Tuesday, April 18, 2006

Peter Nowak: TV must adapt to the net or die

This time around, the revolution will not be televised - or at least it won't be in the way we recognise.

There's a whole lot of moving and shaking going on in the way video - whether it's television or movies - is being viewed and delivered, which is forcing content producers to take a long hard look at their business models.

Hardly a week goes by without a TV or film company announcing some sort of new internet-oriented product or service announcement. Last week it was Disney's ABC network announcing it will soon offer some of its popular programmes free on its website.

The fact is, TV is moving to the internet. And as the old adage goes, the industry needs to be quick or be dead.

The revolution began in earnest in 1999, with the advent of Napster. The user-friendly peer-to-peer software spurred the takeoff of file sharing, which led to music industry revenues plummeting as millions of downloaders got their songs, in the form of MP3 files, online for free.

The music industry then made a big mistake. Rather than embracing the technology and figuring out a way to use it to their advantage, record labels mounted an offensive against the file-sharing networks. Years later, they succeeded in shutting down or crippling most of the big ones, such as Napster and Kazaa.

In the meantime, someone did figure out how to use the technology - Apple Computer. The company smartly integrated its iPod music player with its iTunes online store, and has been reaping the benefits since.

Five years ago, Apple had very little to do with music, but now it's the world's largest online retailer, with more than one billion songs sold so far.

This equates to squandered revenue for the record labels, and wrestling that market share back from Apple is going to be extraordinarily difficult.

The television and movie industries have been in a slightly better position, mostly because of the internet's previous technical limitations. While relatively small music files can be downloaded over slow connections, most internet users have found the interminable wait to get the much larger video files just isn't worth it. But the speeds have improved, and will continue to do so.

Worse still, Apple is starting to sell television episodes and movies through iTunes. Time is running out for the networks and studios.

Some television networks, such as ABC, have realised this and are rethinking their strategies and experimenting with delivery methods. Aside from the pending free offerings on its website, ABC also sells some of its shows through iTunes in the United States.

"None of us can live in a world of just one business model. This is about the consumer, and how the consumers use all this new technology. It's consumer first, business model second," Anne Sweeney, president of Disney-ABC Television Group, told an industry panel last week.

Disney seems to understand the real effect of the revolution, which is that the Napster generation doesn't want content producers dictating how they will receive that content. They want it immediately and preferably for free, and they have the technology to get it that way. It's a horrifying prospect for the traditional business model, but companies unwilling to learn from it and adapt accordingly will meet the same fate as the record labels.

The biggest effect emerging from all this is the cutting out of the middle men. Under the traditional television model, a producer generates its main revenue by creating a programme and selling it to a network. The network then earns revenue by selling advertising time during the programme, which it airs to the public. Along the way, providers such as Sky charge viewers to access that content.

But the internet is changing all this. If the producer can deliver that programme to the public over the internet and sell its own advertising, which is where the real television money is, what use is there for the network or traditional access provider? Not much.

ABC's move is interesting because, being a network, it is in effect a middle man that sells the wares of its content producer Disney. The network must know its days are numbered.

At this point, we've only seen the tip of the iceberg. A future where the viewing public subscribes to and pays for individual programmes on the internet, rather than a package of channels through Sky, is entirely possible and not too far off.

Telecom last week formed a video division and plans to offer some form of internet television next year.

Australia's iiNet, owner of local internet service provider ihug, is also experimenting with broadband-based video on demand. When local loop unbundling opens up competition, improves broadband speeds and removes download caps, the ISPs will start making content deals.TVNZ and Sky would do well to sit up and take notice. They need to learn the lessons of the Napster revolution or, like the record labels, they'll find their businesses evaporate overnight.


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