Sunday, October 31, 2010

You Can Be The Next Entertainment Mogul, If You Act Now

We are about to experience the most profound metamorphosis the entertainment industry has seen since the commercialization of television.  It is a huge opportunity for anyone who is willing to jump in with both feet, but you need to start now.

Since the introduction of television into the living room around 1948, the broadcasting industry has been controlled by a virtual handful of people.  Even after commercial cable was deregulated in 1972, the number of companies that control your television has remained relatively small.  This paradigm is about to change in a big way. 

As we know, the Internet allows anyone to transmit content to millions of other homes and businesses around the world.  At first, the limited bandwidth made it suitable only for sending simple written communication.  But bandwidths and transmission speeds have steadily increased to allow for the quick transfer of larger and larger files.  We are now at the point where high definition broadcast-quality files can be transferred almost instantly. 

In this new environment, there are already several inexpensive choices for hardware that will stream high definition content from the Internet directly to a big screen television.  Apple TV, Google TV, Roku, Boxee and several other devices will already bring the Internet to your living room.  With some models priced under $100, a whole lot of those devices are going to be sold this Christmas.  Within a year, watching Internet content on a TV will be much more common than watching it on a computer.

But wait, that’s not all!  The success of the iPad has induced about 10 other major manufacturers, and at least as many minor manufacturers, to create their own version of the portable personal media device.  So, not only is Internet content migrating to TV’s, but it is about to also be in everyone’s hands – literally.  Hundreds of millions of media tablets will be sold in the next few years.  The consumer nirvana of watching whatever we want, whenever and wherever we happen to be, is about to become the societal norm.

The obvious opportunity is that anyone can now be in the broadcast business.  The barriers between content creators and consumers are gone.  We can sell premium content, individually or by subscription.  We can sell advertising and product placements.  We can create entire networks or distribute films, all with virtually no borders or limitations.  The door has been kicked wide open.

What strategies and business models will work?  All of them.  Anything that worked in the tightly controlled entertainment business can work in the new broadcasting democracy.  The scale might be smaller (as the multitude of choices creates a buyer’s market), but the opportunities are there. 

Here are the two keys to success which need to be accomplished as soon as possible.  First, establish strategic relationships with strong players.  In the early days, it will be much easier to get distribution through major platforms as they will still be expanding their offerings.  But as things fill up, this will become much more difficult and costly. 

Second, find your audience and start earning their loyalty.  Consumers will develop viewing habits and favorite outlets.  Establish your style and find the audience that responds to it most passionately.  Keep them happy, and they will tell their friends.

A whole new frontier is opening up right now.  Go stake your claim.  Big players like Tom Hanks, Ben Stiller, Michael Eisner and many, many others are already doing it.  You can do it too, but if you wait another year to get started, it could be too late.  Do it now.

Saturday, October 2, 2010

Is Netflix The Next HBO?

At a Liberty Media investor event yesterday, Liberty Chairman, John Malone, drew a comparison between Netflix and HBO.  He was discussing the relationship between his Starz unit and Netflix, and seemed to be acknowledging the amount of power that Netflix is gaining as home video moves online.

It's an interesting question - Is Netflix the next HBO?  What are the similarities, and does it make sense for Netflix to follow a similar strategy?

HBO was an early entrant into the pay cable segment -- a pioneer really.  It originally focused on sports programming, but gained power as one of a handful of premium cable movie channels.  However, HBO was positioned as more of a network than a cable system.  It created several channels with different themes, and made an early move to develop original programming.  The focus at HBO was always on content as its management recognized the value of owning intellectual property.

Arguably, the master stroke was developing dramatic series which took advantage of the commercial-free, less restrictive environment of pay cable.  First with OZ and then with The Sopranos, HBO was able to attract loyal audiences looking for edgier entertainment.  Its original series have allowed it to become a brand that stands for a certain type and quality of programming.

Today, Netflix is gaining substantial market share as an outlet for a wide variety of films.  It started as a more convenient way to get DVD's, with a huge selection and fast service, but Netflix management quickly saw the possibilities in  becoming a streaming service, looking to deliver films in overnight downloads as early as 2006.  It has since become a leader in streaming films directly to televisions, with its major competition right now being the PPV films offered by cable systems, but with many other formidable competitors on the horizon.

The question is whether Netflix will use its market reach to develop its own original programming and expand its brand, as HBO did in the 1990's.  Actually, in 2006, Netflix started the Red Envelope Entertainment division, first for providing distribution to original independent films, and then as a platform for developing its own programming.  However, that division was closed in 2008 -- ostensibly because Netflix did not want to compete with its studio partners.

My thought is that the vision was right on target, but perhaps just slightly premature.  Netflix currently has about 15 million subscribers.  HBO now has over 41 million.  So, Netflix still doesn't control nearly as many eyeballs as HBO, but it does command enough market share that it can't be ignored.  If the Netflix numbers continue to rise (in the face of stiff competition from Apple, Amazon, Walmart and others, including HBO), then studios won't be able to dictate the deal terms.  And if Netflix can use original programming to attract even more subscribers, then the studios will have to continue to supply films as the cost of not being available through Netflix would just be too great.

Eyeballs equal power in the media business.  It's always been true and nothing has changed in that regard.  If Netflix can dominate the streaming business and expand its market reach, then you can bet that it will be back in the original content business.  (Pete Putman at HDTV Magazine reached a similar conclusion in a recent article.)

I have always liked Netflix' prospects.  I think they do a lot of things very well, and make very few mistakes. Their primary risk at this point is that increased competition will put pressure on prices and their margins will suffer.  That would be bad in the short run, but if they can continue to expand their volume, the original programming opportunity will remain viable.

I'm interested to see what happens next.  These are very exciting times in the media business, my friends.  Stay tuned.