Back to School

Capsule:  In an environment where traditional business models are faltering, can partnerships between old and new media create the products and profitable growth schemes that last?  With all of our media choices, integrated products of real value in a changed economic landscape will be hard to build and, without collaboration, harder to sustain.

The Economist


It's back to school time.  The air is crisp.  Traffic swells.  Jay Leno debuts at 10 pm and we're in bed by 11.  Weary of the Groundhog Days of politics and the economy, we turn to the gym, football and the new TV season.  Even HBO's got something new to watch, proving that, despite its marketing slogan, it's still TV.


What will our kids do while we watch TV with our laptops?  They'll decline the shared experience of series debuts in favor of watching what they want how they want.  They'll still be susceptible to TV brands, especially those recommended by their friends, but since their methods of consumption are different, they'll speed through thousands of ads without remembering what they've seen.  They'll clock hours of broadband and mobile time in pursuit of connecting to friends, distraction, entertainment, information and their studies.  They'll be drawn to status, the environment and the edge.  And they'll be agnostic to economics.


Distribution media don't have an answer for the future when our kids become the buying public.  In telecom, texting only takes you so far and games economics while promising are still immature.  In cable and satellite, reliance on multiple TV screens in the home along with one wirelessly expanded internet connection is the business foundation.  In a third of cable households, the monthly rate also depends on value-losing wired voice.  In telecom households, wired voice is critical despite its increasing obsolescence.


For cable, satellite and the telcos, adding more looks like it means more TV choices of narrower or duplicative value since virtually everything we want to spend hours watching is already there.  For cable and telecom, adding more broadband speed is costly, as is raising network performance standards to take into account increasing wired and wireless consumption.  


More broadband speed is also an unmetered utility play without brand tethers to its biggest consumers.  The broad-brands to which our kids are loyal are the networks that seem to stream free from their laptops and mobile phones.  How will we create revenue-generating relationships with generations who believe they're entitled to everything of value for free?


The cable industry has a few pregnant options that may support the next generation of customers and management.  All of these options compete aggressively with free cash flow generation which secures virtual and sometimes real points on stock value.   The cable industry suffers because much of its amazing recent revenue and cash flow growth from diversifying into broadband and wired voice media was inappropriately discounted by an investment community that devalued cable innovation, preferring reduced capital expense.  


Bundled cable product growth also hit its peak when the economy was going into decline.  Bad timing is tough; cable's in great company, though, and that can mean business development opportunity.  Collaboration may become a real second-life for a non-collaborative industry that needs to engineer a few strategic grand slams in the next five years.


In addition to money and partners, investment in the next big cable growth opportunity will require an increasingly youthful fascination with technology as we age.  A few promising notes: inviting customers to opt into their own advertising choices; bundling eco-friendly and health-conscious new products that support customers at home and when mobile (including enhanced commerce and smart energy management;) enhanced communication as immersive entertainment, including interactive HD and 3D on TV, games and video conferences; and, enhanced integrated video and broadband GPS (meaning navigation and real GPS) on TV, the PC and mobile.  


Each of these options will require a deeper product bundling of content and distribution than we've seen in the media to date.  Business models will change as the media invests in new products that offer entertainment and communication, as well as meaningful personal engagement with global communities and ideas, breaking through company walls by merging distribution and content. 


Stepping through the choices: inviting customers to choose at least some of their own ads is fighting fire with fire following big advertising's decline based on the Google-power that overtook it.  Google is a massively efficient advertising network that sets the prices for media advertising at a value-crushing level for less efficient media.  Offering customers some control over the ads they see on TV, broadband and mobile simulates search.  It also invents a new value for a generation for whom the price-value equation of many products is irrelevant.


If--in addition to the ads that the new and old media majors are sending me on every screen I see--I can reserve some of my personal ad capacity for the brands and industries I want to learn more about, everybody wins.  If my cable company offered me a personal voice in the selection of the ads reaching me, I might look for more information about battery-operated cars or solar powered batteries or sustainable wood and paper products or the best grass-fed lamb and beef I could buy and cook for my family (while the endless mercury-and-methane-laden news I hear and read makes eating less of a daily pleasure and more of an eco-burden.)  Or I might look for polyester and porn, but putting these last on the promotional list would be up to the distributor.


