Cable Networks 2.0 (or 3.0)

The cable network model that we all know, which was based on the broadcast television model that we all know, is this: A centralized organization acquires programming, schedules and distributes it to affiliates (broadcasters) or cable operators. The network produces some of its own programming (or most of it, if it's a news or sports channel), but it acts primarily as an aggregator, scheduler and dsitributor.

It was a wonderful model for 1925, or 1949, but it's completely obsolete today. It was based on the technical limitations of the dawn of the radio and television eras, limitations that no longer exist. It was effectively impossible to have a two-way conversation between media creators and consumers prior to the Internet and broadband speeds. Now, we've got the means for that two- (or N-) way dialog. The cost of production and distribution is a tiny fraction of what it was even thirty years ago, which was in turn far less expensive than what was being done in the 1960s. YouTube...well, you know all about YouTube, and Vimeo, and Dailymotion, and, and...

My point is that the one-way, centralized network model is obsolete. I don't believe that a new, one-way network will be successful. Future cable networks will have to bake an open, two-way model into their architecture from the very beginning. What does that mean?

It means that the network becomes more of a curator than an all-powerful programmer. It selects and makes available content from external producers, internal teams and viewer/producers (since viewers can now easily be their own producers). It also enables viewers to curate their own programming and make their own selections.

The production process will become far more distributed. Viewers with a few thousand dollars and a high degree of patience can create content that looks as good as anything seen on broadcast television or cable. Field production is simple; it's done thousands of times a day. Studios can be built and sent anywhere. A shipping container can be turned into a perfectly functional television studio. Put it on a fast-and-dirty foundation and you've got a permanent studio. If you want room for an audience, there are a lot of older movie theaters out there being underutilized or gathering dust. Extend the stage, put in LED and fluorescent lights to keep the heating load down, and voila, instant studio!

You may argue that this model has already been tried, at Current, and it hasn't worked very well: Current TV just laid off 80 staffers, shut down production on some shows, and is consolidating two Los Angeles facilities into one. However, the problem wasn't with the production model, it was with trying to fit that model into a conventional cable/broadcast channel. The most-watched shows on Current have been InfoMania and SuperNews: Fairly conventional (from a structural point of view) 30-minute productions that viewers can find easily and that are repeated many times during the week. The bulk of Current's airday has been taken up with brief, four-to-eight minute videos, many of which are submitted by viewers. The problem is that it's been impossible to know exactly what's going to be on when. If you happen to tune in when they're showing a video that's engaging, you're likely to stick around for a while, but if you don't like what you see when you first tune in, you're unlikely to wait around for something better.

The problem with Current TV is that it's programmed from the top down, just like any other cable network, even though viewers contribute a lot of content. Current also has a web presence that allows a more egalitarian approach to programming (in other words, watch what you want, when you want), but with serious limitations: Cable operators prohibit Current.com from running its on-air feed live, or from making programs available prior to their airdates.

That brings me to my last point: The cable network of the future will reside primarily on the Internet, not on cable. So long as the cable operators can dictate terms of when and where programming can be shown, no cable network can become a truly two-way operation. That's why Current is struggling, and why Hulu is only a shadow of what it could be.

In the future, the cable network will be equivalent to the "curated feed", but the open ecosystem will reside on the Internet.

OWN: DOA?

Last week, Oprah Winfrey bid a tearful farewell to her show, telling viewers that she will end her run on syndicated television in 2011. She said that the reason she's leaving is that 25 years are enough, but plenty of industry scuttlebutt contradicts her. Discovery Networks has been working with her on a new cable network, the Oprah Winfrey Network (OWN), which will replace Discovery Health in 2011. The launch of OWN has already been delayed twice, and there's been a revolving door in the management suite, with most executives only lasting a few months.

The oft-repeated rumor is that David Zaslav, President & CEO of Discovery, read her the riot act: Bring her show to OWN and help to get the operation under control, or lose the network. The first shoe dropped a couple of weeks ago, when she sent some of her top managers to take over key positions in OWN, and the second shoe dropped last Friday, with her announcement that she'll be leaving her syndicated show. Zaslav's ultimatum may not have been THE reason why she's leaving her syndicated show, but it's a pretty good reason nonetheless.

The question is, what is she going to? Women's networks on Cable have had an upward struggle: Oxygen, in which Winfrey was a partner, launched with high audience expectations that were never met, and ended up being sold to NBC Universal. Will OWN fare any better? Unless it pursues a radically different model than that of today's cable networks, it won't. That's the topic of my next entry.

