Back in the 1970’s, the television industry began a long period of market realignment that was caused by the introduction of a disruptive innovation called cable TV. After decades of market incursion, cable’s impact on the TV landscape is now complete and its disruptive effect has reached its peak. The result is the emergence of hundreds of cable channels that now account for more than half of our total viewing time2.
This realignment of viewer attention has been at the expense of the major broadcast networks (ABC, NBC, CBS and FOX), whose own collective share has declined from total domination of the TV screen to about 45% of viewership. Now, as the foundation of the television industry begins to tremble and crack again, this time from the disruptive forces of the Internet, the TV landscape is about to experience another tectonic shift. But in an ironic twist, a significant share of the TV industry is likely to unwind itself almost back to the days before cable, for reasons that will seem counterintuitive.
Five years from now, the TV market will no longer be segmented solely by major broadcast network vs. cable network viewership. Instead, the market will be further subdivided among viewers of linear broadcast programming vs. that of non-linear on-demand formats. Moreover, the on-demand segment will account for a steadily increasing share of total viewership. On the flip side, it’s equally important to note that the segment with traditional linear/broadcast programming (while declining) will continue to remain alive with its own significant share for quite some time. That said, within this linear/broadcast segment there will be a mini-disruption in the near term. To be specific, it is likely that most of the hundreds of channels we get today via our cable & satellite subscriptions will disappear and there will be only 10 to 20 “broadcast channels” left standing. Here’s why…
As just mentioned, overall viewership of linear/ broadcast programming will steadily decline. Such shifts in viewing patterns will cause collateral damage… that’s obvious, but here’s what may not be so obvious. The players that will get hit first and hardest will be the weakest of the cable channels. In other words, as on-demand programming takes share away from linear broadcast, it will be at the expense of all those niche-oriented channels that came into existence over the past few decades with the advent of cable… not the major broadcast & cable networks. These niche cable networks, many of which are barely treading water now, cannot afford to lose viewers for their linear/broadcast channels. If and when they do, it is highly likely that they will not be able to continue/renew their carriage on cable & satellite systems. The result: a steady procession of cable channels will start to disappear over time, at a rate that will be directly correlated to the increasing share of on-demand viewership. And the cycle will be self-fulfilling… as more and more channels go off-the-air, the lack of programming choice on broadcast will drive even more viewers to on-demand venues. And going back to my reference earlier of an “ironic twist”, the major broadcast networks will once again come to dominate the share of the linear programming schedule.
Now, this does not necessarily mean that all these cable networks will go completely out of business. Rather, many of them will be able to restructure and/or downsize, transitioning to a purely on-demand format, mostly via the Internet. The ones that already have relatively strong brands catering to specific niche audiences are the most likely to survive the transition. Even so, the shift will be painful and somewhat equivalent to a newspaper or a magazine having to give up its print distribution.
The disappearance of a large swath of cable channels will also have the secondary effect of disrupting the underlying business model of the cable & satellite providers. As cable channels are forced to shift away from linear programming, the only way cablecos will be able to preserve their content offerings will be through video-on-demand relationships. Without attractive VOD solutions, the cablecos will lose their content partnerships to the highly cost-effective and open Internet (which will be their major competitor regardless). This explains why companies like Comcast have been so aggressively pushing and deploying their VOD systems in the past year. Also noteworthy is that the changing landscape will also make the cablecos totally dependent on the major broadcast networks for their linear programming channels. Given all that, the business models of the cable/satellite providers will be subject to some very significant changes as their subscription model based on bundling channels comes under attack.
If the scenario outlined above proves to be a reasonable forecast of the future, the other set of players who are ideally positioned to win are the Internet TV ventures like Veoh3 and Brightcove4. Unlike cable/satellite, they are not burdened with any market cannibalization or legacy programming issues. So with the freedom and ability to focus exclusively on the rapidly emerging on-demand segment of the market, particularly for branded programmers who cater to niche audiences, these startups can quickly become the lifeboats for sinking ships.
(originally posted at http://gigaom.com/2006/05/22/back-to-the-future-for-broadcast-tv/)