Media Giants Must Embrace the Digital Frontier

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by: Diane Mermigas

The growing rift between content providers and mainstream distributors from Time Warner Cable (TWC) to Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL), which are protecting their turf by connecting with mobile consumers in new ways, is beginning to resemble an existential play.

All of the players are desperate to preserve the status quo -- even as interactivity’s new, inexorable reality sets in. They are inching their way into the digital frontier, while empowered consumers and tech-savvy outlier companies race past them, defining the new rules of play.

In this hotbed of transformation, lumbering media giants have swiftly been reduced to contemplating their existence. Will over-the-top streaming video on the Web eventually upend costly cable and satellite television delivery? Or will cloud commanders, such as Amazon and Google (NASDAQ:GOOG), trump them all with cheap, plentiful services? Is Apple’s ecosystem of devices and walled content gardens going to prevent mainstream content producers and distributors from determining their own destiny because CEO Steve Jobs has liberated tech-happy consumers?

Bottom line: will the established media survive intact to see the next decade? Let’s hope not.

According to disruptive innovation guru Clayton Christensen, even the biggest, most dominant companies resisting change are destined to decline, driven from the market by newer products and services designed for a new set of customers disillusioned by the incumbents.

In that broader context, the swelling ruckus over who owns what content when, and who has what right to put it where looks like an exercise in futility. It looks like it would be wiser to embrace change than fight it.

But alterations in corporate mind-set don’t come easily. Tech coups are never bloodless. Old-line media are living up to their name by nitpicking their way into the digital age, acting as if they can reverse new consumer behaviors and expectations -- or prevent the demise of their business model.

Consider this latest tit for tat:

*Time Warner Cable recently launched an iPad app allowing its paid subscribers to view their TV fare on the tablet while in their own home. The attempt to pacify the roaming content desires of consumers couldn’t be lamer! Still, Time Warner Cable has been steadily reducing the cable channels it transmits this new way by more than one-third under legal threat from a dozen content providers that didn’t have the foresight to include wireless mobile transmission in their existing licensing agreements. Time Warner has compared the muscling by dissidents with trying to hold back a river current with a "feeble karate."

  • Cablevision is ready to join the pack with its own iPad app. Other cable and satellite operators and the telephone giants [like Verizon(NYSE:VZ)] -- as well as individual cable networks -- say they have streaming apps coming out to retain, not just charge, consumers. As content owners continue to fight the portability of their creations for the sake of relative revenues missed, will they be blunting their chances to reach greater numbers of consumers and dollars later? Consumers rightfully rationalize that when they buy the rights to content once, they are done.
  • The most weighty of the content providers -- Disney Co. (NYSE:DIS), Viacom (VIA.B), Fox (NASDAQ:NWS), Discovery (NASDAQ:DISCK) and Scripps-Howard (NYSE:SNI) -- are straining to control the spigot even though Apple takes 30% of revenues off the top of its content alliances and free exposure only goes so far.


As BTIG analyst Rich Greenfield pointed, while the parties continue bickering, Netflix (NASDAQ:NFLX) is grabbing the attention of consumers who just want to watch what they want, where they want, and the field of video pirate services grows by leaps and bounds. While he does not condone piracy, Greenfield’s video demonstrates just how seamless and easy it is to access almost any commercial TV program or film on the service a hot-wired device such as the iPad.

“Digital is simply hard for companies with legacy businesses to protect. Content owners want to be paid more for enabling TV Everywhere, especially with viewership not currently tracked on new platforms, like tablets and smart phones (potential to hurt advertising),” Greenfield says. “Fighting incremental fees in the face of rising piracy seems foolhardy.”

What are the TV and film industry powers-the-be going to do: shut down Mobilevids.org on the grounds that it has the same destructive capabilities as Napster? According to the struggling music industry, that train has already left the station.

Amazon’s new cloud storage for music -- which undoubtedly will be expanded to include films and TV -- could trump them all. Amazon wants to use its long-standing dominance in cloud storage to secure a much bigger footprint in global digital sales of electronics, books and general merchandise. It now has only 8% of global e-commerce, which is only 6% of retail; it clearly does not mind taking down mass media in the process.

Because Facebook already has the corner on social infrastructure, Webush Securities analyst Lou Kerner is betting that by 2015, the social network will have a market value of $234 billion with $11 billion in profits on $22 billion in revenues.

The irreconcilable gap between established media and “The Second Internet” Kerner describes in a new report is because Time Warner Cable, News Corp. and Viacom have barely adopted .com dynamics at a time when consumers' personal relevance and connections will be more important than branded content or companies.

So far, Comcast (NASDAQ:CMCSA) has maintained a low profile, walking the fine line between being the dominant U.S. cable operator and new owner of NBC Universal and its content treasure trove. While Comcast touts its Xfinity every content initiative, it is now consumed with integration and unfamiliar content concerns. There is little chance that Comcast NBCU is going to break the log jam here.

Before that ever happens, some upstart disruptor -- like a film-streaming, advertising-selling Facebook -- is trampling all over its triplecast revenue streams. (Facebook can accomplish the same communications content sharing and data transmission on more friendly terms and never call it that!)

I
s Comcast NBCU too big to fail? Would it take years? Maybe.

But these days, stubborn, in denial companies are dropping like flies: Blockbuster (OTC:BLOAQ), the DVD, print barons. They all dug in their heels when they should have shifted to new business models that capitalized on changing technology and consumer demand.

Christensen is right. If you don’t do it, someone else will.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.