Wednesday, January 19, 2011

Why we should Kill the Networks

(and maybe take a big chunk out of the cable companies while we are at it.)

Here’s what I want to do. I want to turn on the TV and watch whatever the hell I want to watch whenever the hell I want to watch it and I’m willing to pay for the privilege (but not too much)

Most of you probably feel the same way.

A few years ago, this would have been completely impossible but today the technological roadblocks have been solved. Unfortunately, the powerful corporations which run our media system are too myopic, inflexible and, often times, too greedy to change.

Well run companies use advances in technology to make their products better, cheaper and more efficient. Poorly run companies cling to outdated ideas while calmly denying all the evidence of their own imminent demise.

The American auto industry is an excellent example of this. For decades they used their considerable political and economic power to make big inefficient cars. While this policy led to huge profits in the short term, their failure to adapt to changes in technology and the market led them to near collapse in 2008.

The same can be said of the music industry who saw digital distribution, not as an opportunity to deliver their product more efficiently, but as a threat to their status quo. The result has been more than a decade of instability.

Hollywood today faces many of the same issues and yet they seem to be even more deeply entrenched within a labyrinthian system that is inefficient, often counter productive and completely outmoded.

One of the objections to a purely online TV system is that consumers don’t want to pay for their content. What we fail to bring in to this equation is that we are already paying for content. In fact, we are paying quite a bit.

The American consumer, pays an average of $58 per month for cable or satellite TV (not including fees for Broadband internet access) And, frighteningly enough, that average consumer watches approximately 26 hours of TV per week. If we round off the numbers that works out to around fifty cents per hour.

Of course, that’s not really all we’re paying because the vast majority of television we watch is, so-called, “free TV”. Free TV means that the costs of the shows themselves are paid for by advertisers. During the Golden Age of TV that worked out to about 5 minutes of commercials per hour. Today, we see somewhere between 16 and 22 minutes of commercials per hour.

In other words, we are spending fifty cents to buy around forty minutes of programming and twenty minutes of commercials.

The question is, “Is it possible to spend the same money (or even less) to get better content delivered in a more efficient manner?”

Most media experts today would tell you that the answer is “no”. However, they are basing that conclusion on the way that Hollywood is run today, rather than on how it could be run tomorrow.

What if it were possible to streamline (even a little bit) the morass of bureaucracies, lawyers and red tape of the studios, networks, agents, managers, sponsors, cable & Satellite companies, local affiliates and production companies that make up the television system.

To do so we must first distill this complex system down to the essential service it is supposed to provide. That service, as I see it, is this:

(and yes, I know this model is over simplified)

There is a product, “The Show”. A method of distribution, “The Pipe” and a consumer, “The Viewer”. As in any industry, the variables of success are the quality of the product and the cost at which it can be produced and delivered to the consumer. The only thing left after that is for the consumer to decide if the product is desirable.

Here is what actually happens (and this too is vastly over-simplified) A filmmaker wants to make a show. He takes it to his agent who tells him how to mold the show to what a studio might want. After reworking the show he takes it to the studio (who will produce the show) and enters the development process. In development the studio tries to shape the show into one they can sell to a particular network.

Frequently, shaping the show to sell, also means making it better. There are some absolutely fantastic development executives in the industry who are committed to producing great television. They are, however, in the minority and all development executives know that a great show that doesn’t sell is worthless.

“Sell” is the key word here but we are not talking about selling a product to a consumer. We are a long way from that. Junior executives must sell to senior executives. Producers must sell to the studios. Studios to the Networks and the Networks to advertisers and local affiliates. Only after passing through this incredibly complex and expensive crucible does the show have a chance to sell to us, the consumers.

By this point, the number of people commenting on a project, from marketing consultants, to product placement experts and even toy manufacturers is absolutely mind boggling and naturally all those cooks have offices, lawyers, assistants and benefits packages. In other words, they cost money.

Dozens of scripts are bought but most are never made into pilots. Of the pilots that are made only a handful are ever actually aired. Of the shows that get picked up, half of them will not make it to a second season and many don’t make it to the second episode.

