8 Reasons Why The TV Studios Will Die

Recently, I have met with many people including top executives from most of the largest studios as well as people from some of the top internet companies that are building studios, top investors in the VC world that are turning towards the studio business and my goodness, my perception of the industry has really changed. I have met with plenty of people over the years but the discussion was usually around Rocketboom. This time, they all knew what Rocketboom was and I didn’t need to explain, I was able to pry into their plans and visions and with a new context for understanding, listen.

My number one takeaway, a perception I did not have before, is that the studios are probably not going to make it. I always assumed and have always said that I believe the studios will make it through the transition on top but now I’m not so sure.

Why do I think this? The story is public, it just requires putting everything into perspective.

As a starting point, we now take for granted that the top few studios (ABC, NBC, CBS) have lost control of the future market and must make way for more studios that will appear. While they may seem well positioned to do that, my new hypothesis is that they are not well positioned at all. On the contrary, they are probably in just about the worst position any company could be in. More than likely, the studios will either fall apart or break up into small pieces, become engulfed by something much bigger (maybe even a 19-year old), morph into a sub-faction of the greater media industry or even some other industry, or maybe survive without much influence as just one of many.

While no doubt it is possible to make it through on top, pretty much ALL of the qualities that the major networks are good at are no longer needed. We don’t need them to identify talent for us. The promotion and distribution channels are now open and cheap or free for the clever. We can have share in the rights to our own work without them. The list goes on and on. The networks have shown a poor record in all of the qualities that will be needed to rise up as the new industry leaders.

TV is still an incredibly powerful medium. TV makes much bigger stars and commands much bigger audiences and way more money than anything online, moving image-wise. But obviously that is changing drastically at a rapid pace that is suddenly very surprising to even me, as brought on by the very important impact of the writers strike. The strike really is the astroid from outer space that is covering the planet with dust night now.

There is plenty more to say which I will leave for another day, lets jump right into the top 8 indications that the traditional TV industry is not well prepared for the upcoming change in business around a new media industry.

1. Audience Exodus. While the rest of the world is blooming online, TV has no new content to offer right now. Over the last several weeks (a very short period of time in the history of TV), some of the most important shows have lost a breathtaking number of audience members. The NYTimes just reported that The Daily Show with John Stewart audience numbers are down 38% since the strike began. The Colbert report is down 28%. When the last strike occurred almost 20 years ago, there was no where for the audience to go. They had to return back to whatever the stations decided to play at that time. That’s obviously not the case now, there are plenty of other places to go that are actually better and not dependent on time. The stations are instantly losing their best customers, the people who have a habit of showing up.

2. Expendable Middle-Person. TV is to advertising as America is to oil. That is to say, TV is entirely and completely dependent on the advertising industry and the ad dollar for its survival. The studios have never been able to own that business for themselves and have instead depended on selling to the ad buyers, usually once a year in a major upfront session. If you attended the 2007 ad buyers week where the TV studios rolled out the red carpet for the ad buying industry with the cheesiest shenanigan of a show and dance, playing the role of middle people who make the connections between things like Lost and Coke, thats what it all comes down to. The network simply manages that connection, themselves a middle person. When a business has an opportunity to grow and improve, this type of position is the first to go.

The advertising industry is changing on its own without the TV studios. 2007 saw the beginning of a wild flight by the ad buyers to shift their spending to online content, leaving the studios out of the loop in how the business of the future will be done. In the words of the TNS Media Intelligence news report, “The anemic growth rates in measured ad spending reflect a market that is under stress from cyclical business conditions and fundamental structural changes”.

What more, consider a few of the headlines just this year on the changing landscape of advertising companies: Microsoft buys aQantive for $6 Billion. Google buys Double Click for $3.1 Billion. Yahoo buys Right Media for $1/2 Billion. Not to mention all of the smaller startup ad networks, as well as content studios with their own ad networks that are rising up. Apparently Next New Networks has racked up 100 million complete views from You-Tube and that was done without ABC, NBC or CBS as part of the conversation. Perhaps the greatest threat of all is the possibility that the Writers Strike will drag on through January and February, causing the TV stations to have almost nothing in store to sell for fresh content at the 2008 upfront season.

3. Unsupportive. There is an old saying in Hollywood that 99% of all actors are out of work. This is still the saying today. While we don’t need to make any jokes about all of the actors out there without much talent that still find an audience online, it’s fair to say that more than a fraction of a single percent of the actors out there are very talented. If Hollywood can only support a fraction of a percent, then they are going to lose out on supporting the greater percentage of the talented actors out there. Extend this to the rest of the creative industry and it’s easy to see how a fraction of a percent without any control will become almost irrelevant.

