4GM: The Plausible Premise and the iTunes Monopoly

A while ago Dean sent me this Variety article. The upshot -- the networks are moving to video, but the ad revenues aren't there. Here, for me, are the nut graphs:

So why are the networks investing in sites like Hulu and allowing widespread online distribution of their costly exclusive programs? Because they saw what happened to record labels, which avoided the Internet for years when they couldn't figure out how to protect their old business model. In the process, they lost millions of consumers to piracy and other digital-friendly alternatives. Thanks to faster connection speeds and cheaper storage, accessing video is about as easy now as music was a nearly decade ago when Napster began making headlines.

(SNIP)

Which leaves Hollywood in a Catch-22: If it doesn't follow increasingly wired consumers online, it could lose future generations to piracy, amateur YouTube clips and videogames. But if too many people switch to services like Hulu too fast, the business model of television could collapse.

First off, the phrase "piracy, amateur YouTube clips and videogames" is in the wrong order. Videogames come first in that list of threats.

Where was I -- oh, well, yes. The business model of television will collapse. I'm not bloody HAPPY about it. The business model of television pays me quite nicely, thank you very much. However ...

... right, detour, stay with me. Our favorite new-warfare guy Jon Robb writes about the "plausible premise" in new open-source insurgencies. I'm not going to get into his new warfare theory, but basically what you really need is a plausible premise. i.e. "You can kill US soldiers with IEDs." and then the new Interconnected Marketplace Of Shitty Evil Ideas will solve the problem for anyone looking to kill US soldiers with IEDs.

Or, more succinctly, in order to get the marketplace off its ass to solve the impossible, you have to just pull off the highly improbable and make sure everybody knows about it. Show it can be done, show how you did it, and watch the "marketplace" attack because you've made the "premise" "plausible".

Now what's kind of interesting here is that everybody in TV looks at the music industry collapse as the Bad Story and iTunes as the plausible premise for digital entertainment distribution. iTunes makes money. QED, there is money to be made in digital distribution.

But drawing this conclusion ignores one of the fundamental facts about iTunes -- it is a de facto monopoly. As Clay Shirky writes quite shinily here, a series of lawsuits and circumstances cut off pretty much all other music distribution channels online. Tying the system in to great hardware was the clincher, of course, accelerating the process. But end of day, if you're buying a song quickly, easily and legally in the US, you're buying it from iTunes.

The TV humans are missing the point of this plausible premise -- you can make money off digital distribution as long as you have a monopoly. It's a little shocking that they're missing this, as the massive financial success of the entire television industry up until recently was based on them having a monopoly. A taxpayer-funded monopoly, no less.

Now, let's see how many ways I can watch HEROES right now, off the top of my head:

1.) On NBC when broadcast - ad supported

2.) On NBC.com - ad supported

3.) On HULU - ad supported.

4.) XBOX LIVE - direct purchase

5.) iTunes - direct purchase

6.) Amazon Video on Demand - direct purchase

7.) Netflix - streaming, subscription ... hell, I have no idea what this revenue model is. Oh, and that Netflix is now available on cable boxes and game consoles.

(You'll note that these revenue streams all pay different factions in different percentages.)

This, my friends, is not a monopoly. If you want to continue to do an ad-supported model ("the business model of television"), then every streaming version -- and broadcast is theoretically a really dumb streaming version that's riding on the remnants of the old monopoly -- takes viewers away from every other streaming version. In an extra special bit of stupid, NBC Universal is actually competing with itself by putting streaming episodes on both NBC.com and Hulu. Now I'm sure there are cross-platform advertising bundles in play, but it's still a dilution of the brand.

Ironically, CBS's utter refusal to stream their shows, generally seen in the industry as a failing, is the smart play. You want a CBS show, you either watch/tivo it -- where the ad pricing from the old monopoly still creates at least a framework for monetization -- or you buy it once the advertising bloom is off the rose, and the money filters back into the Viacomm coffers. Or you pirate it. And we have yet to see a single reliable statistic on revenue loss due to piracy.

So what's going to happen?

No idea*. But in the short run the smartest thing for all the studios who already have programming on Hulu is to shut down all video streaming on their network home pages. Hulu got there first and fastest. If you're not on Hulu, get on it, or shut down streaming on your own site to take advantage of what's left of the old model. If you must have broadcast and streaming exist simultaneously, then force the streaming monopoly.

Apple's advantage in iTunes was that they weren't a music company. They could fuck another industry with a clear conscience in order to establish their monopoly. (This, btw, is why Apple TV sucks. They tried to play too nice with the studios) What's tricky is that there's going to be a lot of factional infighting in these companies as we move to the new model, because:

Hulu is owned by the studios who own the networks that Hulu is going to kill.

Ironically, whoever comes up with the Magic Box that moves streaming internet to the TV in a grandma-friendly way will win. This means that if the studios were smart, they'd be hammering at that tech, pouring money into it like mad so they own it, rather than fighting it. Of course, they're content companies, not tech companies, so that's probably not a priority.

And in the end, Netflix will win. But that's another post.

* Well, actually, I think download's going to die or be subsumed into the equivalent of a cable premium fee for "access" to the material. But that's more a gut instinct than an arguable position.