Maybe the project wasn’t marketed well, or maybe it was placed in a terrible time slot. Maybe the show needed more time to hit it’s stride or maybe it just plain sucked. The problem is, that in a system as complex as the one used to create TV shows it’s almost impossible to go back and trace what exactly went wrong, which means there is no guarantee that the network wont make the same mistake next season or even over and over again.

What we do know is that this system is extremely inefficient and expensive making it even more difficult to succeed in a market which is already incredibly speculative.

It is this wasteful and inefficient system which costs you, the consumer, 50 cents and 20 minutes of commercials an hour.

If you could eliminate, or at least reduce, a few of the middlemen you could also reduce the cost of the show and, in my opinion, improve the quality.

Let’s start with the network.

These are the guys who really run the television industry. They take the biggest slice of the money and exercise the largest share of control over what you see.

There is a reason for this. Back when everyone got their content over the air you needed a network because the only way to distribute a program nationally was through a network of local affiliates who had access to the big broadcast towers in every major market. In fact, that’s where the term “Network” comes from.

Today, however, only 13% of American’s get their content over the air from local affiliates. The rest of us pay cable and Satellite providers. In other words 87% of Americans do not need a network of local affiliates to get their content. So, why are we giving the lions share of both creative control and profits to the big networks?

The other middlemen are the cable and satellite companies. As I said earlier, the average American watches about 26 hours of television a month but they are actually paying for thousands more. Today, our cable and satellite systems are clogged with 100s of channels we never actually watch. Why? I don’t want to pay for the golf channel or the home shopping network. Maybe you don’t want to pay for comedy central or Sci Fi. Is this an efficient system?

Efficient or not, it is a system which you have little choice in as most US markets are serviced by only one or two providers.

Compare this Network/Cable model to a simple broadband system.

More than 58% of Americans have a broadband connection capable of streaming HIDef video directly to their TV. This number is growing every year. Why then are we still paying a cable company and a network of local affiliates to deliver content to us?

Why don’t we just pay the people who make the content and have them deliver that content over our broadband connection? Why can’t those people make deals directly with advertisers if they want to distribute that product for free or at a reduced cost?

Remember that fifty cents an hour? Remember those twenty minutes of commercials? Both of those represent big money and without the networks and cable companies taking a huge slice out of that pie, I believe that all the TV in the world you want could be delivered for that much money or even less.

A fringe benefit of the online model is that it eliminates the power of the time slot. Today, if a show gets put up against a juggernaut like American Idol or Dancing with the Stars, it is almost certainly doomed no matter how good it might be. Why are we still doing this?

I also believe that by eliminating at least a few of the cooks involved in deciding what gets made and what gets broadcast we can improve both the quality and the variety of content.

The networks will claim that the American people aren’t ready for a truly digital distribution system but I believe that is changing before our eyes. Netflix and HuluPlus both deliver unlimited content for $7.99 a month. Netflix Instant is particularly successful. In fact, they are so successful that Comcast is about to sue them.

The AppleTV and Roku box are other examples of how eager we are to change the television viewing experience. Both of them have sold over a million units this holiday season.

The point is, it can be done. In fact, it’s being done right now. The main obstacles are the powers that be, particularly the Studios, networks, and cable companies who are so desperate not to change a system that is failing that they are willing to bring the whole industry down around their ears. It is also why they are currently pressuring congress to break Net Neutrality.

We often speak of “Show Business” as a world where art and commerce are perpetually at odds. However, this is an instance where I believe the goals of art and commerce are perfectly aligned. By making the system more efficient we both create greater creative opportunities for artists and more cost effective and profitable products for everyone.

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Anonymous cable companies said...

I was having a conversation with a friend over whether or not Netflix
is a serious threat to cable companies. I mean, I choose not to watch cable,
Just because of the fact that shows I actually enjoy aren't on when it's

5:35 AM  
Blogger Urban Barbarian said...

Did we have the same thing for breakfast this week...?

3:38 PM  
Blogger Steve said...

I know, right?

4:20 PM  

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