I'm longing for that moment.

      Only in America can we have a few companies monopolize content distribution: the TV, land lines, cellphones, and even a content creator (Comcast/NBC).

      Like it or not, we are goings back to the days of the robber barons. 85% of the food supply, for example, is controlled by just four corporations. And soon we will have only one GSM provider in the land.

  • Eric D.

    At the end of the day, I just don't see Apple clogging up their channel with huge, unwieldly boxes containing HDTVs. They sell every single iPad they make, and are still not meeting demand for iPhones in places like China. No matter what Apple does to the TV set, it will never generate margins proportional to its iOs devices and laptops. Is there even room for large TVs in the Apple store? Apple's whole trend has been -away- from big form factors.

    One product I do imagine is a slightly larger version of the iPad, just a few extra inches to reach US Letter and A4 formats. Combined with the high-res display, this device would match many magazines and other content that is already being produced in print. Very convenient for publishers. The bill of materials would not be much higher, and they could tack on $100 or more and make another killing, IMHO.

    • barryotoole

      I agree. A larger 'iPad', say 8X11, thinner than the current iPad 2 and possibly the same weight or lighter, will be a great seller. It would be no more cumbersome to carry it than the current one. I think we'll see it before we see a 7" iPad.

      Also, I am sure that Apple can make a 30" (it did) or a 36" Apple Cinema Display, to test the waters.

      • Eric D.

        I agree that Apple can make good displays — I'm looking at a 27" iMac right now, and it's lovely — but I can't see them squeezing the space available for really profitable items to make room for big honking TVs. And I mean in their storage areas and on the planes, not just the retail area.

  • handleym

    (Pt 1)
    When people first talked about an "Apple TV" — not the current Apple TV, but a flat screen with Apple SW/HW inside it — I was skeptical; for various reasons but most obviously because

    – people seem to want a variety of different features in their TVs. Size, color, audio, etc. Apple surely doesn't want to be in the business of keeping SKUs for 25, 32, 42, 50, 60 and 70" TVs, even assuming we provide a single color and audio setup.

    – putting electronics TIGHTLY into TVs is like putting them tightly into cars. What looks cool and flashy in 2011 looks old by 2014 and pathetic by 2016. But people don't want to simply throw out their working perfectly well (and heavy and PITA to move) TVs, just like they don't want to throw out their cars after five years.

    – the stupidity associated with the content restrictions. Oh my god, it burns, it burns.

    OK, having said that, I've spent more time looking at how non-technical people interact with their TVs, and one thing which is clear is that they are in a world of pain.
    Your average TV setup consists of a "TV" remote, which is the only remote which changes the input from say HDMI1 to Component2. There is then a second remote, controlling, say, the WD TV Live Plus (or Roku, or whatever) box. There is quite likely a third remote, controlling some sort of game console. Then the fourth remote, controlling the U-Verse (or Time Warner or Charter) box.
    Unless the home houses a tech guru, every single member of the household lives in terror of pressing the wrong button on a remote, and turning the TV into an unresponsive lump — all it takes is switching to say HDMI2 (unconnected) or trying to change channel using the TV remote rather than the ATT U-Verse remote.

    And it's just getting worse every six months. Add DLNA into the mix — it's cool in theory, but it's one more hierarchy of things that need to be understood and navigated. Add in boxes like the wifi/internet box for U-verse — again many people are using only a fraction of the capabilities of that box, both because ATT seems to go out of its way to make the box incomprehensible, and because people are terrified that by changing ANYTHING their entire electronic world will stop working.

    I think people like myself (and many of the people who read this blog) have been blind to just how bad it is, because we have a very well developed hierarchical mental model of how a TV setup works — we understand the meaning of switching between HDMI1 and Component2, and the difference between what the TV remote thinks "change channel" means, and what the U-Verse remote means. But most people have no such mental model. (And this is just life. I have no useful mental model of how to debug a car, or fly a plane, or defend a lawsuit.)

    OK, my point is that, regardless of what I said, there is scope here for a tremendous improvement in people's lives. The PROBLEM is: this does not seem to match well to the way Apple does business.
    Apple TV as it currently exists works if you are willing to accept a very specific and limited view of your TV world: you are willing to watch movies (a limited selection) ONLY through buying/renting them from the Apple Store, likewise for (an even more limited selection of) TV shows. If, like pretty much every user, you want the system to also play well with your existing cable-TV setup, and maybe your DVD player, and your WD box, and so on, you're SOL.

    • Eric D.

      Maybe Apple just needs to design a touch-screen universal remote. Or add IR to the iPad and iPhone and write the app.

