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.