One Reason Why the Movie Business Is In Bad Shape

Earlier this week, Peter Sciretta of Slashfilm and Jason Kottke of kottke.org reported that only two of the top 30 films of the decade were based on original material: Disney/Pixar's "Finding Nemo" and DreamWorks Animation's "Kung Fu Panda". In fact, only nine of the top 50 films were based on original material, and five of them were from Pixar! Everything else was based on an existing motion picture, novel, comic book, or in the case of the "Pirates of the Caribbean" series, a theme park ride!

The movie business has been on a tear, with ever-increasing budgets fueled by DVD revenues. To mitigate the risk of failure for those stratospherically-budgeted movies, studios produce films based on known properties. Original works get crowded out or pushed to the studios' "independent" arms, which operate on relatively small budgets and get very little promotional support unless a movie has Academy Award potential.

The result is like never eating a meal that you haven't already eaten. Yet Pixar, which has only created one sequel in the history of the studio, has the best track record of any studio in terms of average revenue per movie. Is the lesson here to create fewer but better, more original, movies? Something to think about.

Disintermediation, again

Kim Masters was on NPR's "Morning Edition" this morning talking about the concerns that motion picture exhibitors (theater owners) have about the movie studios' plans to change their "release windows". Release windows are the order in which movies are released to different channels, and how long each channel has exclusivity. The issue is a seemingly innocuous request made by the studios to the FCC for "selectable output control" on set-top boxes, Blu-Ray players and other devices. Selectable output control would allow the studios to control whether, when and how much a movie or other video program could be played on a compatible device.
Consumer groups and consumer electronics vendors oppose selectable output control because the studios could use it to prevent their content from being recorded on DVRs and other devices. Now, the National Association of Theater Owners (NATO) has filed opposition to the studios' request because they fear that the studios will use selectable output control to make movies available in the home at the same time that they're in theaters.

I don't support selectable output control because it takes away consumer choice and negates thirty years of progress in consumer electronics since the Betamax decision, but the theater owners' opposition to the studios is more an effort to hold back the ocean than a friendly, consumer-oriented action. Extremely few movies make money in theaters today; theatrical distribution is most valuable for promoting films for future sale as DVDs and Blu-Ray discs. As the sales of DVDs erode and Blu-Ray fails to pick up the slack, the studios are forced to look at online digital distribution as a viable alternative. However, for digital distribution to generate the kind of revenue that physical media does, the movies have to be available much sooner, and that means cutting into the theaters' release window.

Whether or not the studios get selectable output control, theaters' release windows are going to erode; it's just a matter of when and how. When theater patrons are forced to go through metal detectors and hand over their cellphones before going in to watch a movie (as shown on a recent edition of CBS's "60 Minutes") in order to prevent piracy, theaters are not long for this world.

The studios are looking for any and every way to increase revenues, including cutting out the middleman, even if the middlemen are movie theaters. The same thing is happening with broadcast television. Comcast is close to buying 51% of NBC Universal from General Electric, which will give it control of the company. NBC has done such a superb job of running its broadcast network into the ground that it may become the first broadcast network to become a cable network. CBS and ABC are beginning to demand a cut of the retransmission payments that cable operators have to pay broadcast stations for the right to transmit their programming. Those retransmission payments have become the only thing keeping some stations on the air in this recession. Add to that the practice of some networks demanding "reverse compensation" from stations: Instead of paying stations to carry the networks' programming, the networks demand that the stations pay for the right to carry the programming.

Network television affiliates are an endangered species, because the networks can make more money, at lower cost, by dealing directly with the cable and satellite operators. For Comcast, the deal becomes almost a no-brainer, since it would control both the network and the cable systems. It will have to sell off the NBC owned-and-operated stations in cities where it has cable systems; the next step would be to take NBC to cable in city after city as network affiliate agreements expire.

Fifteen years ago, we were talking about disintermediation in retail and wholesale distribution brought about by the Internet; now we're talking about it again, this time in media. The future of theatrical motion picture exhibition and free broadcast television hang in the balance.

Update, December 5, 2009: According to the December 2nd edition of the Chicago Sun-Times, a patron at the Muvico Theater in Rosemont, IL was arrested and spent two nights in jail for videotaping four minutes of "Twilight: New Moon." She claims that she was actually videotaping her sister's birthday party at the theater, and the video on her camera (a still camera that records video segments) supports her contention. Nevertheless, the theater's managers pressed charges against her under a little-used law designed to punish film bootlegging. She faces up to three years in prison. I've lost whatever sympathy I still had for theater operators after this mind-boggling incident.

