Traditional Television in the Digital Crosshairs

by: Diane Mermigas

The big question for anyone in television is how to get in front of - rather than be trampled by - the onslaught of seminal change coming from a multitude of places.

This year's fall television season unfolds against an increasingly connected world and consumer indifference to how and where they access network fare. Many will access the programs they want to see streaming online from network Web sites and third parties, such as Apple's (NASDAQ:AAPL) iTunes. It appears Apple CEO Steve Jobs, who also is Walt Disney's (NYSE:DIS) largest shareholder and board member, will have ABC's backing to provide 99-cent iTunes windowed viewing of its new season shows, which is half the present price to buy and download individual episodes.

This latest variation of new TV economics and marketing offers consumers a streamed 48-hour sneak peak of their favorite series before they premiere on the network.

The lame resistance from CBS (NYSE:CBS), NBC and Fox is premised on the Apple arrangement further eroding their deteriorating stranglehold on the public's attention. They argue that their branded streaming options, including Hulu and, are adequate alternatives, even as Netflix continues its bold, agile moves - the latest being its iPhone and iPod Touch apps. That is the difference between getting out in front of change versus trailing it.

The networks as content distributors and producers are being disintermediated at every turn by the plethora of video options and access. Consumer response to evolving video alternatives from Apple, Google (NASDAQ:GOOG), Netflix (NASDAQ:NFLX), TiVo (NASDAQ:TIVO), Vudu, Amazon Video, Boxee, Roku, etc. continue to reset the rules of play. In the months ahead, more potent alliances will occur among service providers, consumer electronics manufacturers, advertising and content managers, and premium video producers and distributors to supercharge connectivity - especially at home.

Many points of contention remain, such as: Who controls the all-important user interface? How will advertising be creatively and economically reinvented? How will personalized functionality (including social text and video, target marketing and commerce, maps and calendars) be integrated?

Apple is one of the principal change agents adept at leveraging and revitalizing its ecosystem. The latest example will come in a Sept.1 press event that could showcase new video features for the iPod, new streaming content options for iTunes and an Apple TV relaunch. While it continues to raise the bar on mobile connectivity, Apple has yet to deliver the transforming in-home television experience it has promised for years.

Still, a ubiquitous video everywhere value chain that is coming together is gradually displacing conventional business models and assumptions by shifting the focus from corporate to individual consumer preference. That broadly translates into subscriptions defined by personal choices and tools. The essential pay walls advocated by WPP CEO Sir Martin Sorrell and News Corp. CEO Rupert Murdoch will succeed when consumers are willing to pay for customized products and services that can make a difference in their lives.

The skeptics can dispute individual data points and forecasts, but there is no denying the collective direction and accelerated pace of change. But sitting in the crosshairs of a digital revolution is no excuse for doing nothing.

The defenders of the status quo will argue that although 40% of U.S. broadband homes watch long-form video on computers, they are not sacrificing TV viewing to do so, according to Parks Associates. The TV-PC connected homes watching video online that will soon morph to 10 million represents less than one-tenth of the overall television households.

Broadband connected game consoles used to view video will top 40 million. Other connected home devices - connected TVs, whole home DVRS, networked digital video players and connected Blu-ray players - will contribute to the estimated $5 billion in connected video revenues that will be generated by 2014, Parks says.

But it doesn't end there if you believe that the connected TV will morph into a broader, multipurpose portal for the smart home. Cisco's recent acquisition of Extend Media underscores just how broad and deep the connected home arena is becoming. There is more aggressive involvement by integrated solution providers, from IBM and Accenture to Roxio and Yahoo! As an emerging video vanguard creates new access and payment schemes, television's storied networks will be forced into a new pecking order.

Even cable, satellite and telecom providers are on notice about their ability to command bundled service and pricing. The first reported decline in pay TV subscribers (video cable, satellite and telecom) in the second quarter is a harbinger of the cord cutting to come. At the very least, it is another sign that there's more changing on your TV screen than the networks' prime-time schedules.

While it is arguably the most sacrosanct of media terrain, television is going the way of music, film, books and the telephone in a radical digital revolution. Google's new voice and texting features from inside Gmail, sure to match Apple's face chat, could challenge Skype and pummel what's left of landlines. The more rapid-than-expected consumer adoption of Apple's iPads for personal and professional use has some experts wondering whether e-tablets could eventually replace laptops. The e-reader wars are reviving, rather than destroying the beleaguered publishing business.

The important question to ask is how television's diverse players are capitalizing on this change momentum. Are they taking control and using it to their advantage or trying to stem the tides with futile roadblocks? The over-the top nibbling away at the edges won't kill the traditional TV business over night, but it will change it forever - and possibly create more value in the process.

Disclosure: None