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How TV Broadcasters Can Avoid Digital Doom

2009 October 13

TV is the King of Media.  Nobody has the scale, the advertiser loyalty or the massive coverage of TV stations.  Consequently, nobody has as much to lose as TV.  However, they seem powerless to stop the onward digital march.  Most successful TV players seem to shrink from the digital challenge.  There have been initiatives, but few successes.

The fact is that even top TV companies are ill equipped to deal with the web.  Amazingly, they don’t seem to realize this and plunge headlong into digital initiatives that play to their broadcasting strengths but not to their digital opportunities.

Challenges that TV Broadcasters Must Overcome

Poor understanding of content: Most broadcasters produce very little of their own content (except thematic channels).  They are more like trading companies, predicting the price they pay for programming will be less than the ad inventory the programming produces.

Lack of familiarity with audiences:  Because they don’t produce much programming, but also because their audiences are massive, broadcasters don’t have much opportunity to get to know their audiences very well.

Failure to scale the business to the opportunity: TV is a big business and Digital is a crucial issue for them.  Consequently, they are ready to go to great lengths and spend big money to succeed.  Unfortunately, this approach almost guarantees failure.  Successful web businesses usually start small. (See Building Effective Web Product Strategy).

The failure to produce in Digital is a major problem for TV companies.  Convergence between TV and Digital will move faster and farther than any other media.  TV stations are already distributing content and selling TV ads on the web, others will to.

Moreover, the ability to control frequency on the web could enable a new TV renaissance, yet it still isn’t clear if legacy broadcasters will participate fully.

Strategies for Achieving TV Success on the Web

Acquisition: Two good examples are ITI Group in Poland and Time Warner in the US.  Both made major digital acquisitions.  ITI’s Onet.pl seems to benefit from ITI’s broadcasting and content production expertise and their TVN brands seem to benefit from Onet’s digital expertise.

Admittedly, Time Warner screwed themselves on price with AOL (we can blame the bankers for that), in the long term it might still pay off.  CNN, as an example, is an outstanding site with some of the best functionality and usability on the web.

Time Warner also integrates very effectively. They seem comfortable combining TV, Magazine and Digital content and do it almost seamlessly.  Their Warner Brothers division is very progressive in marketing movies in the digital sphere.  Could they have attained the digital competency they have now if they hadn’t acquired AOL?  Maybe, but I doubt it. Despite digital schadenfreude, Time Warner made $46 billion in 2008.

However, companies like ITI and Time Warner seem to be the exception rather than the rule.

Partnership: ACP in Australia teamed up their Channel 9 with MSN and also formed a partnership with eBay (which, unfortunately, they sold for pennies).  Both ACP and MSN seem to have benefitted.

VC Approach:  With the digital superhighway littered with TV roadkill, one wonders why TV companies don’t adopt the approach of venture capital investors.  VC’s typically expect about half of their investments to be duds, a few to do okay and a few more to be runaway successes. Microsoft seems to have taken this approach and has made many investments in minority stakes of early and mid stage companies.

Mark Andreessen, who made the first conspicuous digital fortune,  has invested in scores of web initiatives but has had very few winners (Two of them were Digg and Twitter and his most recent venture Ning.com is a fantastic concept that is gathering steam).  If even successful web veterans are wrong more than they are right, why do TV companies think they can pick winners in Digital?

Who Will Survive?

TV Broadcasters have tremendous assets and a lot of expertise.  They understand how to package and optimize electronic inventory, they have a lot of great, creative people and built in marketing heft.

What they need to grasp is that Digital Media is not only a new business but a disruptive threat.  Disruptive threats require a drastic change in fundamental strategy and process. (See Disruptive Innovation).

It is not surprising that TV companies with programming expertise seem to do a bit better in the Digital World (e.g. Time Warner, Viacom).  Businesses that depend on creative output tend to work more effectively integrating small groups of talented people, collaborating with partners and spreading their bets.

