Is Internet Killing the Video Star?

My career in digital media started at a pivotal moment. The year was 2001, and the U.S. Court of Appeals for the Ninth Circuit had just upheld an order for Napster to begin identifying and removing copyrighted songs from its music file sharing service. I was hired by a young startup that had recently changed its name from CDDB to Gracenote to help Napster use music recognition technology to comb through millions of tracks to find copyrighted works from the labels that it had to remove.

Napster was the first of its kind, providing music fans with easy and free access to albums and tracks and giving them a reason to avoid buying expensive CDs — the lifeblood of the music industry’s business. The ability to share files around the globe reduced the barriers to music discovery and allowed Napster users to find new artists and songs in ways never imagined. It was a truly disruptive service, and it scared the hell out of the music industry.

Instead of embracing the massive adoption of this new service, finding a solution to accommodate the changing landscape or harnessing Napster as a future platform, the music industry held onto its rigid CD-based business, prayed that file sharing would go away and eventually tore Napster down.

Today, you can draw several parallels between the music industry in the late ’90s and early 2000s and the TV industry today. Viewing habits are changing. Just like music in the early 2000s when young adults started turning away from physical media and opting for singles versus complete albums, viewers are “tuning in” very differently to movies and TV programming.

Today, if Netflix were part of a cable package, it would be one of the top viewed networks, according to a Facebook post from CEO Reed Hastings. Meanwhile, Nielsen recently reported that cable cutting is up by 150 percent since 2007, marking a significant shift in viewer behavior. Additionally, Aereo CEO Chet Kanojia is now assuming the role of Shawn Fanning by intimidating the cable companies with a disruptive service that lets viewers access broadcast programs at a much lower cost than cable packages.

But, instead of adapting to changing viewer behavior, the cable companies, Hollywood and broadcasters are holding onto old business models for dear life and calling the lawyers. Sound familiar?

Avoiding a Bad Sequel: Lessons for the TV Industry

Ignoring or fighting digital consumer behavior is a recipe for disaster — resulting in rejection faster than an unpalatable creation by a contestant on Hell’s Kitchen. It’s time for TV broadcasters, content creators and advertisers to innovate their businesses instead of maintaining existing models through threats and litigation.

First, they need to understand that their viewers are setting the rules and defining the life expectancy of their programming and services. They will decide your fate — not you. Consider the following:

• You Can’t Take Content Away: The outdated model based on controlling distribution is dying. If you force it underground — that is, “illegal streams and downloads” — you’ve lost the battle.
• Adapt or Die: The millennial generation is addicted to YouTube, on-demand and streaming services. They no longer tune in at a specific time and date, and are increasingly shying away from paying for premium cable bundles. With filmmakers and producers spending the time and resources to make great TV programing, like “Homeland,” “Girls” and “Mad Men,” delivery methods should be figured out to get these shows to viewers who won’t pay $150 per month in subscription fees.
• Open the Windows: The “distribution window” is used by Hollywood to define how long a VOD and streaming service can distribute movies and TV programming. The problem? If the window for season one of “Downton Abbey” is about to close from Netflix or your cable provider, and you haven’t watched any of the episodes, you better call in sick to work to get your fill of the Granthams and the Crawleys, or miss the entire season altogether.
• Stop Explaining Business Models: Movie and TV viewers don’t give a sh*t about business models. They just want to watch their favorite shows — whenever and wherever they choose. The music industry followed the same pattern in the early 2000s, explaining why the economics of music streaming and downloads would not support artists and the industry. Guess who won?
• Open Up to Developers: Don’t assume innovation will only come from within your organization. By tapping the developer community, you will be able to move faster and find new ways to use or distribute content, which could result in new monetization strategies. Some of the more forward-thinking media properties, including ESPN, are already doing this, allowing developers to hack ad strategies and sports data.
• Rethink Discovery: As video distribution evolves, there needs to be a corresponding evolution in how people discover new movies and TV programming. If viewers are paying hefty monthly subscriptions (which today support a lot of what they don’t watch), it is critical to provide paths to find what they really want to watch. The current TV guides embedded in our set-top boxes have to be completely rethought.
• Reinvent Measurement: We still depend on a small sample of viewers to rate the popularity of programs and we base all advertising decisions on this data. However, the technology to measure real time usage inside the TV exists today and has the potential to enable more precise measurement and better targeting of advertising.

The TV industry’s fate is as much in the hands of viewers as the next American Idol. Not only accepting, but also realizing that TV programs and movies are easily accessible via proliferating distribution channels such as Netflix and Aereo, the industry can turn the tables and find opportunities with additional platforms and options to reach viewers for their eyeballs and spending. Most importantly, cable, broadcasters and Hollywood have the opportunity to move forward and determine better and more efficient business models to thrive.

Forward-looking networks like HBO have slowly worked toward a compromise by offering specialized content that depends on the Pay-TV ecosystem. However, with cord-cutting slowly beginning to eat into cable subscriptions, the HBOs of the world need to take distribution models a step further and offer everything streaming with direct-to-consumer subscription models, or risk losing their next core audience. If TV viewers are willing to pay for subscription streaming services, then the industry needs to jump on that bandwagon.

Rewriting the Ending: To Be Continued

The nature of distributing media is evolving, and the music industry learned the hard way as it struggled to adapt to a new generation of music fans. More than 10 years after the music industry forced Napster to tear down its P2P platform, the same industry has embraced free, ad-supported services from Spotify, Rhapsody, Deezer and others. In fact, this year marked the first time that the music industry made a profit since 1999.

Instead of struggling against the Internet Age and the connected world, broadcasters, cable companies and Hollywood can capitalize on the audience’s need to enjoy what they have to offer — great TV programming. Content will always be king and the industry creates a tremendous amount of really compelling material. It just needs to keep the crime scenes to “Law & Order” and save the video star by taking a cue from music’s past.

As president of Gracenote, Stephen White has played a critical role in shaping the company into a digital entertainment leader. He spearheaded the development of Gracenote technologies for top entertainment platforms and brands, including Apple, Ford and Sony. Today, he oversees all company strategy and operations, and is responsible for growing Gracenote’s core business and vision.