4. Dependent on Exclusivity. Studios used to depended on their exclusive rights over show distribution in order to compete against the other networks. Soon, they will not be able to hold on to their exclusivity. Consider the possible fate of NBC: NBC, which has a handful of breakout hit shows like Heroes for instance, has started fresh with a new online strategy just this year after not being able to play with Apple. Their new project Hulu is dependent not on their own brand to drive traffic to the site but rather their exclusive deals with shows like Heroes which you can’t get anywhere else. So how many shows does NBC/Hulu have that will make it worth it to watch on Hulu? And more importantly, how many shows will NBC have in the future that can remain exclusive just with NBC? Heroes, which is now it’s own healthy business would certainly see a much greater profit margin if they could eventually break away and exclude NBC from such an enormous share of their revenue.

5. Rogue Reputation. Studios are meanies. With regards to the strike, only 14% of people polled favored the studio’s side of the argument. If the future of the media business is going to have anything to do with making honest deals and treating talent fairly, the TV studio networks do not have a solid reputation and might even be at odds with the kinds of deals that are much more lucrative from the sea of other budding and capable support systems out there.

6. Unplugged. Quarterlife. Need I say more? Perhaps the best experiment to date on what it would be like to take a traditional TV drama, shorten it down to 10 minute episodes in structure, pre record a whole season and throw it up online, shows that you can’t really do that. It really takes a long time to build something up that is a series and will strike a chord in a way that is truly social. Quarterlife missed the mark. Even more revealing are the comments left on the NewTeevee blog by one of the producers who seems to be having a difficult time interacting with the online world.

7. Ineffectual. Probably the number one best commentary I have seen on the effect of the writers strike, something that was otherwise moving along too slow, is the fact that the talent in Hollywood finally got a break and could look up to notice what is going on online and thus participate in the epiphany. Its ironic that the best talent in the world is the last to wake up and smell the roses, but that situation is being forced for the better. As touched on with this LA Times article, “the future belongs to a tantalizing new hyphenate: the writer-entrepreneur.

If could point to just one important point for any writers in Hollywood out there, it would be this one. “The stars became free agents long ago. In the last few years, with billions of private-equity dollars flooding the business, the studios have lost their lock on financing too.”

8. Luddites. The major networks have been virtually helpless on the tech side of things which will control the distribution channels in the future. They have failed again, and again and again to see it coming and to take adequate action.

All in all, this is not a shame for the studios, everyone is trying to figure it out. In context of my thesis however, the studios are in no better position than anyone else to figure it out. One might even argue that they are handicapped due to their current structures, unable to make big enough changes quick enough. While the studios themselves used to be bigger than the content they served, now its the content that is more the king.

WoW goes mobile, says venture capitalist

A venture capitalist is predicting that a cut-down version of World of Warcraft will be released for mobile in 2008.

"You will be able to play a small version of WoW on your cell to win a small number of experience points", Baris Karadogan, a venture capitalist with ComVentures, reckons in an article featuring his technology predictions for the year.

"The game will be different but it will be the extension of the overall experience। So when you have three hours free, you'll play the real thing, when you have 30 minutes free you'll play a small casual game on your PC that counts towards your experience in the big game and when you have 5 minutes free you'll play the mobile handset version."

Right now we're wearing our extremely large sceptical hats; but as a move forward in the way we interact with MMOs in general, such is surely on the future cards.

In fact, Jeffrey Steefel, exec producer on Turbine's Lord of the Rings Online, suggested exactly this idea when we spoke with him last year about potential future developments the MMO genre.

"I've got this thing called Lord of the Rings that my subscription, depending on how much money I pay, entitles me access to in different ways. Each device, each way of interacting, has a different strength and weakness", Steefel said.

"So I can manage my inventory on a cell phone very easily, I can do crafting on a cell phone. Doing a raid on a console? That's cool. Doing more social things, chatting, maybe that's better on a PC. Think of it that way - I built this game, now I'm going to translate it and put it on this thing, put it on that thing.

"It's a broader vision, it's harder, more risky, but that's where we headed".

Predictions 2008

I made just one prediction last year, that IPTV will flounder in 2007, and got it right. So, enthused by that success, I’m taking a bigger gamble this year - a whole bunch of predictions for digital content in India for 2008:

