A great parable about human nature, Who Moved My Cheese? An Amazing Way to Deal with Change in Your Work and in Your Life, is a motivational book by Spencer Johnson. In the book, one pair of mice, Sniff and Scurry, discover that “Cheese Station C” no longer has any cheese. These mice are not surprised because they noticed the dwindling supply and assumed that, one day, they’d need to find another source. Later, the other set of mice, Hem and Haw, are angered and annoyed when they discover that the cheese is gone—having been unprepared, they believed the cheese supply to be a constant. The fable ends with seven basic morals about change and adaptation, the latter being that change keeps happening, get over it, deal, and move on.
While it might be easy to predict the change in the television business to a broadening set of distribution, the industry experts are quick to point out the slow adoption of cable cutting. While this is comfort food, it's not cheese. Comparing a rich and tasty, albeit expensive wheel of Gouda to a cheese-food-product like Cheese-wiz is bating the trap of false-equivalency with, well, not so good cheese.
The reality is that audiences have yet to be given the opportunity to engage in full, meaningful transparency across other distribution models. Imagine for a minute that you, the audience, choose one or more aggregation sources—say, your local cable company and perhaps the $7.99 per month Internet video portal Hulu, the first successful online video aggregator for long-form IP video.
You choose to pay the cable company $89 per month for basic service and perhaps another $15 for HBO movie channels. Additionally, the cable company charges you $39 for Internet access, and your mobile phone company charges another $39 for broadband WiFi access on your phone (the "Smartphone tax").
Perhaps you also have a Netflix subscription for $8.99 per month that allows you to watch movies on your PC or your TV via a DVD or game box as well.
Your total cost for ad-supported content is $89; your HBO Hulu and Netflix subscriptions are $31.98; and your access to the Internet on both your cable and mobile accounts totals $78.
You are spending a minimum of $198.98 monthly for content and delivery across your entire set of devices and locations. But can you really access these services transparently? Can you, for example, see your HBO, Netflix, Hulu and basic cable channels all in one place? No. Each is subject to their own corporate content prison even though your're paying for monthly access. What's the difference if I watch MTV on the TV or on the PC, I'm paying for monthly access. It's just hit and miss, which means there is no transparency of experience between corded and cord-cut households. If there were transparency, perhaps the adoption of IP based a-la-carte and on-demand services might rival cable, or even surpass it.
And worse, your mobile provider charges you on a per-device basis, meaning that you’ll pay AT&T for your home DSL service to access your email, you’ll pay AT&T again for mobile phone access to your email, you’ll pay AT&T a third time for your iPad access and a fourth time for your netbook access, all just to read your email.
By fractionalizing access, building arbitrary walled content gardens, and charging multiple overlapping access charges for every device, consumers are prevented from experiencing any meaningful value by fully cooperating with content and distribution providers even though they are already willingly paying for access and content from the Internet. It’s frankly easier to learn how to steal content from a peer-to-peer service than it is to navigate the minefields of the corporate-sanctioned content prisons.
Here’s a value proposition: Would you be willing to pay a universal HBO fee and have access to HBO from anywhere? Wouldn’t it be great to have your Netflix account affiliated with the HBO service, so you had one place to go and see all your content? How about paying a universal Internet access charge that worked with all your devices?
Imagine that you could go to one place and have all your channel subscriptions and movies and ad-supported content—everything in a single convenient place with a single convenient bill? You can. That’s right, it’s called your cable TV, the very thing we all know and love! The problem, however, is that it only works on your TV. What consumers really want is the same experience, but available anytime, anywhere, and on any device—but more importantly, they want transparency of their content, memberships, subscriptions, and content lockers across the ecosystem of their lives.
So let’s imagine that we have universal access and that it looks something like this: I pay my cable company a gateway fee—say, $29 for ad-supported cable-based video content (basic cable). I can access HBO online and on my TV because I’ve separately subscribed directly to HBO, which has authorized the cable company to give me access, thanks to my $15 HBO subscription. I’ve moved the HBO cheese profit center away from the cable company and directly to HBO.