    • Chandra2

      >Unless the home houses a tech guru, every single member of the household lives in terror
      >of pressing the wrong button on a remote, and turning the TV into an unresponsive lump
      >— all it takes is switching to say HDMI2 (unconnected) or trying to change channel using
      >the TV remote rather than the ATT U-Verse remote.

      I was laughing so hard at the imagery you portray. So true. There is a CURB Y E episode that makes fun of this situation.

      Definitely a rethink is needed. May be, what is needed is equivalent of settings in iPhone for the TV. But then I do not know how many people go to Settings even on the iPhone. I think most people know how to make a phone call, how to launch an app and how to get out of it. So may be an app to manage the TV input and output is the solution but done in an intuitive manner.

  • handleym

    (Pt 2)

    Personally I think Apple COULD improve things substantially — but at the cost of having to compromise its vision slightly.
    The idea would be that Apple TV4 would be a bigger richer box. It would have a number of inputs in the back — some HDMI, some component, S-Video etc. Also an antenna-in jack. Also at least one USB in. (Already that kinda sucks!)
    We start by plugging everything that would go into the TV into the Apple box. Apple make this as easy as possible by providing some sort of walk through telling you what to do — basically like what TVs do when you switch them on, only with much nicer graphics and using languages tested for ease of understanding. The box has a SINGLE HDMI connection to your TV, and once that is plugged in, the idea is you only ever use one remote from now on — your Apple TV remote (which may well be an iPhone, or iPod Touch, or a simplified version of an iPod Touch for people who don't already own one, costing maybe $50). This remote talks to the Apple box which, in turn, sends out an IR or radio or network or whatever signal to the appropriate other box to tell it what to do.

    This, of course, means a huge effort in the donkey work of collecting how all those other boxes work, and figuring an appropriate "skin" to put on top of them so that the remote has some kind of consistency across devices. It means having to work around all their various bugs. It means having to keep updating the Apple box and remote as they update their firmware. It means Apple looking bad because of crappy design decisions in 3rd party hardware.

    So, yeah, I don't know. I think there really is a huge opportunity here for SOMEONE willing to tackle this job. But i suspect that Apple are not the right party.
    What I expect APPLE to do, instead, is NOT this boil the ocean strategy. Rather I expect that, in time, and behind the scenes, they will gradually get Apple TV to expand, one step at a time, into solving these problems.
    Suppose, for example, that Apple worked with ATT to get full U-Verse control on Apple TV? Use an iPhone/iTouch/iRemote rather than the U-verse remote, and deal with one fewer box now. Likewise, could Apple work with at least one TV vendor initially (perhaps Sony?) to have Apple TV control which of HDMI1 or Component2 are active, with all the associated smarts of not ALLOWING the user to switch to a connector that is not hooked up, or not even showing them the ability to switch TV channels if the TV is not hooked up to analog cable or antenna? It seems like Apple could, one slow step at a time, work with some HW vendors and some parts of the cable TV system, even if not with the content providers, to provide incremental improvements.
    And if these improvements come about as new (sorta open) standards — eg standards for two way interaction over HDMI between a TV and a "controller box", or between one "controller box" (Apple TV) and another (U-Verse), which is something I expect the non-Apple parties will insist upon, we're all better off.

  • Walter Milliken

    There's a technical component here was well as the business interdependencies Horace talks about. The issue is that video is a total bandwidth hog, compared to everything else on the Internet (perhaps not including spam). The Internet disrupted music and more recently books because the average user's usage patterns simply don't require all that much average bandwidth. The possible exception is streaming audio services like Pandora, which still are much lower bandwidth than video.

    I think one reason why the broadcast industry is still controlling the consumer access channel is that the economics of simple broadcast are much more favorable to bandwidth-intensive services like video than the point-to-point Internet packet model, where the content supplier and the content consumer must have an individual connection between them, rather than the content consumer "tuning in" to a broadcast signal, either in the air (conventional TV, satellite) or on a wired distribution network (cable). The amount of hardware involved is *much* smaller for the broadcast system, even with digital TV hardware on both ends. (And for the Internet-savvy, yes, there's IP multicast, which is widely unsupported and unused for a wide variety of good technical and economic reasons. It doesn't really change the IP infrastructure and bandwidth costs, mostly because it doen't help much in the last-mile situation.)

