Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Tuesday, December 06, 2005

Research Note: How to Think Strategically About the Future of On-Demand TV

Everyone's talking about the business model for on demand TV.

Honestly, guys, the b-model is missing the forest for the trees. Think strategically, instead, to figure out how the dynamics of plasticity for TV.

Everyone's asking the wrong question - will average viewership fall, or decline? Focusing on that question is what's killing traditional media industries - by letting them ignore the real problem: they're deep in strategy decay, because their industries are being structurall reshaped.

If they want to survive as more than marginal players trapped in the core of an atomizing value chain, they need to meet the disruption of cheap coordination head-on, with radical innovation - with edge competencies, edge platforms, and 2.0 network economies of scale.

Let's answer the viewership questions anyways, to get started.

For the most popular TV programmes, viewership is likely to rise. But these are one-offs, and economically not meaningful. On average, it's likely to fall, as consumers defect to programmes that better satisfy their utility. To make this clear, consider the counterfactual: the only way that average viewership rises is if we accept that TV execs are better at scheduling shows for consumers than consumers are at scheduling shows for themselves.

In other words, an average fall in viewership reflects efficiency gains, which, in turn, reflects the facts that the supply curve for each shows becomes much more elastic. The price of shows rises, and viewership declines.

But the real question the TV guys should be asking, and they're not, which tells us they're about to get qwned, is this: how does on demand TV change my industry economics?

The answer is the same as it is for other markets being disrupted by cheap coordination: it begins to vaporize entry barriers and switching costs, and shift market power to the edges of the value chain.

That's terrible news for TV guys. What it means is that since they're in the core, it's totally and utterly irrelevant how many more or less episodes they sell.

Increasingly, they will have terms dictated to them, because the value is shifting to the Smart Aggregators and Reconstructors that allocate those episodes efficiently to consumers.

At the same time, their universe of competitors just exploded: where ER has competed only with whatever else was on during it's daypart, an on demand ER competes with...every other programme. Not to mention the fact that barriers to entry just got vaporized, because anyone can offer programmes on demand - not just NBC and CBS.

TV execs should focus on strategy, not business models. They're deep in strategy decay - earning incremental revenues from new business models is not sustainable unless they're backed up by game-changing strategies.

-- umair // 9:04 PM // 7 comments


Well said, Umair. The first slide on any PowerPoint of mine is this truth: "Revenue isn't the problem; audience is the problem. Fix the problem." Sadly, they'd rather manage the crumbling core.
// Anonymous Anonymous // 10:04 PM

Lower numbers in a VOD world aren't that bad if your audience *cares* about the show that much more and you *know* that much more about them. Loyalty for your product + Deep information on your consumer... sounds like an economic advantage to me.
// Anonymous Anonymous // 9:01 AM

Hi Guys,

Thanks for the comments.

Terry, I agree.

Paul, that's exactly true, but TV guys are not the ones building that advantage. Maybe they should hire you as a consultant... :)
// Blogger umair // 9:53 AM


I'm curious how you see the "Flickr's of Video" (youtube, vidilife, grouper, etc. etc. etc.) fitting into this.
// Anonymous Anonymous // 6:06 PM

Hi Anon,

2.0 plays right now have a golden opportunity to grab market power from 1.0 TV guys.

Who will do this? Reconstructors, which allocate attention efficiently.

Interestingly, most VOD focused 2.0 plays are *not* reconstructors, for reasons I can't fathom...
// Blogger umair // 8:29 PM

Kevin Tsujihara, president of Warner Bros. Home Entertainment Group. 'We are searching for the new platform or the new channel that will drive the profits in the future, but there are so many unknowns . . . What we do know is that the entire model is up for grabs.'" (via

Blimey. You might be in deepest strategic decay, but don't, like, tell everyone dude...

TV Guys - feel free to call ;-)
// Anonymous Anonymous // 2:29 AM

Ha, very nice catch. I am going to frontpage that.
// Blogger umair // 2:33 AM

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