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The ZDNet AnchorDesk by Jesse Berst took a broad swipe at broadcast television from the ZDNet's Anchor Desk. Some of the points seem far fetched to us at the WAVE Report.

Point

Dinosaurs became extinct when a comet slammed into earth and they were unable to adapt to environmental changes. Likewise, television networks are being hit by a comet called interactive TV -- and they risk extinction by failing to adapt to it.

I've told you before that interactive TV is going to be The Next Big Thing. A recent study by Jupiter Communications ranked interactive TV as one of seven technologies destined to restructure the consumer Internet economy.

Prime time is dead and it's going to be replaced by personal prime time created via interactive TV features. Specifically I'm talking about:

Hot spots. They'll let you take action (for example, order a pizza or get more info on that disorder Oprah is talking about) as you watch TV.

Electronic programming guides. Think richer, customizable, paperless TV Guides.

Programming on demand. When interactive TV began generating buzz, most assumed it would sit on fat pipes to be tapped into at consumers' discretion. But fat pipes are taking longer than expected to arrive and personal VCRs like Replay TV and TiVo are picking up the slack.

Two new deals this week brought the networks one step closer to extinction and these personal VCRs closer to dominance on the interactive TV front. First, America Online and TiVo joined forces to create interactive television applications. Then Replay Networks announced a $57 million strategic investment from media giants Time Warner Inc., Disney and NBC. I've also told you why network TV is faltering when it comes to new media revolutions. Here's where else the networks made stupid choices:

Networks stupidly cling to the old model of programming, rather than shifting to programming on demand.

Networks should have been developing products like TiVo and ReplayTV, not investing in them at this late date.

These recent dealmakers have a headstart. But interactive TV is still in its experimental stage, so other players are sure to join the race. For instance, lurking around the corner is Microsoft, who wasn't smart enough to hook up with one of these VCR-on-steroids companies to make WebTV a stellar product.

Now we know who's going to die. What remains to be seen is who's going to bury the carcass.

Counter Point - WAVE Viewpoint

Although the future may see interactive television playing a big part of home entertainment, the idea that Prime Time television is going to be upstaged is a bit exaggerated. This scenario can be likened to an earlier era of television when cable entered the market (then called pay TV). Broadcasters succeeded in convincing policy makers to restrict cable from penetrating larger cities from 1964-1972 in order to protect themselves. After 1972, cable restrictions were slowly eliminated and in 1984 cable was deregulated. This has not had the dramatic effect on broadcasters that everyone thought. A key component of this is Must Carry which requires cable to carry local broadcasting. As of 1995 the combined prime time ratings of the top twenty basic cable networks was 22.4, less than half that of the combined ratings of ABC, NBC, and CBS. However, the toll of cable is continuing to increase. In 1997 cable's advertising revenues finally gained the lead over broadcast television with $38,643,000,000 compared to $35,025,000,000.

There are several issues.

1 - The value of the TiVo and Replay services. Although both offer rewind type capabilities and the ability to time shift in order to watch the viewer's favorite shows, the real issue is the companies' business models. Both sell for $500-$1000 depending on hard drive capacity. This is an early adopters price. For example, the research in 4th Wave's Information Appliance study showed that 65% of all consumer electronics products are sold for under $70. We wonder if this is not the early adopter VCR phase all over again with less value.

We expect that the TiVo and Replay business models should more closely parallel the cellular model, where devices are practically given away and consumers pay for the service. With this model, cellular systems have grown from 1,231,000 subscribers in 1987 to 69,200,000 in 1998 while their fees have gone from $96.83 to $39.88. Until this happens only an elite group will experience interactive TV through a TiVo or Replay system. The TiVo $10/month service fee is and addition to the cost of the box not a replacement for the investment in it.

2 - Both of these personal television offerings must live off of the content provided by the networks and cable companies. One of the reasons for the recent investments was to protect the value of the content. Yet, there is little from keeping a well-equipped PC from doing much the same functions as both TiVo and Replay. This is where the major threat lies with the networks. That is, an open platform drawing TV schedules from the Internet, being programmed to eliminate commercials and creating videotapes on demand by writing from the hard disk.

3 - Both TiVo and Replay have to show that they provide something of high value to consumers that cannot be gotten in other ways. Lest we not forget, the functions of time shifting were seen 15 years ago as the high value of the VCR. The content companies even went to court over the VCR. Yet, the value of the VCR is not its time shifting but the ability to play movies and show one's own personal videos. The sustainability of a time shifting product business remains to be determined.

The threat to broadcasters is not about TiVo and Replay but their own narrow view of the world. As media shifts to digital including television, the broadcasters cling to concepts of ownership, distribution and value, which match the currency of the "I Love Lucy" show. See WAVE9052 for more details.

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Page updated 1/24/07
Copyright 4th Wave Inc, 2007