    The technical issue surfaces primarily in the sizing of the access networks (DSL and cable modem primarily). There's a fixed cost associated with each subscriber, and then an additional cost per subscriber that's due to the average bandwidth demand for each user. Non-streaming music (e.g. MP3s and iTunes) were disruptive to the CD because the amount of data in music is relatively small (once you have megabit pipes), and the data is re-used, and thus not downloaded constantly as the user consumes the content. For e-books (and the web media disrupting the newspaper/magazine industry), the content isn't necessarily re-used, but the data volume is pretty small in terms of average use, and pretty much gets covered by the fixed infrastructure costs of connecting the user at all with broadband speeds.

    However, content that is consumed *once* and is also relatively high bandwidth requires an order of magnitude or more increase in infrastructure capacity. This fact underlies much of the political debate about "net neutrality" in the US. While it's true that raw bandwidth is, to some degree, cheap, the switching gear for that bandwidth is *not* cheap.

    And if you look at TV video bandwidths and usage patterns, things begin to look ugly very quickly. Example: my town has about 25,000 people. Our cable provider has something on the order of 100 broadcast video channels. Let's assume all of those channels are HD video, which is roughly 10Mb/s. That's a total data rate for broadcast of roughly 1Gb/s. For the Internet video model, that same 10Mb/s data rate has to be duplicated for *every* user of HD video. I'll assume that our 25,000 people make up 10,000 households, and that only half of them are watching TV at peak viewing times, but that they're watching Internet VoD (i.e. not source-controlled streaming). So that's 5000x10Mb/s, or 50 Gb/s vs, 1 Gb/s for the broadcast model. Note also that the regular broadcast model is hard (not impossible, but hard) to do as an Internet service, it tends to need all that bandwidth even if everyone is watching the same thing at the same time. If you go to a larger city, the disparity is *much* worse.

    I think Apple is aware of the above, which may be part of why we see their data model in iCloud is more a user content replication service than a streaming media service model.

  • Walter Milliken

    As a followup to my comment on the technical issue of bandwidth, I do see a potential for disrupting the conventional TV video media. The trick is, it has to *not* rely on shipping streaming media content at multi-megabit data rates to each user from the broadcaster (or cloud).

    I see two disruptors:

    1) The easy one is that the TV eyeballs move to new media: web content, apps, and the like. While it doesn't directly replace TV video per se, it does disrupt their audience. (My own household falls into this model; I don't think we've turned the TV on for a couple years now, and we're only on basic cable.) This isn't the dreaded "cord-cutting" model as "buying a different cord".

    2) My wilder speculation is that we'll see new TV-like media appear that get around the Internet bandwidth issue by moving to a different content model that is much less demanding of bandwidth. This is enabled by the wide availability of 3D GPUs in computers, iPads, and smartphones. Basically, you move to a CGI content model that transmits scripts over the net, rather than compressed image streams. MMORPGs already exploit this, producing very complex images well above current HD-TV, while using only 100kb/s or so of streaming bandwidth. Using a similar content encoding model for more non-interactive conventional comedy, drama, etc., would probably use even less bandwidth.

    I think 2) is likely to become a major force in the next decade or so, possibly starting in Japan (where anime is a well-established video genre). A lot of the barriers to doing this are gone, but the toolchain and infrastructure data (e.g. huge model libraries for actors, settings, and props) for content creation is still not there to allow anyone other than a Pixar or Dreamworks to attempt this right now.

    I don't see the conventional bandwidth issue going away very easily — it would take either a drastic reduction in Internet infrastructure costs, or a radically more effective video compression algorithm. The bandwidth costs may indeed come down by enough in the next decade or so, as they have been steadily falling for years. But it's still a very inefficient way to entertain people, from a network data rate perspective.

    • EWPellegrino

      You're absolutely right about the bandwidth issue, and it gets even worse when you start to move to higher definitions such as 4K – at the moment probably only a tiny fraction of households have pipes fat enough to stream 4K video.

      I'd say that local 3D rendering is a non starter, for several reasons, but mostly because the end result would look worse than lower resolution video that was rendered at source. It would also require significantly more bandwidth than you might think – and it would do so unevenly, which could result in some significant stuttering.

      More likely we'll have to use some combination of multicast IP, P2P networking and pre-downloading shows.

      • Walter Milliken

        I don't think 3D is a replacement for human actor-based video, entirely, but there is already acceptance of some kinds of animation as the basis for series, and if some kind of synthetic imagery became easily available on bandwidth-constrained devices (I'm thinking smartphones as a driver, initially), it might see some significant uptake in certain genres (comedy seems most likely to me). However, anime in Japan has a pretty wide following already, so I'm thinking there's more potential there than you do. Bandwidth requirements would depend on the details of how the mechanism works. Something like Second Life, with all the data being downloaded from the servers on demand, would definitely not help. I'm envisioning something more like a sitcom with a mostly-fixed set of actors, sets, and props, which could be downloaded only once (possibly as part of an app), much like the MMORPGs download most of their graphics content at setup.