I also pay the cable company for Internet access, and I watch HBO on my PC, which is connected to my TV. I’ve now moved the HBO cheese cost center to the cable company in form of higher bandwidth infrastructure costs.
In both cases—moving the subscription fees away from and adding bandwidth costs to the cable company, the cable company is now the loser—that is, unless the cable company charges you and me a fair rate for our Internet access, in which case, it’s still making cheese (money), but through a different division of the company.
Let’s take a different example: I want to watch Family Guy. If I watch it on my cable TV, the ad revenue associated with my participation goes to the Fox Broadcasting division of News Corporation. If I watch Family Guy on Hulu, all the ad revenue associated with my participation goes to the Hulu division of News Corporation. In both cases, News Corporation gets paid, but the Fox Broadcasting division takes a hit. The cheese got moved from one corporate maze to another, and the maze trolls are not happy—believe me.
Advertisers prefer the statistics they receive from online video-based advertising as opposed to the predictive ratings available from television. Online statistics also show that someone was actually sitting there, clicking, as opposed to ad skipping on their TiVo or in the kitchen making a sandwich. The audience size, however, is so much smaller for online than for broadcast that the bulk of the income for broadcast far outstrips revenue from online, so content owners are reluctant to cannibalize their main source of revenue even though potentially, with equal or greater audience numbers online, they could see parity or better.
The number of ads, however, is also a problem. Users online simply won’t sit through 12 commercials in a row just to watch a TV show, but the truth is that neither will broadcast audiences, who channel surf or skip ads or make a snack rather than watching endless commercials, so, in reality, there is a false equivalency in broadcast, in which both the broadcasters and the advertisers ignore the missing 800-pound gorilla in the room—basing their ratings numbers on pataphysics, the science of imaginary solutions.
Once again, the problem is the cheese—in this case, huge piles of fake cheese versus a smaller amount of real cheese. But there are other complications as well; frankly, the Internet simply doesn’t have the capacity to replace traditional television. In the satellite, cable, and broadcast worlds, it costs the same to deliver programming to one person as it does to 10 million. Online requires a unique connection and bandwidth to each user, causing a huge increase in the costs associated with scaling the offerings to larger and larger audiences. The infrastructure investments are expensive and have been traditionally repressed, ignored, and marginalized in favor of merger and acquisition investments to grow audience and market share.
So part of the problem is the artificial walls between divisions or operating groups of large media entities, where there is an internal tug of war for the cheese. The other problem is the tipping point for audience revenue, where the traditional environments are suffering significant reductions in ad cheese while new, potentially cheese-rich environments are stifled through artificial scarcity. And finally, network infrastructure that would enable robust transparency of TV across multiple delivery methods is inadequate and increasingly dependent on providers, such as Time Warner Cable, which no longer have a piece of the content cheese but must fully assume the cost of cheese delivery.
It’s the cheese’s fault, damn it.
I’ve been pretty harsh with the Coaxosauruses (Cable Dinosaurs), but even their modern avian cousins, the wireless Networktoryx (Wireless Networks), exhibit similar destructive generic traits. Fierce territorial instincts and the tendency for gluttony are creating a climate in which the delicate and symbiotic relationship required for nourishment is rapidly turning parasitic.
Device makers are increasingly dependent on the wireless access that brings life to the iPad, the netbooks, the ebook readers, and other network-enabled devices. Consumers are also increasingly dependent on wireless access that connects them to the world and to content distributors, including the app developers, information services, and the content owners of media and books—which all have a stake in the successful promise of wireless distribution. But the wireless networks have insisted on ultimate and tyrannical control of the gateway, limiting innovation, access, and, ultimately, the value to consumers who want to participate. The greater the value, the more consumers will be willing to pay. A symbiotic rather than a parasitic relationship is required for any sustainable model of success.