When it comes to television, cable and satellite operators will tell you that the Internet and new video-on-demand services have changed everything. They're wrong. Just this weekend, my wife and I searched Comcast's
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What's this sort of speculation doing at a site dedicated to great stock ideas? Good question. I write these sorts of stories because, as an investor, I know that disruption occurs when deep-pocketed sufferers decide they need relief. Nothing leads to greater long-term returns.
Defining disruption and the opportunity it creates is harder than it sounds. For me, the process begins with three questions:
- How painful is this headache? (Define the size of the problem.)
- What will sufferers pay for relief? (Calculate the potential upside.)
- Is this the best aspirin available? (Assess the proposed solution.)
Let's tackle each question in order.
Tuned in but turned off
As headaches go, not being able to watch our favorite TV programs doesn't mean much. But think about this problem from the advertiser's perspective. Researcher eMarketer says spending on TV ads grew 9.7% to $59 billion last year but is expected to slow to just 2.9% annually from now through 2015.
At the same time, Facebook should double revenue in the year ahead and should continue to see increased commitments from big ad buyers who prize the engagement that social ads bring. (Example: You can't "like" or forward a clever TV ad.)
And while overall viewership is on the rise, consumers appear happy to be spending more TV time away from the tube. Nielsen cites attitudinal data that says consumers would give up their regular cable or satellite service if most of their programming choices were available online. The appeal of on-demand models such as Hulu Plus and Netflix
The challenge of low-cost models
Unfortunately, the story gets a lot more complicated once you introduce pricing models. As my Foolish colleague TMFBreakerTAllan pointed out on our Motley Fool Rule Breakers discussion boards recently, the large-scale nature of cable and satellite systems and their all-you-can-eat models allow specialized networks such as The History Channel to co-exist with CBS
Fair point. But I'd also submit that Comcast, DISH Network
Channels? We don't need channels where we're going
The natural question, then, is whether the iTunes model can work for TV. But I actually think that's the wrong question. Instead, I wonder whether the iOS model can work for TV. Every "channel" becomes an app available via an intuitive interface onscreen, and controlled via a simple touch-screen interface. Apple TV would become a server rather than a set-top box, broadcasting content wirelessly to any home screen seeking content.
With channels as apps, Cablevision, Comcast, Dish and others could continue to sell all-you-can-eat packages. Buying their pipe would also get you their app. But with Apple TV as the primary interface, you could also buy smaller apps that represent a single show, or a season of shows, or anything else a developer might imagine. Stick a programming interface between a content library and a network and then get to coding.
But again, this sounds simpler than it is. The point is that customer pain creates a need for relief. In TV, producers and distributors have tried passing off limited on-demand and meager apps as relief when all they're really offering is a placebo. Consumers want real medicine. I believe Apple, whose iPad already aggregates more media than any other device of its kind, will be the one to create the right aspirin.
Do you agree? Disagree? Let us know what you think about the race to transform TV, Apple's offerings, and what else might disrupt the medium using the comments box below.
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