        Multicast IP isn't going to work, I've worked with it for a couple decades now (more like 30 years for some non-IP packet multicast technologies). There are a lot of scaling problems and technical issues with how to handle receivers with different available bandwidths and similar issues. It also doesn't help enough except in the network core, which is probably not the place the bandwidth savings is most needed — at the access edge infrastructure. And it still presumes the classical TV broadcast model — that everyone wants to watch the same stream at the same time. That's fine for real-time event broadcasts like sports, but useless for VoD applications.

        P2P won't help the bandwidth problem in the network, only the servers (and in fact the MMORPG games use this already, at least World of Warcraft does, for updates).

        Pre-downloading helps somewhat by time-skewing the load away from prime-time, but if the content is watched only once, it doesn't help much more than that; I'd guess it might buy a bandwidth factor of 5 or so. And it may lead to people downloading more content than they actually watch, which increases the bandwidth problem.

      • EWPellegrino

        No, I'm saying that even animated features that are produced by 3D rendering (such as Pixar movies) would look worse when home-rendered at 4K versus pre-rendered at 720p.

        You could create a new class of show that used 3D rendering as you suggest, but the reason for it wouldn't be low cost of distribution but instead low cost of creation – because the quality would be so poor with graphics available in the mass market currently. When I can already download a 720p show from Apple, why would I choose a WoW level rendered soap unless it was dirt cheap?

        Bandwidth of the network isn't generally the problem, or at any rate it isn't the VOD suppliers problem – so whatever solution we see will likely be one that shifts the bandwidth demands away from the central servers and onto the periphery of the network graph – ie. some combination of Broadcast, Multicast and P2P.

      • Walter Milliken

        It's likely the VoD suppliers won't see network bandwidth as a problem — but the carriers definitely do. I believe this is the matter at the heart of the carriers' war against Netflix. (There's also a definite economic motive as well, of course.) If VoD starts ramping up beyond a small fraction (I estimate about 10%) of the user population, and starts replacing TV viewing in the same usage pattern (several hours during the evening), it will very easily overload the carrier networks.

        Supporting this usage pattern will cost a *lot* of additional capital investment (my estimate is at least a 10X increase in network capacity), and drive up end-user costs in some fashion. So far, the carriers seem to want to do this by charging the content provider (who has deep pockets in their view), rather than their direct customers (who will strongly resist substantially increased prices for the necessary bandwidth). Multicast and P2P technologies will not do anything to fix this problem. Time-shifted downloads will ameliorate it to some extent, by expanding effective peak capacity, but only by a factor of 5 or so (based on a 4-hour viewing period of "watch-once" video out of 24 hours in the day), and that presumes some kind of global management of the download traffic — I don't think normal best-effort congestion behavior of TCP will suffice.

        I should point out that the carriers use an average per-household bandwidth model to size their infrastructure. A few years ago, this was about 100kbp/s per household; I don't know what the figure is now, but I don't think it's a lot higher. 100 kbp/s is about two orders of magnitude too low to support widespread use of HD video as a TV replacement, and about one order too low for rather low-quality SD-or-lower video.

        As for the 3D rendering issue, you may be right; the question is what's good-enough-for-the-price, relative to the bandwidth cost tradeoff. Certainly, scene complexity can be higher with a source-side render, but hte bandwidth gain is *enormous*, and 3D hardware is improving at a very rapid pace, probably faster than end-user bandwidth costs are falling, though I haven't tried to run the numbers.

        I do agree that it's probably the production cost issue that would drive adoption; this would be the disruptive enabler. Right now, the barriers to producing adequate-quality CGI content are quite high, but I don't think this is more than a toolchain and library development issue. At some point, there will probably be both simple-enough tools, and a cheap-enough library of scene elements and actors that a garage-shop scale producer could create content people might buy.

        The main question is whether there will be a large uptake rate among the current TV-viewinp population.

        However, I think the technical barriers and costs related to bandwidth make wholesale Internet-based VoD adoption a non-starter, at least for 5-10 years (at which point the end-user access bandwidth may be cheap enough to support it). Note that the carriers claim about 5% of their users use something like 50% of their bandwidth (at least for smartphones). I'm pretty sure these are primarily VoD early adopters, plus possibly people who stream audio 24×7. I doubt the situation is much different on the wireline access networks.

