Innovation in America: Welcome to the You Channel

This article is part of our Innovation in America series, in which Foolish writers highlight examples of innovation going on today and what they see coming in the future.

We live in an on-demand world.

Throughout North America, Europe, and much of Asia, we can visit a fast food restaurant and fill our bellies at virtually any time of the day or night. We have roads that stretch across entire continents, allowing any one of us, at any time, to simply get in our car and go visit a destination.

And, of course, we have the Internet, and services such as Wikipedia and Google’s (Nasdaq: GOOG  ) market-leading search engine. Information, once buried in the deep archives of a dank library, is now just a click away.

Top-selling books are just as accessible. Navigate to Amazon Instant Video or iTunes, and you’ll find digital copies of thousands of titles ready for purchase.  Ask and ye shall receive; it’s more than a Biblical phrase – it’s the American Way. Except, of course, when it comes to film and television.

Why cable companies are standing in the way of innovation
If my Foolish colleague Travis Hoium is right -- if innovation is the process of turning money into ideas, and then transforming those same ideas back into more money -- you’d have to rewind to 1933 and the first drive-in movie theater in Pennsauken, New Jersey to find the last time TV and film distributors dabbled in innovation.

These days, "bundling" is what passes for innovation at Comcast (Nasdaq: CMCSA  ) and elsewhere. The company’s Xfinity service promises high speeds and healthy savings by combining phone, television, and Internet service into a single package. We’ve got it here at the Beyers household, and there’s rarely a day that goes by when I don’t regret the decision.

See, bundling isn’t really innovation. It’s an attempt to keep customers from picking and choosing the very best services by trapping them into multi-year contracts that come with huge cancellation fees. The result? Complaints don’t matter; neither Comcast nor any of its peers are obligated to listen to customers who want more control over what they watch and when. Precisely the opposite of what you would expect in a world of on-demand choices.

Meet the You Channel
Mark my words, Fool: this model is doomed. Utterly, completely, and irrevocably doomed.

Disruptors can be found everywhere, but if there’s a poster boy among the would-be telecom killers, it’s Google. The search king is slowly creating an entire ecosystem for entertainment delivery:

  • First, Google has an experimental fiber network that delivers Internet service at speeds of up to 1 gigabit per second. To give you a sense of how fast that is, my premium Xfinity cable service right now downloads at about 25 megabits per second, and uploads at about 5 megabits per second. Google’s fiber connection would be at least 40 times faster.
  • Second, Google has a customizable interface we call a browser. The search king has even made it into an operating system that’s powering small-scale, yet customizable computers called Chromebooks. Apps put control in the hands of users rather than operators.
  • Third, Google has channels. You know it as YouTube, and it not only contains home movies and popular clips, but also an increasing variety of custom content from both niche creators and big-name Hollywood stars. Google Play, meanwhile, right now looks like a lightweight version of Amazon Instant Video but, over time, could become a legitimate alternative for those interested in watching TV and movies wherever they are.
  • Finally, Google has a dynamic advertising network called AdWords that collects data and displays pitches that are more likely to be relevant to those watching. Studios don’t like this mechanism, because it separates the programming wheat from the chaff, which, in turn, makes it more difficult to sell whole programming packages where a few hits subsidize the also-rans.

So be it. Innovation always introduces chaos, and while a more tailored TV experience might change the way mainstream distributors buy and broadcast programming, the pervasiveness of the Internet as a delivery mechanism makes studios and big-name distributors less necessary than they used to be.

In short: we’re tilting towards a future where everything on your on TV, your iPad, and computer is custom selected by you, for you, at the time of your choosing.

Winners in the making
Others besides Google will play a role. Certainly, Netflix (Nasdaq: NFLX  ) , which pioneered the idea of being able to start a program on one device and end it elsewhere, and Apple (Nasdaq: AAPL  ) , whose iTunes store -- much like Amazon Instant Video --  allows consumers to subscribe to shows, and watch at their leisure, shortly after they air live. Want something? Login and get it.

Finally, let’s not forget radio. While it’s still possible to listen to terrestrial radio on a dual-band AM-FM receiver in your car, Pandora Media (NYSE: P  ) allows users to build their own channels, while sampling new tracks that might seem interesting. Spotify offers even more control, and embeds social tools.

Forward to the future of entertainment
How soon can we expect entertainment to shift to an entirely on-demand model? One theory says not soon, if only because we’ve been talking about this since 1967, when J.C.R. Licklider first introduced the term 'narrowcasting' -- or media delivery tailored to individual tastes -- to the viewing public. On the other hand, today’s technology differs substantially than what we had just a few years ago. There’s also a business model in place to support on-demand offerings.

Hollywood won’t go quietly, but thanks to the likes of Apple, Google, and Netflix, the shift is already well underway. In the meantime, there's another technological revolution happening right now, right here in America, and it promises to forever change the way consumer products, such as high-definition displays, are manufactured. Grab this free video report to learn more about the next big thing in technology.

Also, if you’re an Apple investor looking to stay ahead of the game, check out the exclusive analysis inside our new premium research service on Apple. By joining, you’ll receive a full year of updates, and tons of knowledge about Apple’s biggest opportunities and threats. Check it out now by clicking here.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple, Google, and Netflix at the time of publication. He also had a long-term call position in Netflix. Check out Tim's web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Amazon.com, Apple, Google, and Netflix. Motley Fool newsletter services have recommended buying shares of Netflix, Apple, Google, and Amazon.com. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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