Pure broadcasters, however, will have a much tougher time.  The age of sanctioned monopoly through broadcast licenses is gone and will never come back.  They will need to scrap their grand plans, change their internal culture and process and learn how to partner more effectively.

It will be an excruciating process.  Some will make it, most won’t.

– Greg

14 Responses
  1. October 14, 2009

    I agree. I think Broadcasters aren’t working fast or hard enough to prepare for the near future. They are still making relatively high revenues from standard broadcasting, and are afraid of dramatic changes that will reduce revenues now. On the other hand, they are the ones with huge quality archives of content, and the current resources for producing more in the future. I guess those broadcasters who will stop being afraid and will produce and ‘upload’ themselves to the digital era today, will survive tomorrow.

    Greg Reply:

    Doron,

    Actually the problem is even worse than that. Many broadcasters don’t have valuable content archives. They simply air the programming for the duration of the contract. The rights are usually owned by the company that produced the content.

    Some broadcasters are integrated and do produce excellent content. Others do not, and they really have a problem.

    – Greg

  2. Stuart Nicholson permalink
    October 14, 2009

    I think probably where TV has gone wrong in digital is that it has tried to get into areas that are not their core competence.For example ITV in the uk bought Friendsreunited.com. This was the original social network in the UK, a runaway success, but, of course, could only go down because once you have located your old schoolfriends that just about exhausts your interest in continuing to use the site.ITV believed they could simply transfer their audience to this site by cross-promotion and vice versa.This didnt work and now they are taking a big financial hit.

    It doesnt mean that becuase you are a successful media owner that you neccessarily can transfer some kind of synergies automtically to anothother type of channel.Probably between social networks and entertainment braodcasters there are few.CNN or Bloomberg are different as they are informational and the website is an extension of their on-screen offering.

    For mass-market TV channels the way into digital is more in terms of simple transference of your existing output onto the platform that a large number of your previous audience has migrated to.BBC has scored a major (but obviosly non-commercial) success withiplayer.They simply offer a replay of their best content as a streaming or downloadable format which offers conveniance to the viewer.This concept is also becoming popular in teh USA and has potential to be multi-platform (MP3 and mobile are possibly the growth areas in this area).

    In this way the tv companies are on more familiar territory.They can monetise through more traditional ad formats (pre-roll video etc) and advertisers who have not gone into digital in a major way, such as FMCG clients, can more readily adopt this as its easy to see it as a replacement of lost audience.

    Now that onscreen video is becoming wihin the reach of many as broadband speeds and access costs decline, this is probably the way forward.

    Greg Reply:

    Stuart,

    Thank you for your insight. As usual, I agree 100%. Legacy media companies need to first use digital technology as a multiplier, it can make them better at what they already do. Once they develop a sound digital foundation they can extend their online activities.

    – Greg

  3. October 16, 2009

    Hey Greg,

    A friend of mine forwarded one of your posts to me about a month ago and I said to myself – this guy “gets it” and understands it. You have great insights and a keen understanding of the market and where the world is and is going. With respect to this post. . . the future of media, the digital world and entertainment (if you aren’t familiar with these folks) is here – http://www.nextnewnetworks.com. Looking forward to more of your posts!

    Rasul

    Greg Reply:

    Rasul,

    Thanks for the link and the kind words:-)

    – Greg

  4. November 9, 2009

    Actually it was AOL that acquired Time-Warner, not the other way around. http://money.cnn.com/2000/01/10/deals/aol_warner/
    http://news.cnet.com/2100-1023-235400.html

    Greg Reply:

    Alan,

    Technically it was a merger, but Time Warner definitely ended up in the drivers seat. The end result was that of a Time Warner acquisition.

