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8 Reasons Why The TV Studios Will Die

Recently, I have met with many people including top executives from most of the largest studios as well as people from some of the top internet companies that are building studios, top investors in the VC world that are turning towards the studio business and my goodness, my perception of the industry has really changed. I have met with plenty of people over the years but the discussion was usually around Rocketboom. This time, they all knew what Rocketboom was and I didn’t need to explain, I was able to pry into their plans and visions and with a new context for understanding, listen.

My number one takeaway, a perception I did not have before, is that the studios are probably not going to make it. I always assumed and have always said that I believe the studios will make it through the transition on top but now I’m not so sure.

Why do I think this? The story is public, it just requires putting everything into perspective.

As a starting point, we now take for granted that the top few studios (ABC, NBC, CBS) have lost control of the future market and must make way for more studios that will appear. While they may seem well positioned to do that, my new hypothesis is that they are not well positioned at all. On the contrary, they are probably in just about the worst position any company could be in. More than likely, the studios will either fall apart or break up into small pieces, become engulfed by something much bigger (maybe even a 19-year old), morph into a sub-faction of the greater media industry or even some other industry, or maybe survive without much influence as just one of many.

While no doubt it is possible to make it through on top, pretty much ALL of the qualities that the major networks are good at are no longer needed. We don’t need them to identify talent for us. The promotion and distribution channels are now open and cheap or free for the clever. We can have share in the rights to our own work without them. The list goes on and on. The networks have shown a poor record in all of the qualities that will be needed to rise up as the new industry leaders. 

TV is still an incredibly powerful medium. TV makes much bigger stars and commands much bigger audiences and way more money than anything online, moving image-wise. But obviously that is changing drastically at a rapid pace that is suddenly very surprising to even me, as brought on by the very important impact of the writers strike. The strike really is the astroid from outer space that is covering the planet with dust night now.

There is plenty more to say which I will leave for another day, lets jump right into the top 8 indications that the traditional TV industry is not well prepared for the upcoming change in business around a new media industry.

1. Audience Exodus. While the rest of the world is blooming online, TV has no new content to offer right now. Over the last several weeks (a very short period of time in the history of TV), some of the most important shows have lost a breathtaking number of audience members. The NYTimes just reported that The Daily Show with John Stewart audience numbers are down 38% since the strike began. The Colbert report is down 28%. When the last strike occurred almost 20 years ago, there was no where for the audience to go. They had to return back to whatever the stations decided to play at that time. That’s obviously not the case now, there are plenty of other places to go that are actually better and not dependent on time. The stations are instantly losing their best customers, the people who have a habit of showing up. 

2. Expendable Middle-Person. TV is to advertising as America is to oil. That is to say, TV is entirely and completely dependent on the advertising industry and the ad dollar for its survival. The studios have never been able to own that business for themselves and have instead depended on selling to the ad buyers, usually once a year in a major upfront session. If you attended the 2007 ad buyers week where the TV studios rolled out the red carpet for the ad buying industry with the cheesiest shenanigan of a show and dance, playing the role of middle people who make the connections between things like Lost and Coke, thats what it all comes down to. The network simply manages that connection, themselves a middle person. When a business has an opportunity to grow and improve, this type of position is the first to go.

The advertising industry is changing on its own without the TV studios. 2007 saw the beginning of a wild flight by the ad buyers to shift their spending to online content, leaving the studios out of the loop in how the business of the future will be done. In the words of the TNS Media Intelligence news report, “The anemic growth rates in measured ad spending reflect a market that is under stress from cyclical business conditions and fundamental structural changes".

What more, consider a few of the headlines just this year on the changing landscape of advertising companies: Microsoft buys aQantive for $6 Billion. Google buys Double Click for $3.1 Billion. Yahoo buys Right Media for $½ Billion. Not to mention all of the smaller startup ad networks, as well as content studios with their own ad networks that are rising up. Apparently Next New Networks has racked up 100 million complete views from You-Tube and that was done without ABC, NBC or CBS as part of the conversation. Perhaps the greatest threat of all is the possibility that the Writers Strike will drag on through January and February, causing the TV stations to have almost nothing in store to sell for fresh content at the 2008 upfront season.

3. Unsupportive. There is an old saying in Hollywood that 99% of all actors are out of work. This is still the saying today. While we don’t need to make any jokes about all of the actors out there without much talent that still find an audience online, it’s fair to say that more than a fraction of a single percent of the actors out there are very talented. If Hollywood can only support a fraction of a percent, then they are going to lose out on supporting the greater percentage of the talented actors out there. Extend this to the rest of the creative industry and it’s easy to see how a fraction of a percent without any control will become almost irrelevant.

4. Dependent on Exclusivity. Studios used to depended on their exclusive rights over show distribution in order to compete against the other networks. Soon, they will not be able to hold on to their exclusivity. Consider the possible fate of NBC: NBC, which has a handful of breakout hit shows like Heroes for instance, has started fresh with a new online strategy just this year after not being able to play with Apple. Their new project Hulu is dependent not on their own brand to drive traffic to the site but rather their exclusive deals with shows like Heroes which you can’t get anywhere else. So how many shows does NBC/Hulu have that will make it worth it to watch on Hulu? And more importantly, how many shows will NBC have in the future that can remain exclusive just with NBC? Heroes, which is now it’s own healthy business would certainly see a much greater profit margin if they could eventually break away and exclude NBC from such an enormous share of their revenue.

5. Rogue Reputation. Studios are meanies. With regards to the strike, only 14% of people polled favored the studio’s side of the argument. If the future of the media business is going to have anything to do with making honest deals and treating talent fairly, the TV studio networks do not have a solid reputation and might even be at odds with the kinds of deals that are much more lucrative from the sea of other budding and capable support systems out there.

6. Unplugged. Quarterlife. Need I say more? Perhaps the best experiment to date on what it would be like to take a traditional TV drama, shorten it down to 10 minute episodes in structure, pre record a whole season and throw it up online, shows that you can’t really do that. It really takes a long time to build something up that is a series and will strike a chord in a way that is truly social. Quarterlife missed the mark. Even more revealing are the comments left on the NewTeevee blog by one of the producers who seems to be having a difficult time interacting with the online world. 

7. Ineffectual. Probably the number one best commentary I have seen on the effect of the writers strike, something that was otherwise moving along too slow, is the fact that the talent in Hollywood finally got a break and could look up to notice what is going on online and thus participate in the epiphany. Its ironic that the best talent in the world is the last to wake up and smell the roses, but that situation is being forced for the better. As touched on with this LA Times article,  “the future belongs to a tantalizing new hyphenate: the writer-entrepreneur.” If I could point to just one important point for any writers in Hollywood out there, it would be this one. “The stars became free agents long ago. In the last few years, with billions of private-equity dollars flooding the business, the studios have lost their lock on financing too.”

8. Luddites. The major networks have been virtually helpless on the tech side of things which will control the distribution channels in the future. They have failed again, and again and again to see it coming and to take adequate action. 

All in all, this is not a shame for the studios, everyone is trying to figure it out. In context of my thesis however, the studios are in no better position than anyone else to figure it out.  One might even argue that they are handicapped due to their current structures, unable to make big enough changes quick enough. While the studios themselves used to be bigger than the content they served, now its the content that is more the king.

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