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Originally featured on BroadcastEngineering.com
Jun 25

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6/25/2010 6:00 AM  RssIcon

digital-tv-set.jpgAt "The Wall Street Journal’s" D8 Conference, Apple CEO Steve Jobs was interviewed on the future of television and was asked about over-the-top (OTT) delivery solutions. Basically, they’re dead, he said.

Jobs apparently believes there is no "there" to make money in building set-top boxes to support OTT services. Said Jobs, “The problem with innovation in the TV industry is the go-to-market strategy. The TV industry has a subsidized model that gives everyone a set-top box for free. So no one wants to buy a box. Ask TiVo, ask Roku, ask us … ask Google in a few months … All you can do is add a box to the TV. You just end up with a table full of remotes, a cluster of boxes … that’s what we have today. The only way that’s going to change is if you tear up the set-top box, give it a new UI, and get it in front of consumers in a way that they’re going to want it. The TV is going to lose in our eyes until there is a better go-to-market strategy … otherwise you’re just making another TiVo.”

Ouch!

One should always take things Jobs says seriously, but the elephant in the above discussion is that new televisions are fully equipped to handle Internet-delivered programming. Internet and other OTT programs will easily be accessible on these new sets.

The editors at TechCrunch think Jobs wasn’t entirely clear with what the future might hold. TechCrunch's MG Siegler says that Apple is just biding its time until it can figure out how to make money on some type of new interface. Siegler calls Apple TV, a “hobby” for the computer giant.

But, says Siegler, Apple has another option.

One solution would be for Apple to, as it has done successfully before, create an entire television ecosystem. The television set would have a display, a built-in tuner/set-top box and an operating system. Any Apple television would by definition limit third-party interfaces and solutions. That would be both good and bad for product acceptance. But it would guarantee ease of use and compatibility.

Siegler thinks Apple could be successful in marketing its own television/entertainment system. He says, [Apple] “could force the industry to conform to its new standard of television much in the way that the mobile industry has been shifting the past few years for the iPhone/App Store. And again, Google TV may be a catalyst to set this all in motion.”

From this desk, I expect folks who make millions of televisions, like LG, Sony, Samsung, Panasonic, etc., to have a few thoughts on the matter. Apple has been successful before, but it has also experienced product failures. There is no guarantee of consumer acceptance for any new technology. Even if it is made by Apple.

OTA television is far from dead

If you looked only at what Wall Street says about broadcasters, you might be expecting a funeral. This is not the case based on the excitement surrounding this year’s upfront activities.

The TV networks are spending tens of millions more dollars on prime-time programs this year than last. This is one area where the TV networks excel. With TV shows, you get to sell the product, and you’ve still got the same product to sell again and again.

Even if a TV show fails to be profitable on a first-run basis, the program has many years of life in syndication, reruns and showing on cable.

According to an article by AP business writer, Ryan Nakashima, cable-run shows consistently draw smaller audiences than do first-run broadcast network shows. Says Nakashima, “Even the season premiere of AMC’s highly regarded 'Mad Men' was watched by fewer people last fall than a recent rerun of CBS’ 'NCIS' on USA.”

The networks continue to pump millions into new programs because there can be a long life for a show after OTA. American television programs go from first-run on-air, to syndication, to cable and finally to other countries and eventually to home video. Every time the show gets another play, the show’s producers get paid.

NBC is rumored to be spending 40 percent more on new shows this year than last year. The network will release 13 new shows, which is twice that unveiled last year. Historically, the most financially successful shows have been developed for broadcast channels. Only later do the programs see continued life on cable and non-OTA syndication. Jeff Gaspin, chairman of NBC Universal, said, “We need to start to seed these new hits … If you have a few years where you don’t invest in your programming, three or four years down the line that stream of revenue is going to take a huge dip.”

Broadcast networks are also now capitalizing on subscription fees. Research firm SNL Kagan predicts broadcasters will receive more than $1 billion in cable fees this year with broadcast retransmission fees reaching $2 billion by 2014. To justify those kinds of payments from the cable companies, the broadcast networks must produce popular shows.

The advertising marketplace has improved greatly over last year. According to market research firm, Kantar Media, car dealerships spent 41 percent more on Q1 advertising than the same period last year. Car makers’ Q1 spending for national advertising is up 13 percent over last year. Local revenues are up also. Nakashima reports that CBS’ local station revenue increased 29 percent in Q1 over same period last year. Network revenue grew by 25 percent.

Life at the local TV station may not equate to the heady days of 1990, but CBS CEO Joe Iannielo thinks there still is plenty of growth ahead. Speaking at an investor conference in May, Iannielo said, “[In] the local television business, there was a broad, deep recession. That's what happened. [Advertisers] cut back. They didn't cut back 10 percent; they cut back 40 percent … But guess what? They're coming back into the marketplace, and there's still a ways to go."

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