Yesterday, I hosted and moderated the inaugural Broadband Video Leadership Breakfast, in association with the CTAM New England and New York chapters, here in Boston (a few pics are here). We taped the session and I'll post the link when the video is available. Here are a few of key takeaways.
My opening question to frame the discussion centered on broadband's eventual impact on the cable business model: does it ultimately upend the traditional affiliate fee-driven approach by enabling a raft of "over-the-top" competitors (e.g. Hulu, Netflix, Apple, YouTube, etc.) OR does it complement the model by creating new value and choice? As I said in my initial remarks, I believe that how this question is ultimately resolved will be the key determinant of success for many of the companies involved in today's broadband ecosystem and video industry.
I posed the question first to Peter Stern, who's in the middle of the action as Chief Strategy Officer of Time Warner Cable, the second largest cable company in the U.S. I thought his answer was intriguing: he said that it is cable networks themselves who will determine the sustainability of the model, depending on whether they choose to put their full-length programs online for free or not.
Later in the session, he put a finer point on his argument, saying that "a move to online distribution by cable networks would directly undermine the affiliate fees that are critical to creating great content" and that finding ways to offer these programs only to paying broadband Internet access subscribers was a far better model for today's cable networks and operators to pursue (for more see Todd Spangler's coverage at Multichannel News).
Peter's point echoes my recent "Cord-Cutters" post: to the extent that cable networks - which now attract over 50% of prime-time viewership, and derive a third or more of their total revenues from affiliate fees - withhold their most popular programs from online distribution, they provide a powerful firewall against cord-cutting. Speaking for myself for example, the prospect of missing AMC's "Mad Men" (not available online anywhere, at least not yet...) would be a powerful disincentive for me to yank out my Comcast boxes.
These thoughts were amplified by the other panelists, Deanna Brown, President of SN Digital, David Eun, VP of Content Partnerships for Google/YouTube, Roy Price, Director of Digital Video for Amazon and Fred Seibert, Creative Director and Co-founder of Next New Networks, who held fast to a highly consistent message that broadband should be thought of as expanding the pie, thereby creating a new medium for new kinds of video content. David, in particular cited the massive amount of user-uploaded and consumed video at YouTube (amazingly, about 13 hours of video uploaded every minute of every day) as strong evidence of the community and context that broadband fosters.
Still, our audience Q&A segment revealed some very basic cracks in the panelists' assertions that the transition to the broadband era can be orderly and managed (not to mention that afterwards, I was privately barraged by skeptical attendees). First and foremost these individuals argued the idea that the cable industry can maintain the value of its subscription service by using the control-oriented approach typified by the traditional windowing process flies in the face of valuable lessons learned by the music industry.
Of course most of us know that sorry story well by now: an assortment of entrenched, head-in-the-sand record labels forcing a margin rich, but speciously valued product (namely the full album or CD) on digitally empowered audiences, who decided to take matters into their own hands by stealing every song they could click their mouses on. Consequently, a white knight savior (Apple) offering a legitimate and consumer-friendly purchase alternative (iPod + iTunes), which would grew to be so popular that it has made the record labels beholden to it, while simultaneously hollowing out the last vestiges of the original album-oriented business model.
Does history repeat itself? Are Peter and the other brightest lights of the cable industry deluding themselves into thinking that a closed, high-margin, windowed platform like cable can ever possibly morph itself into a flexible, must-have service for today's YouTube/Facebook generation?
I've been a believer for a while that by virtue of their massive base of broadband-connected homes, high-ARPU customer relationships and programming ties, cable operators have enormous incumbent advantages to win in the broadband era. But incumbency alone does not guarantee success. Instead, what wins the day now is staying in tune with and adapting to drastically changed consumer expectations, and then executing well, day after day. One look at the now gasping-for-breadth behemoth that was once proud General Motors hammers this point home all too well.
As Fred succinctly wrapped things up, "The reason I love capitalism is that it forces all of us to keep doing things better and better." To be sure, broadband and digital delivery are unleashing the most powerful capitalistic forces the video industry has yet seen. What impact these forces ultimately have on today's market participants is a question that only time will answer.
What do you think? Post a comment now!