Chapter 3 of my presentation from the Nordic Media Festival. You find the articles I have produced so far from this presentation here.
Some history
Six years ago I made some slides for a presentation at a big media conference in Stockholm. I suggested that we should have a look at how TV is distributed and take a closer look at the business model. Could new technologies change that model? To illustrate my point I made a comparison with the software industry.
This is how the business model worked when I bought my first license of Photoshop back in 1994. Adobe makes the software. They pack it and send it to the distributor in Norway called Office Line, they sell it to the shops where I buy my box of software. Illustrated by one of the biggest electronics retailers in Norway, Elkjøp.
For the last couple of years, that model has changed. I buy Photoshop directly from Adobe in the US. The product is delivered trough the net as a download. Both the distributor and the retailer are obsolete (for that kind of product).
This is an example of how the popular show called Friends was distributed in Norway. Warner makes it, the television channel TV2 buys rights and distribute trough cable, terrestial and satellite. Could something disturb this model?
More history – Bob the millionaire
One year ago I made a little comic strip to illustrate how horribly wrong the television industry was trying to deal with the problem of illegal downloads and the fact that the internet started to act as a reliable and high quality distribution model for their content. I include the story in my presentation, but here it is much easier that you simply have a look at the original post.
Okay. So what’s the solution to this problem? Availability. Make content available on the platforms that people use. And now, one year later the industry slowly understand this.
Lost is available through the iTunes music store and ABC are also experimenting with free reruns on the net. CBS put out Innertube after the huge success with SportsLine’s March Madness:
Quote from the Online Reporter:
What added urgency to getting
Innertube deployed, CBS said, was
that CBS SportsLine’s March Madness
was such a success, drawing five million
viewers and sending out 25 million
streams. It was, they said, the
largest live sports event ever on the
Net.The day after March Madness
ended, CBS executives said, the phone
started ringing off the hook.
Advertisers had been so thrilled with
the results that they were looking for
more Internet entertainment videos.
Warner close a deal with BitTorrent and in general, the industry starts to realize that this internet thing is one hell of a distribution platform.
And yes. There is still a long way to go. Lost is available in HD with multichannel sound on BitTorrent. ABC is streaming in something that is worse than standard definition with regular stereo sound.
So, what’s happening with the business model?
Let’s use Lost as an example. This is how it is distributed traditionally. Touchstone produce. ABC broadcast. Cable companies and other distributors carry the content to the home.
Then ABC bypass the distributors and go directly to the consumer. The observant reader will immediately say that something is missing here. Yes, the broadband provider.
And by some strange coincidence one of the biggest cable providers in the US is also one of the biggest broadband providers.
So, status quo. Nothing is changed. Touchstone produce. ABC broadcast. Comcast carry the content to the home.
But hey. The role that Comcast have as a broadband provider is very different from the role they have as a cable provider. The cable providers have valuable control of the content they deliver. They make the packages, they control the equipment. The encryption. They have the customer relationship. They decide what channels are going into the different packages.
As a broadband company the control has shifted entirely to the user and the content provider. Big difference. New rules. Of course they don’t like it. They try to make bottle necks. They try to limit certain kinds of traffic. It will be interesting to watch this space during the next couple of years.
The broadcaster’s nightmare
The day Warner find a way to earn more money distributing the content directly to you they will do that. Rendering the broadcaster and the traditional cable companies obsolete. Bad news for some television companies that lives entirely of content they buy, package and distribute.
Seriously bad news.
Yes. We still need the broadcaster to reach a big audience. We still need them to get attention to new content. We still need them because the risk capital often lies in the broadcaster. The production company wouldn’t even start producing without a broadcaster. But all of this can change. You won’t see huge amounts of broadcasters die tomorrow, but during the next couple of years some business models and traditional thinking have to be revised.
What’s next
It’s not about distribution. It’s about getting attention. In my next chapter from this presentation I will tell you why we don’t need the broadcasters to get that attention. I will point back to this post about the new face of marketing and commercials and give you a couple of thoughts on the future of the 30 second television ad.