    – Greg

  5. John MacDonald permalink
    December 5, 2009

    Great post as usual. One thing I’ve observed is unfortunately most broadcasters, (including those who produce most of their own programming), often feel most comfortable with digital plays that closely resemble their existing businesses, (eg. streaming of TV shows online). While the efforts are often these most successful short term business moves, (streamed shows attract premium pricing and most often dramatically outdraw audiences for other applications), they simultaneously draw investment resources away from other more innovative digital applications which leverage the strengths of the digital platform beyond simply time shifting, and they contribute to the cannibalization of viewership from the linear schedules, (and the growing expectation by viewers that anything can be found at anytime on any platform). I agree that many opportunities to pick up the “roadkill” have been missed, and many of the established large media companies would be better served by buying rather than making to establish their digital beachheads. Then “all” they’ll have to do is integrate them into their own established businesses without killing what made the new companies innovative.

    Greg Reply:

    John,

    I also think scaling down is a problem. In my experience, TV broadcasters want to show that they are going into digital in a big way. That’s admirable, but the scale has to meet the opportunity.

    In emerging markets, this manifests itself mostly in staffing and marketing. More is spent on the project than makes any financial sense. The money is usually spent badly and the expectations are unreasonable. After 6 months, they usually find that they aren’t going to dominate the marketplace and then they have to start over (often with even bigger plans).

    In developed markets it’s more subtle. As you mentioned, too video dominated (no site should have a flash intro EVER!), but also poor integration, usability etc. They don’t experiment and learn enough.

    Sometimes the mistakes are funny, like when they mistake navigation for promotion and put something like “Your Day” or “Really Scary!” on menus.

    – Greg

    – Greg

  6. December 10, 2009

    Like most people I’d rather drive a car than try and understand how all of it works.

    During this media recession/lull/I think I’m might be beginning to see a little of how the media and broadcast world is changing and developing by reading your excellent blogs etc but I’d rather be too busy to do this so am being dragged in kicking and screaming.

    I know something about the UK and world archives. I make programmes for independent production companies and broadcasters and also research and buy archive clips from broadcasters, sports organizations and archive/stock shots sources. I’d like your take on this sector.

    Will lots and lots of small/medium businesses pay for updated archive content used on their websites or for freelance “experts” to find them the right images to help them promote themselves on websites?

    What’s to happen with world copyrights and image rights etc? Now theres’ a huge topic…..

    Greg Reply:

    Jim,

    Intellectual property on the web is a very interesting area and there are many interesting ideas on how to solve it. Probably the most successful is that of creative commons. You can find more about it at http://creativecommons.org/

    About the potential for archive clips would seem to be pretty strong. As a Model, take a look at this company that sells cheap music clips on the web for use with TV and Radio ads: http://www.dewolfemusic.com/home/default.asp

    I hope this is helpful.

    – Greg

  7. December 30, 2009

    Timely post by you Greg (and a good one). I was actually going to do a post on one topic that is not so new, but gaining much momentum now that the technology is getting so cheap that it’s being bundled for free – TimeShifted TV – Death of Tv advertising? or some such title…

    In the UAE on of the duo-poly Cable providers just upgraded our STB and being the tech-junkie that I am, quickly figured out two great blessings

    1) I could record a TV program (for some reason good shows in the uae are not at usual dinner/supper time they are at around 4 – 7am)

    2) While watching the FOX network – No more incessant ads every 5 minutes (so what if their movie channel is free – there is a limit to playing the same damned ad 3 times in a row back to back!)

    As I happily zipped past the ads on the live time-shift option, (something TiVO people have enjoyed for years)… I just realized, advertising while not such an issue on typical cable channels – is a big issue on broadcast/sponsored TV.. and now Timeshifting a TV program allows you to do away with it!

    What could this spell for advertisers?

    Greg Reply:

    Clyde,

    DVR’s aren’t as much of a problem as you would think. In the US, 30% of households have them but they make up less than 5% of viewing. Also, a surprising amount of people watch ads on DVR. It seems that most of the time people are viewing fairly passively and they timeshift for their favorite shows.

    Also, Fox doesn’t have ads because they are building distribution but haven’t built up sales yet.

    – Greg

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