Om Malik reminds me to get off my chest my thinking of why TiVo won't exist for much longer. Or, to put it another way, why the cablecos are positioned to crush TiVo and the telcos won't do well at TV either.
Money arrives in the video entertainment business in two buckets. The customers directly pay for content that satisfies their desire for televisual narcosis. And advertisers pay to insert marketing messages to suggestible semi-hypnotized viewers. That's all.
Now, let's look at the economics in more detail. You can only increase the amount people pay directly by extending the duration and intensity of their narcosis. The scope for improvement is baselined by the current depth of their TV trance. Before multi-channel cable and satellite, you couldn't get a good fix on four or so terrestial channels. But given some non-stop movies, sport and cartoons, and you were off. Hence the cable and satellite TV companies made a bucket load satisfying an unmet need.
A TV channel is essentially a bundled product, in the classic marketing sense. TiVo enables you to create your own bundle. (I'm assuming that the pause-and rewind features of TiVo are so obvious and unprotectable that there is no sustainable differentiation and economic advantage in them. The only bit that counts in dynamic programming.) But the incremental improvement from TiVo is relatively small. Why? Because if you didn't like the bundle you were just watching, you can easily switch to another one. And they're conveniently labelled for you to make an instant judgement on how likely you are to want that new bundle. The substitute product for TiVo is the raw remote control handset.
Think of it this way. Terrestial TV is like a nice cup of tea. Multi-channel TV is cocaine. Video-on-demand is methamphetamine. TiVo is just washing your meth down with a stiff espresso.
On the other side of the equation are the adverts. This market is essentially bounded by the cost of marketing of All Things Sold Everywhere. Since All Things Sold Everywhere is a Very Huge Number, a small proportion of this is dedicated to marketing is still a Very Big Number. Furthermore, the lower bound of TV marketing effectiveness has been dropping like a stone. Highly fragmented audiences don't make good targets for mass market adverts. The ad agencies have been going through the business cycle equivalent of a nuclear winter.
So whilst the remote lets you adapt the primary content to your personal tastes, you're stuck with whatever irrelevant junk they choose to insert in the ad breaks. So there's a large and growing opportunity to fix the broken ad business. And that's why TiVo is screwed. The fixed the wrong problem. The issue isn't getting people to see the right programs. It's getting them to see the right ads. They screwed up so big, they even gave you a feature to skip the ads. On their epitaph is will say "TiVo. Forgot where the money came from".
It's kind of paradoxical, because TiVo is a smart device at the end of a dumb network. By default, you would have thought that a recipe for success. But good technology alignment is no guide to quality of business model.
Some telecom lessons?
Firstly, voice and data telcos that try to get into video distribution are likely to get rapidly incinerated. They've no clue as to what makes the content distribution work. Their DNA only understand communications (and is not very adept at that, either). "Never ask a dinosaur to cook a souffle."
The cable companies are in a good position. The two-way nature of the Internet is lethal to the voice telephony companies. Perfect disintermediation. But it's almost irrelevant to the cablecos. TV viewers aren't interactive, they're passive. The cablecos only run networks because they can't rely on third party pipes giving them a route to market, particularly when the telcos have such strong political influence.
They really are just content distributors, with their core value being marketing bundled content to customers, relationship management and billing, and supply management from content companies and ad agencies. They orchestrate the value chain already. The Internet is just another distribution network.
And being two-way means they get to collect the valuable data that the ad agencies and marketers needs. Who switched channel as a result of what ads? Who watched longer with a smarter ad mix? Who matches in real time the demographics of the audience to the possible ads?
The cablecos are positioned to make a killing as intermediaries in the intelligent ad business. Buy cableco stock. Sell telco stock. Short the telco stock if you've run out.
We can also see why interactive TV is a dud. You're trying to use TV to get into a trance that isolates you from present reality. In a sense, it's the ultimate in "presence" -- you mentally leave this world and reconstitute yourself as a fly on the wall in the home makeover show. That newscaster is looking directly at you, only ten feet away. Your mind's eye is in the studio, not in your living room. Interactivity with objects in you living room detracts from the trance. It breaks the continuity of presence to pop up a menu. Interactivity = dispresence. The two-way interactivity only needs penetrate as far as the set-top box in the home that acts as a content distribution hub. No further.
Another irony of all this is the pandemonium of the content businesses about copyright and peer-to-peer distribution on the Internet. But the content that the industry wants distributed and viewed -- the ads -- isn't easily available. Why aren't all the ads on web servers market up with target market segment metadata? Why isn't every DVR busy downloading ads and swapping them into the video stream of regular TV? Why isn't video on demand aimed at the ads that pay for the whole system?
What a crazy, messed-up business.
Posted by Martin Geddes at 10:05 PMTrackBack URL for this entry:
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