The video game is changing

Nope. Not talking about your XBox or Playstation or even your Wii.

A while back, I posted about why Blockbuster is screwed. The scene just got bleaker, and not just for Blockbuster. Now the entire Cable TV industry is facing a major conceptual shift.

Mark Melanson blogged today about Netflix mulling over the idea of ditching the physical media distribution concept that they perfected. Netflix has already induced a lot of insomnia with the senior management at Blockbuster. The cable people need to start worrying for two reasons:

  1. This is going to clobber Pay-Per-View revenues, especially if Netflix gets major licensing deals on fresh content.
  2. This is going to clobber the data networks that these same cable operators are selling to their TV customers.

But there’s more. The way we watch content in general, not just movies, is changing dramatically. What the cable companies fail to realize is that they’re not really in the content business. They’re in the business of selling a wire into your house, and they need to provide you with a compelling reason to pay them for that wire, so they piggyback a bunch of TV on it. In many cases, they’ll bundle IP and phone service too.

One of the problems is that when you’re selling a wire as a content delivery mechanism, you either have to produce a lot of compelling content, or acquire it somehow. There’s plenty of that out there to be had, but at a price. And that can lead to the content producers holding their customers hostage as a bargaining chip against the middleman. By the way, Fox and Cablevision, have you noticed that this makes your customers very angry? I bet Major League Baseball is selling a ton of online viewing subscriptions. That was revenue that could have been yours.

Fortunately, consumers have a few options to consume content that isn’t dependent on the company providing the wire into the house. One only has to look at the success of Hulu, Major League Baseball, and Netflix to see that. Of course if your internet access is coming from the same place as your TV, the content provider can quite easily lock you out, as Fox did to their Cablevision consumers.

The problem is, in the current environment, TV is still very much something tied to time and place. What content you get over cable or broadcast is subject to the scheduling whims and programming choices made by the stations, networks, and cable operators.

We as consumers have tried to work around this with DVRs (timeshifting) and devices like SlingBox (placeshifting) in order to consume content on our terms.

This works, but to a point. It also provides unecessary stress on the last mile of the networks. It’s also ridiculously expensive for the consumer. I no longer have cable. Or a TV, for that matter. Most everything I watch is picked up over-the-air by my Windows Media Center DVR and watched via another machine on my network, or online via Hulu or the content provider’s website.

The downside to this arrangement is that when watching online, there’s still a delay from the original airtime to when it’s actually made available on the web. This generally doesn’t bother me as I’m not a slave to TV schedules, but I do miss out somewhat on the shared experience of millions of others watching (and tweeting about) a show at the same time.

Then there are other shows that aren’t available in either format. I can’t watch Mythbusters on the web very easily without violating copyright law. There’s always Netflix and TV Show DVDs (which have been hugely successful) for that, but it’s not convenient.

Here’s what most of the content companies are failing to realize: Consumers will find a way to watch the content they want to watch, when they want to, on the device they want to, and generally care little about intellectual property laws meant to preserve originality.

If you’re a content company that’s not making your full content available via streaming, you’re missing out on a potential audience. It also has to be easier to consume legally than illegally.

Hulu is a great example of making it easy to consume content. Netflix is doing a great job of adapting.

The other great challenge with cable providers is that there’s a finite amount of content that can be stuffed down the wire. The current model involves sending everything down the wire at once and having the machine at the consumer’s end of the wire display a given one. Some great technological progress has been made to increase that capacity, but it’s still finite. Wouldn’t it be a lot simpler to send only the content actively being consumed down the wire?

Better still, give me a virtual DVR in the cloud and let me pick from a whole host of content. I still want to watch my favourite shows when I’m on the road. I can’t do that with cable. I may have eclectic tastes that don’t line up with what makes money for the cable operator. If I like to watch Curling and Cricket, I’m out of luck, because there may be 3 of us in the whole area who care about those sports.

Say you’re the Discovery Channel, or Fox. Instead of selling your content wholesale to the cable operators, stream your content directly to the consumer, in HD. I still think you can make money doing this, either with advertising or paywalls.

Imagine a virtual “cable” operator. Not bound by geography or cable plants, but rather open to the entire planet, and you offer a menu of content. Charge by the channel. Or by the show. (We’re talking micropayments here, but if most people are willing to shell out 60-100 bucks a month for a buffet of channels, and ultimately go back to the same 10 channels, there should be money to be made). You don’t even have to provide the streaming infrastructure, let the content providers worry about that. Just sell/broker access to it. The distribution is handled by the major CDNs anyway.You can even offer obscure content that doesn’t have a lot of demand. Stop being a slave to schedules. Sure, release new content every week, but let people watch it on their schedule. If you’re not sure how to make that work for you, go ask Felicia Day. She’s got it figured out.

The 2010 Winter Olympics were a good step in that direction. Even so, geographical restrictions on content (imposed mainly due to licensing issues) really got in the way. Many people found ways around it with proxies. Here’s a clue to content providers: Consumers don’t really care about geography. Why should I be disallowed from watching a show or event on the CBC or the BBC simply because of where I happen to live? Your content is compelling to me! I’m even willing to pay for it, either with real money or by watching your ads (just don’t get too crazy with the ads or I’ll go somewhere else). You’re missing out on a revenue opportunity when you should be going after every one of those you can get.

Suddenly, the guys in the business who are charging for a wire to the house should be getting nervous. The current cable paradigm is tantamount to charging $100 for a chinese buffet with only one steam table. The value proposition simply isn’t there. That fact that you’re still in business at all is a testament to the power of monopolies and heavy-handed legal action.

Cable operators need to get out of the content business. It’s killing them. Might as well get out of the voice business too, since that’s not going to stick around long. But if you’re willing to take that wire and provide me with a transport mechanism for all this content out there (in other words, IP access), I’m all over it. I’m a customer of my cable company. And all I buy from them is data. I’m fortunate enough to have cable competition in my area, but the competitor wants to charge me extra for not having TV content clogging up my wire. Sorry, that doesn’t fly with me.

Why on earth would you want to restrict the size of your audience? There are millions of consumers wanting to consume a ton of available content out there. Don’t get in the way. If you do, the consumers will cut you out of the action and you’ll eventually find yourself off in the booth in the corner with the magazines and newspapers, crying into your beer and wondering why nobody loves you anymore.

Update (10/23/10): CBS, ABC, and NBC demonstrate that they don’t get it. They are shutting out Google TV users from viewing their content. Oh well, they’ll figure it out eventually. If they’re lucky, before they become completely irrelevant.

Update 2 (10/29/10): And now we hear that XBox Live is now bigger than Comcast.

One Comment On “The video game is changing”

  1. Ian,

    I just checked back in with your blog and thought you might find these articles interesting and relevant to this post:

    I am subscribed to their newsletter and have kept up with industry news since it relates to my day job until recently. I am now working full time as a systems engineer at a mission medical clinic on the island of Guam, but am still helping with our church webcast remotely for now.



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