Tech@Tuck is an annual event at the Tuck School of Business at Dartmouth where they bring together a lot of really important, high-profile people to have a moderated discussion.  Last year it was Web 2.0.  This year they’re talking about video.  Here’s the panel: 

  • Steven Abraham, Global Leader, Media & Entertainment Industry, IBM Global Business Services (moderator)
  • Tony Bates, Senior VP/General Manager, Service Provider Group, Cisco
  • Glenn A. Britt, President and CEO, Time Warner Cable
  • Rich Ross, President, Disney Channels Worldwide, Disney ABC Television Group
  • Blair Westlake, Corporate VP of Media & Entertainment Group, Microsoft Corporation

It was a really interesting discussion.  Here are some of the highlights for me: 

Steven Abraham: Lions share of revenue in the entertainment industry still comes from traditional channels of distribution 

Glenn A. Britt: Television is the killer app in our business. HDTV, digital, etc are all very small compared to television itself. Technology is a way to enable people to consume television in a different way. Important to focus on what consumers care about that you’re enabling through technology.  Today the TV business has three business models: 

  1. Programming is created by producers w/one of the major studios and is predominantly financed and distributed by television networks. The networks get paid because they sell advertising.  This was the only model until 30-35 years ago.
  2. Along came cable television - sell a package of television and the consumer pays a subscription and they (the channels) get paid $XX for every customer. So for cable, half the revenue is advertising and have is from subscription.  This model has resulted in a tremendous proliferation of content.
  3. Third model: HBO - they only sell subscriptions and are sold on an al la carte basis.  They don’t sell advertising.  They use revenue to buy movies and such.

Technology is enabling consumers to get TV in a way that’s more convenient for them. How do you come up with a business model that is as robust as the current one? This is what they’re struggling with - you can destroy what they have because this is how the content is being created.  You can’t just go and make a show - it would cost too much.

Steven Abraham: At the end of the day if the business model doesn’t work, the revenue dies and the business goes away.  What do you see remaining somewhat similar in the future and what will change?

Glenn A. Britt: What technology makes available is that people will be able to access an enormous amount of content of their choosing.  People will be able to access it whenever they want - you’re starting to see the beginnings of that.  People want to access content on any device. People want to access content wherever they might happen to be and the technology is available to do that. What threatening the business mdoel is resistance to incorporating that capability in the model. 

Rich Ross:  We need to make sure that our consumer can get content when they want it and not create artificial barriers to align with a business model that makes them wait. By making things available to everyone we still deal with the ultimate gatekeeper - the parent.  Parents haven’t figured out that cell phones are computers  - they guard what they access on computers but not on cell phones. (Karlyn’s Note: Remember, Rich Ross is the President of Disney Chennels Worldwide, so he has a unique perspective of dealing with “the family” as the customer)

Blair Westlake: It’s much like the newspaper business, which waited too long.  WSJ is the only newspaper with a paid model. I suspect there will only be a handful of newspapers left in the US in a few years. It’s debatable if iPod and iTunes can be replicated. The TV industry is completely encumbered by agreements that are in place in terms of how the content is distributed. The ability of the video industry to replicate iPod/iTunes strategy is very limited.  Prediction: the days of $3 million episodic tv shows like Law & Order are probably limited. Executives are bemoaning what Hulu means to the business. The entire model that the industry works under almost has to be blown up and recreated.  The cost of creation of programming is going to have to change.  Everyone wants their content on demand but it can’t happen under the world that currently exists.

Rich Ross: Just because you’re the third biggest at something doesn’t mean you deserve to be in business and successful.  Networks are almost like children - “you can’t get rid of them!”  We can’t just hold onto legacies. Everyone is willing to pay a price for the product that mattters, but we need to take a step back and figure out what matters.

Blair Westlake: I suspect the quality of programming we all know is going to diminish or there is going to have to be a major revolution in the way that content is created and at what price. The audience is growing smaller and smaller because of fragmentation - everyone is talking about targeted advertising but are companies really going to pay $4,000 per head for an ad? Where does the revenue come from to cover this?

Steven Abraham: (To Tony Bates) Where are you thinking about playing into this overall value chain?

Tony Bates: Ultimately we continue to see ourselves as an enabler. We’re starting to make broadband become a killer app. There starts to become a need where the services you want to enable, you have to begin to offer them yourself. To get this model to change, Glenn needs more information about the subscribers.  The end consumer doesn’t always go to a website for their content.  Most of us can’t even manage our photos, let alone everything else.  Imagine if we can enable that in an easy way. The question isn’t how we carve up an amount of dollars - the question is how we grow it. 

Steven Abraham: Project Canoe - a brand new way of offering advertising to the folks that are buying advertising. 

Glenn A. Britt: We observed that TV is a wonderful thing and has a certain financial model, but advertising is starting to move to the internet (not any different than consumers moving there).  It’s happening because there’s functionality on the internet that advertisers found useful that wasn’t available on TV - targeting, much better data, interactivity, etc…  We looked at that and said there’s nothing that magic here - we can bring that to traditional TV.  The idea is to bring the cable industry together to create a platform to bring internet-like capabilities to TV and make that available to advertisers. 

Tony Bates: Initiatives like Canoe changes the model.  But we always end up at advertising as the only monetization of TV. What we might want to think about is during Canoe into other types of monetization. 