        My local cable-based ISP (Comcast) has a 250GB/month cap; this works out to about 2 hours/day of HD video, and I seriously doubt their network could actually handle *everyone* doing that, they're depending on most people not coming anywhere near the cap. I've looked at their infrastructure with traceroute, and it definitely doesn't have the backhaul capacity for anything near the necessary number of simultaneous HD video streams. (Their backhaul network seems to be mostly 10G Ethernet, each link can support only about 1000 HD video streams, under optimal traffic behavior circumstances.)

  • Martin

    I've been arguing for ages that Apple is going to bring full VOD from networks to consumer, bypassing the 'channel' constraints, and thereby cable, entirely. Networks haven't been fighting this move afraid of losing control – they support other efforts by cable operators and Hulu, etc. But nobody provides the ~$40/mo in revenue they collectively need to cover production costs, so any of these efforts that cause people to unplug their cable is undermining their business. And that's really the current state of content – everyone continues to try and win customers on price rather than on service, and if you price your content below the cost of producing the content, as Netflix has, then asking customers later to pay more and more for what they perceive to be the same service is very challenging.

    If Apple can create a VOD business that delivers that $40 – which is a conceptual point that Steve has recognized, then they'll at least consider signing on. And that need not be an exclusive deal – it wasn't with music, it just took Apple's competitors way too long to get their act together. And I think Apple will come in delivering the full $40 and will wait until they have enough content for consumers to deliver through on that. That'll be some combination of purchases, rentals, and inline ad content.

  • paul_l

    Voice and text messaging are excellent examples of how tough it is to oust the incumbents. We were sold wonderful broadband to the home. What did we get? Vonage for $25 a month. We were sold wireless data on our smartphones. What did we get? We got the internet, but somehow we also got text messaging at $20 a month.

    Consider Verizon’s FIOS. All that exciting marketing and they’re still just selling conventional cable TV, phone, and internet. The incumbents like the promise of the new technology but can’t fathom new business models.

    These are very entrenched incumbents. The fact that cable companies and telcos are the ones providing our data connections is particularly dangerous for innovation. TV is going to be a hard beast to unseat, and the most likely outcome is something new runs around them.

  • ChrisJ

    Horace: So it’s not hard to understand why technology solutions have largely failed. Every attempt to make a change in a part of the value network has affected another part, which has led to resistance and reversal.

    A premium cable show such as the Sopranos or Boardwalk Empire is roughly 2 million per episode, times 13, so say generally 10-20 million USD to produce a season’s worth of a quality hour-long drama.

    No one will put up the money to create that expensive content without knowing that it will be sold at a profit. So, the production company gets paid by a network. The aggregator (a network) gets paid by advertisers and/or the distribution medium, say cable or satellite (who also get paid by advertisers).

    Excluding the advertisers, the other three (production, aggregation, distribution) are all very much dependent on each other. Without shows, the latter two are bust. Without distribution, production can’t happen. Without aggregation, the whole business dissolves into a free-for-all which would bo too inefficient to turn the producer’s investment into a reasonable profit.

    A skilled writer, photographer or musician can produce content that is basically indistinguishable from the same content produced by the majors, at probably 1% of the cost. Essentially free internet distribution means most revenue is profit for the little guy.

    But even if most of the (large amounts of) fat were trimmed from TV production costs, it would still cost a whole lot of money to produce quality content, and the internet as a distribution channel can’t yet aggregate that money to pay for it.

    • Martin

      "But even if most of the (large amounts of) fat were trimmed from TV production costs, it would still cost a whole lot of money to produce quality content, and the internet as a distribution channel can't yet aggregate that money to pay for it."

      I would argue that it can, that the technology is there, but that the will to do all of the needed bits and pieces hasn't existed. In the same way that Google has profited from being able to target web ads to you personally based on all of the information it has gleaned, and to be able to charge more per impression due to this focus over previous ad efforts that were largely demographic, the same opportunity exists in video. The TV ad market has been ripe for a similar effort of injecting personalized video ads into content, in lieu of the current system. Further, something like 80% of all broadcast time slots are non-original content. Most of the network channels (with the exception of most of the news and weather networks) are repeat content, with some channels being nothing but repeat content. Advertising costs there are lower because it's again demographically based, but there's no reason why superbowl ads should cost more *per impression* than a repeat of Scooby Doo, so long as the viewer is the same. In either case, the cost is designed around trying to reach *you*, and so a new model would decouple advertising from the content. And by moving to a fully VOD model, you also eliminate many of the channel constraints placed on the networks – mainly that they have 24 time slots to fill each day, only a handful can be prime time, and that if they have more prime content to put out, they have to bump something to do it. A fully VOD model would allow networks to put out as much or as little content as is commercially viable, and the ad revenue generated would scale immediately and directly based on the audience.