Since cable companies have the capacity to link broadband and TV subscriptions, they can move content from screen to screen in the home.  A strong cable and telecom partnership can move content from the home to the mobile screen.  A new generation could find new loyalty for media brands that reserved 25% of their advertising capacity for ads that were personally selected.  


A new media business strategy should charge more for these ads, knowing that they would be viewed with more of an appetite than most content--meaning more brand loyalty and better retention for content and distribution.  Today, the part of the cable business that has an appetite for advertising is content; for the distribution side, the piece of the local avail business they keep amounts to less than 10% of their current revenue pie (without taking the percentage of avails they keep for their own product promotion into account.)  


If cable and satellite content and distribution were able to agree on a new economic distribution for advertising, targeting that was largely consumer-controlled would be possible.  And customers--not just advertisers--might pay more for the ability to double their self-selected personal ad capacity.  Isn't most internet content already a fusion of ads, entertainment and information?  Personal control, a huge value-enhancer, makes it tolerable.


Big distribution--cable, satellite and telecoms alike--might also consider adding a few real eco-friendly and health-conscious products to their bundles.   Triple Plays can become Grand Slams if the multi-product bundle offers new product choices with leverage on the distribution platform and the competition.  


Smart homes where customers can monitor energy consumption as well as their most treasured physical environments will support gold-plated household mobility.  Cable platforms have all of the elements to build and manage smart home products, but they've not been considered a big enough business until now.  As wired voice values diminish, wired communications services need to find new value levels and eco-friendly (meaning, economics-friendly as well as ecology-friendly) products can fill profitable growth gaps; as can health-conscious monitoring and data support products that link us with our aging, at times distant, often home-bound families and to each other when we're sick.


Cisco's John Chambers is all over immersive communications experiences as he and his huge complex build international networks between products, companies and business models.  It would be great, given the prevalence of Cisco inside the cable and telecom industries, if major US distribution companies built the products that would make collaborative connections profitable.  According to a recent interview in The Economist, Chambers believes in the video teleconferencing business and plugs his company and his home in accordingly.  Multi-player games and other interactive entertainment experiences "played" across cable customer bases, across cable companies and across media distributors, strengthened with immersive HD, 3D and music technology that brings everybody back for more, will be very sticky and as potentially profitable as HBO.  They'll also reveal a lot about customers for the smart companies who want to have and use self-revelatory marketing wisdom.


And, as choices grow, navigation--TV and broadband GPS--will grow as a business opportunity for traditional distributors--including cable, satellite and telecom--and for new distribution opportunists, including Sony, Samsung, Nokia, Microsoft, Apple and everyone in-between.


It's almost impossible to watch everything media offers us today.  If we try to add a good deal more, we'll cripple our growth opportunity.  It's hard to imagine true "Internet TV" merged with cable and satellite TV all within our reach.  New distribution and content products that make getting to our knowledge and entertainment destinations easier will require some sense of the starting line.  Internet and gaming companies have little passion for building on what's already available, taught by cable, satellite and telecom distribution behaviors that discouraged collaboration, preferring to start fresh.  In a bad economy, starting fresh may be a bad idea.  


Today, what's available is cable and satellite TV navigation, including DVR's, alongside diverse, unintegrated internet navigation.  If cable isn't the new cartographer between old media and new, its current multi-billion dollar stewardship of every screen in the house will be overtaken.  Better to strike a partnership with one or more likely technology companies who are building internet, gaming and real mobile place-based GPS navigation and teach them how to move that navigation around a real network as well as a real home.   Comcast and Time Warner Cable invest in media and technology start-ups with this intention, but bringing a high-tech intention into operation is virtually impossible.  All but the very brave and versatile turn away.


It's time for media companies to go back to school along with their kids.  Whatever the reason or rationalization--whether the economy has "changed everything" or content and distribution majors are willing to admit that they've been building businesses for a long time without strong long-term plans--it's time to use the crisp air and the change in seasonal behaviors to try something new.  It would be powerful if the new media products and business models were both profitable and sustainable; just like the cable tv business has been for the last 30 years.