Sometimes it’s hard to sit back and watch entire industries self destruct. Back in the late 90s it seemed painfully obvious that the next wave of music distribution would be digital over the internet. Music and the internet are a match made in heaven which was obvious to everyone, or so you would have thought…
At the time, CDs were in the final stages of completely replacing cassette tapes as the distribution method of choice. According to the record labels, the reason they paid artists so little was because distribution of music was really expensive and accounts for 50-70% of the total retail cost of a CD.
As a business person, if you were able to eliminate 50-70% of your product cost and as a bonus sell direct to the consumer cutting out the middle man and increasing your profits even further, don’t you think you’d jump at the chance?
“The Next Big Thing” in the late 90s should have been digital music distribution over the internet but we all know what happened. Far from jumping at the chance, the music industry did everything in its power to protect the old business models (like sueing their own customers). But you can’t stop the music and Napster came along and destroyed them. Even now they have no clue how to make money on the Internet and are reliant on Apple iTunes for the little they do make. The point is, they (the labels) could have been iTunes but they were either too clueless or too scared to adapt (actually, they have admitted they were clueless).
Convenience Trumps Everything
“Convenience Trumps Everything” is one of my laws. It applies to any situation and it loosely states that in any given situation, if it is more convenient to do something the wrong way, people will do it the wrong way even if the results are less optimal.
Record executives believed it was quality that had compelled people to switch from tapes to CDs. They were wrong, CDs were better quality but they were also more convenient (rewinding and flipping tapes was a major pain). And so they wrongly believed people wouldn’t be motivated to switch from CDs to mp3s and well, we all know how that ended.
Now lets fast forward to today. As people have been predicting for some time, “The Next Big Thing” will be digital video distribution over the internet and history is about to repeat itself. Like music before it, video is perfect for distribution on the internet but the people who control the content seem unable to adapt.
The TV industry argues that the internet isn’t suitable for video because the quality is too low to deliver real-time video. They couldn’t be more wrong. It’s a classic example of “inside the box” thinking and It’s scary how that parallels record executives statements that people don’t want to download mp3s because the quality is inferior to CDs.
Almost nothing we watch on TV (besides sports) is live. That means the vast majority of programming can be delivered offline. Downloaded while we’re working or sleeping and then viewed when we feel like it on our own terms.
Secondly, bandwidth and compression is now at the point where it is perfectly reasonable to watch live TV over the internet at reasonable quality (for an excellent example of this, see “watch online” at PBS Frontline). This trend will continue and quality will improve to the point where even high quality sports programming will be reasonable. In fact i’ve blogged about exactly just such a project taking place right now.
Personally I have a PVR connected to regular cable that records the few shows I’m interested in. Occasionally I may miss a recording or start recording shows after the season has started. No problem, I just download the episodes I missed into my PVR. I never watch any of it “live”. Once you’ve made that jump the very next question you ask yourself is, why do I even need cable? Why not just download everything?
For now the answer is convenience. Since there are no official distribution methods for this programming It is still a bit of a hassle to find a download programs and there are so many different compression methods and codecs that reliable playback can be a problem.
So what’s it going to take to make internet video “The Next Big Thing?”
We are close. Very very close but still missing some key components.
- Set top boxes: There are already some very good candidates in this category. Sony’s PS3, Microsoft’s XBOX 360, and Apple’s Apple TV among others are already perfect for this purpose but they are all missing one key component, “distribution”.
- Distribution: So far the content providers have not signed on to any meaningful distribution model. Only a fraction of the programming on cable TV is available for download and the small amount that is available is priced so outrageously that it will never have mass apeal.For example, $2.00 per episode of The Daily Show & Colbert Report!?! So let me get this straight, to replace watching on cable with downloading, those two shows would cost $4/day, 20 shows per month, or $80 a month for two shows?!! Give me a break. That will never fly.
- Network Neutrality: Unfortunately, in most parts of the world the only method of getting broadband is through a provider who also supplies TV signals. These providers have zero motivation to make their networks suitable for digital video distribution because it can only erode their TV and Pay Per View business. So for as long as broadband providers are also in the content business, they will do everything they can to prevent downloads from replacing traditional cable TV.
So my prediction is simply this:
Content distribution companies have peaked and will only decline from now on. That list includes business like Blockbuster, local TV stations, national TV networks (ABC, NBC, CBS, etc.), cable companies, and so on.
Content makers (movie producers, TV shows, etc.) can, if they play their cards right, make a lot more money because they can distribute their content direct to consumers for a reduced price and still pocket most of what used to go to the middle man.
Will they do it? If the experience with the music industry is any indication, no they won’t.