      It'd be an entirely different ballgame. Perhaps a wildly scary one for the networks, but it wouldn't require them to necessarily adjust to lower revenues. Generating those revenues directly to the network and cutting out the cable companies and their profits, and eliminating their share of the infrastructure costs should result in a system that has comparable revenues, greater flexibility in programming, and more devices to reach, but also greater need to compete and deliver.

    • luforfor

      You are right. I think this is the key point that allow TV Network to defend from collapse. As long as people want complex video material (TV Series) there must be someone (the distributor) that put the money upfront and allow content producers not to bear the risk for a single product.

      To be more precise you can say that in production of complex video products (TV Series, movies etc) there is a MINIMUM EFFICIENT SCALE that becomes a barrier to entry that is SUBSTANCIALLY higher than what can be bear by a single person.

      That is not case for music and writing. In music you can have a finished song produced and distribuited over the Internet for almost ZERO COST (time of the composer in front of the computer) and the same for writing (blogging). So the music and newspaper business has be easily distrupted because the MINIMUM EFFICIENT SCALE of Production is almost zero and there is no barriers to entry and everyone is producing good quality music and writing WITHOUT AN ANTICIPATION of MONEY

      In complex video production CANNOT BE in that way and the best you can get WITHOUT the distributor anticipating the money is YOuTube style of video (home made simple videos). But as long as people want to watch Lost or something like that there MUST BE someone that put the upfront money.

      As long as consumers are will to look at long and complex video forms (TV Series, movie etc) there must be a distributor that bear the financial risk.

      That can be done by YouTube or Netflix or even a Tv Set producer (Samsung, Apple etc) but if they want to overcome the TV Network (free or cable) they have to GIVE MONEY UPFRONT for PRODUCTION.

      YouTube has now a fund (10 millions USD – that is peanuts) , Netflix spent 100 millions for 1 single TV series. All of that are little money when you think that a good TV Network EVERY YEAR spent at least 500 millions USD in complex video productions

      There are only 2 way is going to change:

      – a CONSUMER REVOLUTION: the consumers start to prefer simple video productions (YouTube style) instead of complex video production (style Lost)

      – a NEW BUNCH OF DISTRIBUTOR/ AGGREGATORS (coming from digital) start to put upfront money and get the rights to distribute complex video production OUTSIDE the Tv Networks. That can be YouTube, Samsung, Apple whoelse. But it must be clear that they need a reasonable deep pocket to play the game.

    • EWPellegrino

      No one will put up the money to create that expensive content without knowing that it will be sold at a profit.

      Not in the television industry as it is currently formulated no, but in the Movie industry players routinely put up far more without a certain audience. Is it possible that TV economics will become more like Movie economics as people become increasingly willing to pay for a high quality ad-free TV experience? I think it is, but then I'm one of the rare folks who buys all the TV that they watch.

      • handleym

        "Not in the television industry as it is currently formulated no, but in the Movie industry players routinely put up far more without a certain audience."

        I don't think this is accurate. Most people have a complete broken model of movie economics.
        I don't have time to go into details now — Edward Jay Epstein is the easy to read expert on this — but the way most movie financing works is:
        – Production company puts up some money, outside investors may put up other money.
        – Various costs occur "below the line", meaning these are normal real costs. These are things like paying for film, renting cameras, cars, locations, etc. Most of the salaries (ie salaries of the non-stars). etc etc.
        – Other costs are negotiated to be "above the line"; these tend to be salary bonuses to some of the talent, and money paid out to the investors, as various fractions of the "profits" of the movie.
        – Most movies land up with no "profit" and so no money going into this above the line branch — or the above-the-line money is itself trenched, and those with the best negotiators (like the big name actors) eat it all up, leaving nothing for the investors.

        OK, if you buy this story (and this is the story Hollywood *sometimes* wants you to believe — though not when they are suggesting you act as external finance to a movie) you should start to wonder how come any movie studio stays in business.
        And the answer is that the movie studios don't make their money from the "profit" of the movie, they make it by charging for the pieces used to make the movie — location rentals, camera rentals, props and costumes, fees for the advertising budget, profits from the video rentals (which [details differ] frequently contribute in only nugatory amounts, for historical reasons, to the above the line pool of cash), etc etc.

