Laserlike

In his The Long Tail blog, Wired Editor Chris Anderson wrote an article in 2005 called the Mainstream Media Meltdown II.  In the piece Anderson convincingly points to the hefty declines of movies (down 7%), newspapers (down 2.6%), music (down 5.7%), radio (down 4%) and books (down 7%).  He also notes that DVDs, TV, magazines, and video games had mixed results and that internet advertising was up big (banners by 10% and Google revenues were up 96%).

On TV, I would argue that the performance was better than mixed.  Anderson notes that viewership is rising (circa 2005), but that the proliferation of channels is leading to fragmentation.  But TV as a segment was holding its own in 2005.  Not surprisingly, though, more recent data suggests that consumers are increasingly getting their professionally created content from the web.

While YouTube, Hulu, and the broadcast networks are gaining viewership on their sites, the viewing experience of HD cable or satellite (and soon, broadcast) on a TV is vastly superior to watching the latest episode of Lost in some transcoded and compressed format on your laptop (iTunes, YouTube).  But when a friend sends you an URL with the latest Will Farrell video, it’s much easier to watch it on your laptop rather than figure out how to get it on your HDTV.

What happens when ultra-thin, high-resolution OLED-based monitors find their way into the latest [portable] tablet PCs?  And internet video can easily and quickly be delivered through the internet at the same quality as HDTV?

Economic theory tells us that price will approach marginal cost in an efficient market.  While CAPEX in the cable plant is significant, marginal cost is probably pretty close to zero.  So will cable and satellite premiums go to zero?  Will cable TV be free?  Today the market isn’t efficient and price does not equal marginal cost.  However, as portable devices offer better viewing experiences, as TVs are connected to the internet, and as IP-based TV offers similar quality to the best solutions from cable and satellite, cable pricing will implode.  Cable will be free.

Look at newspapers.  The price a consumer pays for a [physical] newspaper is arguably below marginal cost already.  And with the notable exception of the Wall Street Journal online, internet-based versions of papers are free. 

Look at music.  The labels wouldn’t move the price of CDs closer to marginal cost, so customers did it themselves as soon as they could with Napster and Kazaa.  Apple offered value by integrating iTunes with the iPod.  They had a much cleaner search, discovery, and download process.  And, in addition to all of that, they offered 100% insurance against going to jail by simply charging $0.99 per song.  But Apple’s marginal cost of music distribution is pretty close to zero… 

Cable TV marginal cost may be near zero, but CAPEX is massive you (or more likely, the cable folks) might argue.  If they can’t charge premiums for basic cable, how can they support the infrastructure.

1.  Offer other services like high-speed data and voice.

Cable is already moving in this direction in a big way.  Of course, the marginal cost of the distribution of bits is also near zero.  But the physical oligopoly of the last mile (cable company has coaxial cable running into and throughout my home, the phone company has twisted pair copper that does the same) will delay the inevitable pricing erosion in that business.

2.  Reinvent cable advertising. 

There is some geo-targeting of ads on cable today, but think about the opportunity.  Imagine a marketer being able to understand the last search you did on Google (query = Audi A4) and delivering an Audi advertisement to you on TV 30 seconds after your search!  You used the fast-forward button on your Comcast DVR to skip the commercial?  Treat that like web professionals handle the “back” button — use machine learning to deliver better personalization AND aggregate content targeting.  Everyone skipped a particular Audio commercial, but tuned into another Audi ad?  Use A/B testing to help advertisers optimize their content.  The only commercials I watch these days are Apple advertisements and movie trailers.  But if targeting really improved, I would watch much more.  In particular if you could leverage social data (e.g., advertise an event that all of my friends are attending).

In addition to improved behavioral and other (e.g., your last search) targeting, someone should invent an auction system for advertisements — Right Media for TV?  Consumers would get better content, advertisers would get better ROI on their marketing spend, and cable companies would make up some of the losses from declining cable premiums.

3.  Develop PayPal for TV.  

As TV goes interactive, imagine being able point at any object or advertisement using one-click [remote control] purchase from the sofa?  Like that shirt Hurley is wearing in the latest episode of Lost (I sure do)?  Click.  Reyn Spooner, you’re mine. Cable TV companies have a [potential] big advantage over internet payment systems, as they have a physical box in the home and a credit card on file (how’s that for user authentication)!  In addition to owning a payment system (pretty valuable in its own right), imagine the data that could be used from actual purchase history to improve ad targeting…

4.  Move into new businesses FAST.

Cable companies have massive cash flow and market value right now.  They should leverage their current position (based on artificially high rents) before cash flow declines.  Then, perhaps, they will keep or grow their value.  Plenty of others have commented on Comcast’s recent purchase of Plaxo, so I won’t jump into the fray.  But what I have in mind is something much bolder.  Perhaps not Disney, but Brian Roberts should be competing with Google, Yahoo!, and Microsoft in trying to find the next YouTube or Facebook.