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• Studios and theaters clash over FCC waiver (latimesblogs.latimes.com)

Get Your Products Out

The new generation of high-quality, video-enabled DSLRs is thoroughly changing both the high-end still camera and camcorder markets. It's now inconceivable for a manufacturer to release a $1,000+ DSLR without some sort of HD video capability. Even Sony, the lone holdout, is rumored to be biting the bullet on November 18 with a HD-capable DSLR that will compete with the Panasonic GH1. (Technically, the GH1 isn't a DSLR, it's a Micro Four Thirds camera without a viewfinder, but it does everything that a DSLR does.)

The ironic thing is that RED, the company that made cinematic video production much more affordable with the RED One, first identified the need for print photojournalists to be able to shoot competent video without having to carry two cameras. It rechanneled its development effort for the Scarlet, which was originally supposed to be an inexpensive, handheld 2K camcorder, into a video-capable DSLR. That was almost two years ago, and not only has RED not yet shipped the Scarlet, it hasn't even provided a definitive list of features or release date.

When the Scarlet comes to market, it will have to compete with a variety of products from virtually every major DSLR manufacturer, at price points starting around $1,000 to over $5,000, with a huge range of capabilities. While Nikon, Canon, Panasonic, etc. weren't educated about the market opportunity solely by RED, it didn't do RED any good to tell its competitors so early about what it was doing. In my opinion, the early announcement was sheer hubris: "We beat you with the RED One, and we'll beat you again with the Scarlet."

Once you make a product announcement, you have to get the product to market quickly. You cannot assume that your competitors are too slow or too dimwitted to respond. The first time around, competitors took RED for granted because they were a new company, run by someone from outside the broadcast electronics business. Lots of companies like that had announced products, perhaps even shipped a few, and then sank beneath the waves. But RED was for real, and its competitors learned to pay attention.

If you're a new entrant into a market, you usually get one free pass where your competitors underestimate or dismiss you. Once you become successful, you're on their radar, and the requirement to get to market quickly becomes paramount.

People are Buying Blu-Ray Players, But Not for Blu-Ray

Regular readers of this blog (okay, I admit that there are no regular readers of this blog) know that I've been skeptical about Blu-Ray. It took far too long to resolve the Blu-Ray/HD DVD battle, and then to actually get Blu-Ray players to market at a reasonable price. However, I'm willing to admit that I was wrong. People are willing to buy Blu-Ray players...just not to play Blu-Ray discs.

The Blu-Con conference was held this week in Beverly Hills, and if there was one overriding theme, it was that the motion pictures studios are really, really desperate. DVD sales were down more than 13% in the third quarter, and the studios depend on the profits from DVDs to underwrite the cost of producing blockbusters. As DVD sales drop, film financing gets riskier. We may be heading back into an era when a single bomb can sink a studio, as the movie "Cleopatra" almost did to 20th Century Fox in the 1960s.

As DVD sales are dropping, Blu-Ray sales are increasing, but at nowhere near the rate needed to compensate for DVD's decline. However, sales of Blu-Ray players are growing proprotionally much faster than sales of Blu-Ray movies. Why? The biggest reason is that the prices of the least expensive Blu-Ray players are now overlapping the high end of DVD player prices--around $99. At that price, why not buy a Blu-Ray player, which can also play DVDs?

Another key reason, and the biggest motivator for sales of Blu-Ray players in the $200 range, is Internet connectivity. The studios thought that the Internet connections on Blu-Ray players would be used for games, chatrooms and other content connected with Blu-Ray movies, but that's not been the case. The biggest use for the Internet connections is to play online movies from Netflix, Amazon.com, CinemaNow and Vudu, and Internet videos from sites like YouTube. The Blu-Ray player manufacturers are in a race to add more and more online services, and retailers are racing to drop prices in time for the Christmas season.

So, are Blu-Ray players going to have a big Christmas? Yes, but I suspect that the movie studios won't be so lucky. The very Blu-Ray players on which they've been pinning their salvation have turned into Trojan Horses, bringing streaming movies right along with them. It's ironic that the success of Blu-Ray players is now no longer in serious doubt, but the success of Blu-Ray as a medium for distribution movies is still questionable.