        So the point is: if someone tells you most movies don't make a profit (and by extension, statements like yours, that they are made with an uncertain audience) you need to either look very carefully at the details of EXACTLY what they are claiming, in financial terms, or, alternatively, look at what is the agenda they are trying to push. Hollywood's most common agenda is "we make no money, therefore YOU — airlines, TV, hulu, etc — need to pay us more" or the old variant on that "we make no money therefor Congress needs to further alter the law — copyright, tax, labor, whatever — in our favor".

      • EWPellegrino

        I'm unclear what you're saying. Movies are routinely made with below the line costs that exceed 20million, that risk may be shared between different players but it is still put at risk. The movie is then made and only then marketed. Unlike TV the risk is born by the investors in the show and not by the buyers of the show.

        I'm not claiming that most movies make a loss, simply that a priori the producers and investors do not have any certainty that they will make a profit. Not to say that they don't do everything they can to reduce risk, which is why we see so many sequels.

        We have a good example in the theatres right now. 'Cowboys and Aliens' has an estimated budget according to IMDB of 163million. Add to that marketing costs and it seems very unlikely that they will make back their budget given the appalling box office performance. The average movie will perhaps break even on the box office and end up profitable once you include after market earnings but that isn't certain in the way that TV is, the product isn't pre-sold, it's dependent on consumers.

        The flip side is that we have smash hits like the Harry Potter franchise, the last episode of which had a budget of 125million and which grossed 900million worldwide at the box office.

      • handleym

        Blockbusters are not “most movies” and talking about their economics is not a discussion about the economics of most movies.You made a statement about “in the Movie industry players ROUTINELY put up…” and it is that ROUTINELY thatI don't think is correct.Of COURSE you don't know what the audience will be in advance for a movie, large or small. But the business has been around long enough that all the major players know the averages pretty well. I don't see how this is different from TV. NBC can create a new sitcom, and have grand dreams for it, but they aren't guaranteed any more of an audience than a movie is.The risk is in the (rare) blockbusters, but that's a different discussion.

      • EWPellegrino

        Wait, you're saying that the budget for a hollywood movie isn't routinely over $20mil below the line? Even a Rom-Com has a total budget of $40mil these days not including marketing!

        Looking at the US box office this week we have

        The Help – budget $25,000,000
        Columbiana – budget $40,000,000
        Rise of Planet of the apes – budget $93,000,000
        Don't be afraid of the dark – budget $12,500,000
        Spykids – budget $27,000,000
        The Smurfs – budget $110,000,000
        Conan – budget $70,000,000
        Crazy Stupid Love – budget $50,000,000
        Fright Night – budget $30,000,000

        I'm going to stick with my statement that movies are routinely made with costs over $20,000,000

  • Nalini Kumar Muppala

    "Unlike the Smartphone which could only have emerged to leverage the Internet, TV has no “smart content” to leverage. The “smartness” has to be not in the box but in the programming."

    Samsung's attempt to bring Apps to TV springs to mind. Although a smartphone enjoys an advantage in mobility, TV has a big display going for it.

  • htill

    content rights rule – just look at what happened to Joost….. Still with YouView launching next year – maybe they'll up the innovation stakes

  • D_D

    The future of television will be (and is becoming) social. My teenage daughter routinely sits watching a tv show with Facebook open on her lap commenting with her friends while the show is broadcasting. This is a natural and there is huge opportunity to wrap shows around social networking. Even with higher end, conceptual shows, huge audiences have gathered to discuss episodes. Just look at the discussion boards and blogs associated with MadMen or some of the other Showtime HBO series.. There is also huge opportunity to do similar things with event programming like sports and concerts. The technology is there. It just has to be developed.

    As for business models, the networks are making the same mistake that the newspapers made and that is they think their business is production but it really isn't. Their business is advertising. The newspapers passively allowed Google, Craigslist and others to just slip in and take away their business. Dumb!! Will the networks do the same? They are trying not to, but they don't seem to realize that they are in an existential fight to retain their identities. If they don't fight Google by wrapping their content in their own profit generating advertising, then it will be game over.

  • Shaun

    I think this is a really interesting post and something I've been thinking about for a while. Firstly, the TV model is great as it a passive medium… like radio, you don't need to choose what you watch if you don't want to, just turn on the telly and there you are. However, its one of those mediums that has kept up with the internet and the international connectivity we have. I'm from New Zealand, my girlfriend is Spanish and we live in London but there is no TV model that caters to our needs. The BBC is great, especially for documentaries, Top Gear and the F1 etc (for now!)., however my girlfriend cant watch any Spanish TV, and I cant watch any of my New Zealand programmes. Surely if the broadcasters, producers etc. talk to each other, this could be possible!
    I don't know if I would always watch all of these channels, but it would be nice to have the option!