Digg this story here.
eirikso 
Great post.
Do you think the broadcasters are aware of this? Why do you think they try to push digital terrestrial broadcasting as hard as they do?
Yes, I think they are aware of this. But really, I can only talk for myself, and the broadcaster I work for is quite up to date on the situation… 🙂
As for the digital terrestial broadcasting that is a question of reaching everybody or not. According to the research that has been done in Norway a digital terestial network is the cheapest and most reliable way to reach everybody in the country. I know that not all agree on that and I don’t work with those questions so I can’t really give a good answer or well researched opinion.
The scenario I describe here is still a bit into the future for major broadcast events. Distributing huge sports events or stuff like Eurosong to hundreds of millions of people in realtime simultaniously is still difficult trough the internet.
With new technology we can start to use the internet more like a reliable broadcast platform, but right now it is usually one-to-one communication. Not at all suitable for big live events in high definition…
[…] • Disintermediation: The future of TV distribution? (erikso.com) […]
The problem is that the models you use are not comparable. Niether Officeline nor Elkjøp paid money to Adobe to produce Photoshop; they took no risk. The “network” (or traditional broadcaster) and often even the network operator (or distributor) paid to create the content; they have ownership over the content. The content producers do not have the money needed to create content like Adobe does.
This is correct. The models does not directly compare, but I think they work well to illustrate a point. I also mention your absolutely valid comment in my article:
But I am not saying much about how, if or when this is going to change.
I think there are several interesting changes going on that might indicate a possible shift. The risk capital that the networks use are mostly capital that comes from the advertisers.
Right now the advertisers are also starting to experiment with new models. A lot of the risk capital that was needed to produce the popular series called “24” comes directly from one of the advertisers, Ford.
What happens if an advertiser decides to finance a full production for Touchstone?
Something that you can see some kind of very early sign of in the popular series of short films from BMVFilms.com
High quality content financed and distributed entirely by the advertiser…
[…] I couldn’t agree more. NextGenTel wants payment in both ends. From their customers and from the content providers. They want more control and who knows what kind of strange business models they bring in once they get acceptance for this kind of differentiation. […]
To me the future of TV distribution is via the net, but personalized and I would say that a Portal company has a great opportunity to make a play. The Portal company would aggregate content on behalf of many content distributors and each would be a choice for the end user/consumer. This portal would travel with the user, Home TV, Computer, Mobile Device, even to a Hotel. The end user would be able to watch, listen to and manipulate any of content or information they would like i.e. timeshifted content. When they arrive at the hotel after being in the air for 5 hours and missed the soccer match they can watch it in their hotel room via their own Personalized internet portal.
The portal would have Voice, Video, Audio, News (personalized RSS feeds), Applications (Google Writely, Spreadsheet, Calendar, etc….) and the end user would be able to be very mobile. The portal can be skinned anyway the consumer wanted unlike Globe7 (primitive model).
Bottom line is the personalization of the content can be done by the user, the distribution channels simply embeds advertising into the stream as well as the content (movie, tv show etc.). It is still an advertising driven model.
yes indeed , the TV distribution will be direct from source, and other distribuitor will disapear .
Creating quality films takes a lot of money. Would advertisers want to do what bmwfilms.com is attempting to do without the certainty that the films they create will be widely liked and popularized by users? I doubt it. What if they spend all that money only to be disappointed with a flopped film? I can only see this trend of direct sponsorship of films from advertisers becoming popular if they have a way of knowing that the film they’re sponsoring will be a success.
It’ll be a long time before broadcasters can have a diminished role in getting the content to the end users because the learning curve of learning how to play both roles of production and distribution effectively might be too steep for most production companies. It seems more beneficial to allow production companies to do what they do best, which is creating content, and let broadcasters do what they do best, which is distributing. This is not to say that distribution channels will not change; it will, but the companies already focused on distribution will be the ones to make sure they change with the times so that their models will continue to be beneficial to them. This is what Comcast did with the broadband business.
Guess you’re completely right there.