-- Social Networking: The hype around social networking will mean that more and more media companies will eye that space. So expect some niche social networks around brands and content to launch, replacing forums and discussion boards, but integrated with content. Don’t expect social networks to shut shop - they’ll be up for sale - but they’ll continue to decline as Facebook and Orkut grow in prominence. Some social networks launched over the past couple of years will probably be acquired by media companies to reduce time to market, but no big exits.
-- Bluetooth Marketing infrastructure will come up in Consumer Hotspots - in coffee shops and malls, probably integrated with the Digital Signage Networks already in place. So more interactivity there.
-- Cross Media: I expect this to be the biggest trend in 2008 - media publications using online and mobile to supplement TV, Print and Radio, and vice versa. More push for citizen journalism, as content will be gathered online and on mobile, and also some cases of ‘citizen paparazzi’, maybe for the likes of India TV.
-- Big Media Deals: Expect at least one more cross border big media strategic deal of the NBCU-NDTV, Viacom-Network18, Turner-Miditech and Disney-UTV league...if not more.
-- Advergaming and Branded Content: This will be the year for advergaming, both online and mobile. More and more brands, including media companies, will use casual games, branded portals, and niche social networks to connect with their audience. A lot of this mobile content will be distributed via the bluetooth marketing infrastructure.
-- Outsourcing companies look closer to home: it’s already begun, and expect that trend to continue, both in Gaming and Animation. Lower margins for sure, but it’s about ownership of IP, and valuation play.
-- Funding and acquisition of Content Providers: Original IP will be big game - funding and acquisition for digitization. Also established producers will raise money and look for a bigger, global play.
-- WiFi and WiMax: More hotspots, mostly paid. I think some retail chains will take a gamble and offer free WiFi to users. No WiMax for another year.
-- Funding and Acquisitions in Mobile VAS space: Expect consolidation in the Mobile VAS space as a few will raise more capital by either VC funding or IPO. Some of that capital will be used to acquire some of the smaller niche players, struggling for survival.
-- No 3G, no Mobile TV in 2008, IPTV will continue to flounder: Sorry, but that’s the way it goes...the legal and media battle will switch from 2G spectrum to allocation of 3G spectrum and mobile TV licenses. Deployment of infrastructure across the country will take time, so wait till 2009 (at least). I’ll leave the ‘3G will flop’ prediction for next year. IPTV will continue to flounder in 2008, despite Airtel and Reliance launching their services.
-- Regional Content: Creation and aggregation of regional content for distribution to big media will be a big theme for 2008...perhaps in anticipation of big media deals in 2009. 2008 is the year that they build up a content base.
-- Location based services will be launched, but not take off.
-- Newspapers & Magazines: Indian magazines and newspapers will increase their presence online. More international magazines are going to be launched in India in 2008, but they wont target the online space; they’re after the print bounty.
-- Broadband: no miracles here. It’s going to be a long hard fight, until the last mile gets unbundled, or affordable wireless services are launched. No unbundling of the last mile in 2008.
-- Music: Nokia’s (NYSE: NOK) OVI is expected to be a big boost for music downloads, but I don’t think that will happen unless they launch subscription based services (which is unlikely). The ringtone market will decline, and ringback tone market will grow.
-- Mobile Internet: I don’t believe pay-for-view content on the mobile will grow. I expect more WAP sites for existing Internet portals, but don’t think mobile-only portals will work. There needs to be cross media integration. Mobile Advertising will be mainly search based and on established portals.

So enough soothsaying from me...What’s your take?

Online Ad Industry Groups Take Steps To Self-Police

The online ad industry dodged a bullet when the Federal Trade Commission proposed that internet marketers and sites self-police instead of imposing its own rules, as had been feared. Both the Interactive Advertising Bureau and the Network Advertising Initiative are working on guidelines designed to obviate the need for government interference in online advertising.

I spoke with Mike Zaneis Friday, the IAB’s VP for public policy, the day after his 15-member working group held its sixth meeting to discuss the draft on privacy standards. He hopes to submit the guidelines to the FTC on Feb. 22. The IAB’s task force made up of representatives of AOL (NYSE: TWX), MSN, Yahoo (NSDQ: YHOO) as well as ad networks and web publishers. It formed in September, before the FTC held its town hall meeting with advertisers at the end of October. Zaneis described a three-step process, starting with agreement on broad privacy principles followed by deciding how to apply those principles. The third part will cover possible compliance measures, which could range from audits and inspections to seal of approval similar to what’s offered by the Better Business Bureau.

Meanwhile. the NAI, an online marketing organization whose members also include AOL and Yahoo, is focusing strictly on revising its behavioral targeting standards, ClickZ reports. The group is aiming to complete and submit its revision to the FTC within the next six months. At the moment, the NAI is soliciting members’ views. It’s also considering expanding its ranks—Google (NSDQ: GOOG) recently asked to join and its membership is pending.

China Plans To Restrict Online Videos; Effect on Private Companies Still Unclear

It's the age of online content restrictions: Australia, Japan and the evergreen efforts of China. In an effort to further regulate internet content, China's State Administration of Radio, Film and Television (SARFT) and the Ministry of Information Industry (MII) have approved new rules governing videos posted on video sharing sites. Though it wasn't clear how these restrictions would affect local and foreign providers, the government has stipulated that video-hosting web sites must obtain an "Online Audio-Visual Broadcasting License" and be either state-owned or state-controlled. Excerpts of the translated policy can be found here.

Effective Jan. 31, the policy also requires online video broadcasters to delete and report videos that involve national secrets, hurt the country's reputation, disrupt social stability, or promote pornography, reports AP. Those who violate the new rules may receive a warning from broadcasting authorities and be fined up to RMB 30,000 (about $4,100). The rules also say, "Those who provide Internet video services should insist on serving the people, serve socialism… and abide by the moral code of socialism."

A WSJ story here says that executives at many video-sharing sites are taking a wait-and-see approach toward the regulations after they go into effect. Also, it was unclear how the regulations would affect foreign video-sharing sites that are popular in China, such as YouTube.com.