    Maybe I've missed the boat on something, so if anyone knows of a way to do this without buying a huge satellite (I live in London remember!) then let me know 😉

    (Long time reader, first time poster)

    • EWPellegrino

      You could perhaps accomplish it with some considerate family members back home and some slingboxes. It wouldn't be very convenient though.

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  • Chandra2

    Watching U.S. Open both online at and on CBS TV. The TV coverage comes out so lame compared to the online coverage. Online coverage, which is officially free surprisingly, provides coverage for many courts and you choose which match you want to watch. And for each match, a DVR like functionality with markers ( ‘end of first set’ etc. ) is available. And it is easy to access. This is the kind of online experience that people can latch on to even for non-sports and non-live programs. Imagining a new future is definitely in the cards.

  • Anonymous

    Just a data point. I’d suggest that there have been some substantial changes in TV programming accompanying the rise of both basic and premium cable.

    Cable is less tied to the idea that people are watching TV at the same time, which is one of the reasons they repeat the same episodes so often in a week or a month. Also, the 24 hour news channels seem designed to be treated more like people treat radio, as something that is on in the background while the viewer divides their attention with something else.

    • Fair points. I would perhaps modify my accusation of complacency by saying that the new programming has not changed the way it makes money. The only real innovations have been the shopping channel and perhaps infomercials.

  • This is thought provoking, but you lose me with the comparisons to other media. You make the point that TV is more than a box, but then point out that the other media were all disrupted by a new “box”.

    “The portable music player, the ebook reader, the console and the mobile phone and the internet in general have all allowed consumption to conform to new usage patterns.”

    I know there were/are new services, content deals and repackaging of content in these examples, but those things have been tried in TV too. In many different ways.

    And when it comes to the media itself, the song really hasn’t changed more than the TV show over the past few decades.

    So while I agree that TV needs something fundamentally disruptive to break out of the current “value network”, I would argue that it requires something much more disruptive than we’ve seen for the other media types. Put differently, what we need to disrupt TV is probably not something we can learn from other media types.

    • There were new boxes, but they enabled a new form of consumption (mostly because they allowed mobility and the media could be consumed more conveniently.) The change in what TV is hired to do may happen with a new box but it won’t be enough.

      • iPad+iTunes has enabled a new form of TV consumption at least as much as iPod+iTunes enabled a new form of music consumption, right?

        I agree that a new box is not enough, but I’m pointing out that the type of disruption that happened in your other examples is also not enough.

        It isn’t so much that TV hasn’t experienced the same attempts at disruption as your other examples. It is that they haven’t succeeded. That could be because the execution wasn’t right, or it could be because TV requires deeper disruption because the value network is more entrenched. I believe it is the latter.

        In short: TV disruption is not the laggard, it is the biggest challenge.

  • The challenge that TV faces is best appreciated by assessing the programming dynamics of HBO vs. the Broadcast channels. Broadcast has to fill a lineup to sell advertising, and so the programming is driven by psychographic buckets of what people (theoretically) want to watch at a given time of the week, with very little inspired programming as a result.

    By contrast, HBO needs a program (or programs) that are so ‘must see’ that they will drive subscribers and retention.

    Thus, while it’s natural to think about the jobs that consumers hire such programming for, you almost have to work backwards in this medium to the outcome goals of the TV programmers themselves.

    The biggest delta between TV (+ Film) and all other forms of media is that it has resisted creation of media units that are either less professional or subset variants (e.g., the song in an album, the excerpt in an article).

    TV, thus is protected by the fact that its unit of value is not readily converted into a monetize-able (legal) derivative.

    That may change at some point in the future, but that’s the nut, IMHO.

    Similarly, Netflix’s streaming service, and whether you are bearish or bullish on their prospects, is gated by whether you think that you can build a game-changing service that is less dependent on the hits vs. back-catalog depth-breadth.

  • Anonymous

    Isn’t IPad, or iPhone, already the new Ip-based TV?

    And with AirPlay there is means to watch on any screen size?

  • Consumer

    here is my 2 cents, as a consumer. Internet video sucks. When I watch ‘Broadcast TV’, the program never stops, never freezes, never disconnects me, never makes me start watching from the beginning. It is just very inconvenient to watch video for any long stretch on the internet.
    another thing, I like the set schedules. If i could do vod, i would never watch. I would never get around to it. With broadcast TV, me and my family know a great program is coming we want to watch, so we all sit down TOGETHER as a family to watch it (although is is increasingly difficult to find any programming appropriate for someone under the age of maturity!)
    The business model are driven by the consumer! you build a better mouse trap and people will flock to it.

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