Glenn A Britt: The fragmentation of audiences meant that networks had less money to spend on programming.  Now we have this whole new set of things called “The Internet”

Rich Ross: One of the things that drives me insane is that I do press all over and am quoted as saying it costs $4.4 million (for High School Musical).  I’m asked if that’s a lot for a TV movie. Parents and kids don’t care if its a TV movie - to them it’s a movie. When you say it has to cost a certain amount, that’s in the minds eye of the industry.  ”The Hills” made people look at daytime on broadcast and ask why the Soaps cost so much.  The consumers are making the decision to watch what they want.  Daytime is “waiting for women to stop working or something” :::audience laughs:::  I don’t believe that’s coming back!

Blair Westlake: There’s a business model that’s changing before our very eyes - Video On Demand. Staggered by the comparative numbers of DVD purchases from 4th quarter 07 to 4th quarter 08 - 31% drop.  For the year, they were down 9%. Technology is affording in a way video in a cloud - a $4 VOD purchase is a compelling proposition.  It takes 4 of those viewing before you hit the same price of a DVD. Fact: 25% of DVDs sold are in the shrink wrap in the home and consumers are realizing that they’re buying stuff and never watching it. HBO offers a model where you pay and you can watch as many movies as you want over the course of the month - I don’t have to go out and buy all of those.  I can watch them for a really economic price. You’re seeing right now a big evolution and the consumer is doing it with the help of the technology.  Unless studios grab VOD and yank it back, there’s going to have to be a major evolution in the business model in how they make the content because the margin on $4 VOD is much less than $17 DVD. 

Steven Abraham: The consumer is driving the change - lets shift the focus to the consumer.  It’s unprecedented how much control they have so everyone wants to know what they want. 

Rich Ross: (What they find in research…) Girls medium multi-task - when you go into their bedroomthere’s computer, im, magazine, homework, 12 windows open on their computer and they effortlessly go from one media to another but they feature they’re favorites.  Boys are very linear.  I’m reading my book, now i’m playing my video game, now i’m watching TV - a lot of the same media is going on but its in a certain media. When you accept that you just have to get it done, you find ways to get it done. 

Steven Abraham: Do you feel like you have all the capability right now to understand consumer behavior? 

Glenn A. Britt: We need to understand what consumers really want - they want content when they want it and they want access to alot of content at any point in time on any device, wherever they happen to be in the world. 

Rich Ross: While we want the value we understand that the consumer doesn’t always have to know what added up to the aggregate. The consumer today just wants to know that they’re getting a lot for their money. 

Tony Bates: Some of what we’re talking about is that the industry can’t cannibalize itself but you have to know where things are going. We’re not only talking about gender differences, but also generational.  Millennials use technology totally differently. 

Steven Abraham: Closing question - Where is communications going? 

Tony Bates: Video traffic is dominating the internet and is still primarily and one-way mechanism.  This is the tip of the iceburg of what we’ll see.  Next, communications is going to be linked to all forms of social media.  Networks are going to have to become more two way.  After that, there will be a whole new set of ways on how to do business.  Things need to be simple.

Glenn A. Britt: Two things converging - Human beings are social and technology is allowing people to communicate with people who aren’t right next to them.  Storytelling is also very powering and its always going to exist.  Technology is making that available in ways it didn’t exist before.

Rich Ross: Storytelling itself is whats reflected in user-generated content. The inspiration of that underlying storytelling is allowing people to engage - they’re making videos because of things like HSM but not just on their own.

Blair Westlake: On the delivery side, you’re going to be able to see in close proximity theatrical films at home.  The business model and limitations on what you can do are going to drive the change. What its going to come down to, like most things in life, is the price.  The price will drive when and where you get it.  

Q&A

Comment from Keval Desai, Director of Product Management at Google - Agree that TV is the killer app and that internet useage has not taken away from it.  What TV can learn from internet - experiementation.  The internet community doesn’t wait for standards - it allows for tinkering.  Use the feedback from end users to formulate strategy.  Also, revenue and cost benefit from new technologies. What the internet has done is bring new advertisers to the marketplace because they couldn’t afford it with TV and there is a lower barrier to entry.  The cost of video production has fallen - anyone can be a videographer. TV can benefit from being more like the internet.

Q: To Glenn A. Britt - are you worried about a world where the only value you bring is physical distribution? 

Glenn A. Britt: It’s something we’re  concerned about b/c currently we sell services AND physical distribution.  A lot of what we’re doing is designed to make sure we stay relevant as a service provider.  

Tony Bates: There’s a lot that goes into delivering a high quality experience on TV and that stuff has to be managed.  There’s a lot of complexity in terms of scale and deliverability. The threshold of your shelve life as a consumer before you’ll complain is longer with premium content.

Q: How will the model for providing content change? Who will be producing shows in the future?

Rich Ross: A version of who’s doing it now, but probably a more diversified group.  You still need the wherewithal to make television and there are only so many places to go.  There will ultimately be less money invested in it and because the content is disposible, it gets expensive.  As much as there are people with a camera taking stuff, thats not what most people want to view.

Blair Westlake: The tipping point will be when a group of talent …what’ll happen is that there will be more and more unemployed people on the creative side and a lot of people with idle time. Someone is going to round up a group and they’re going to come up with the equilivant of HBO and produce it and its going to through low-cost viral word-of-mouth and its going to come out of nowhere and there will be a groundswell. It will suddenly be traditional distributors will have their jaws hanging and say “how did this happen” - it will change the entire business.  This is not-to-distant future. 

And with that the session concluded.  What do you think? Do you agree with the big-time executives?  Leave a comment!

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