A Perfect Storm Hits Media Businesses

The transition to digital technology finally hit those of us in the media industries with the violence of a sledge hammer. And I don't mean the transition to digital television, which—sorry to say—is a small part of a much larger story.

The year 2009 will most certainly go down as an historic turning point in our industry. It was the year when the rooster finally crowed and the reality of digital technology met a nasty economic downturn. As I write this, we continue to be tossed about in a perfect storm.

Suddenly—as far as media people are concerned—most of the world's money dried up, previously solid businesses collapsed and many talented people were left scrambling to reinvent themselves in a very new world.

This, of course, has been building for a long time, but most of us were still not ready. Few could have predicted even a year ago how fast jobs would be lost and businesses decimated. What appeared to be stable, strong media outlets suddenly became vulnerable and are probably unsustainable. Many will not ride out the storm.

Finally, in all the wreckage around us, we can see where things are headed. What's not so clear at all is how to make money at it. There will be much experimentation, pain and loss ahead. Sadly, most will fail and a few will chart a new future.

This economic destruction covers a wide swath of media—especially print publications, the music business and all kinds of news operations. But this publication focuses on television, so we'll limit this column to that business.

Internet technology has now enabled television viewers to watch any program at any time on any device at any location. Once viewers got a taste of this new phenomenon, the attraction was instant. The cat was out of the bag and now there is no turning back.

The problem is most media businesses don't allow for such flexibility. The business deals weren't made that way. Pay television providers aggregate programming and sell channels as bundles. Thus, the most popular programs pay the freight for less popular fare. Pay operators have long protected their subscriber-based systems by insuring that viewers pay large monthly fees, mostly for programming they do not want or watch.

The national broadcast networks, on the other hand, are increasingly moving their ad-supported content to the Internet. They are quickly building an audience for their programming through services like Hulu.

For those who don't want to watch the commercials attached to those network programs, much of the same programming without commercials is available on a delayed basis from services like Netflix for less than $10 each month. Add to that thousands of movies, also without commercials.


Yet, change in this increasingly cruel digital age comes with lightning speed. On June 20, the day after Apple's iPhone 3GS went on sale, Major League Baseball introduced what it called a "game changer." It streamed its first live baseball game—the Cubs vs. the White Sox—directly to iPhone users equipped with its "At Bat" application.

That's significant because it's the first time a content owner has bypassed the television broadcast infrastructure to bring programming directly to the end users. The new iPhone 3.0 software allows its developers to charge users for video content from within applications. Watch out broadcasters!

The game video—with full DVR features that can pause and rewind video—will play whether an iPhone is connected to a WiFi network or is on AT&T's 3G network. MLB.com said its servers will detect the strength of the phone's connection and adapt the quality of the video accordingly.

The MLB did an end run around mobile aggregators like FLO TV and MobiTV, who have tried to act as video middle men for mobile phones. The broadcasters are still testing their mobile system. Who knows what will be in place by the time they get it working.

What's significant here is the end user gets and pays for exactly the content he or she wants. They buy it directly from the owner of that content and watch it when and where they want. No more middle men and no more bundled stream of channels at a stiff monthly fee.

Of course, mobile phones are simply wireless computers. Desktop computers—many hooked directly to home television sets—emulate this experience at home. A viewer watching the first half of a game on his iPhone could arrive home and watch the second half on his Internet-connected television set.

Remember, any program, at any time, on any device, at any location. That is now the reality for many programs. It has pay television operators, the networks, and other broadcasters running scared.


In response, HBO, the premium pay television programmer, just launched HBO Go. This limited experiment allows cable viewers to view HBO programming on the Internet, but only if they go through the cable operator's Web site. The idea is to prevent noncable subscribers from watching HBO's content.

History, however, is against HBO Go working. The music industry taught us that years ago. No one yet has succeeded in cutting off content desired by the Internet audience. Pirates will see to that in no time.

The day has begun when specific shows are delivered from the producer directly to the viewer. MLB did it first. It has begun with smaller producers, but soon will reach the level of established enterprises like HBO.

Take the HBO hit "The Sopranos." The owner of that show could sell the series directly to viewers over the Internet, without the need of pay television carriers or any middleman. And, with all the fat and bundled channels cut out of the equation, the price will be much lower than on cable.

In effect, the Internet becomes a huge magazine stand of television programs, which viewers can select, pay for and watch with very low micropayments. The same is happening with movies, sports programming and other genres.

About 150 million Internet users in the United States now watch about 14.5 billion videos a month, says comScore, the measurement firm. That's an average of 97 videos per viewer. Interestingly, the average length of the videos watched has extended in the past year as compression and online quality improves. The online video business is expected to be worth over a billion dollars by 2011, says eMarketer.


To see what will happen to television, we only have to look at the music industry in recent years. Only the very largest, most established artists still operate within the confines of record companies. Most newer talent market their work independently, directly to their listeners. They use MySpace, Facebook, YouTube, and Twitter to find audiences and sell digital downloads over the Internet. The same model will probably be true for all file-based media in the near future.

With this radical change comes a huge human toll. Disrupted businesses mean lost jobs and personal turmoil. Expert skill sets that took years to acquire become almost meaningless overnight. Salaries fall dramatically and an increasing number of businesses seek nonpaid "interns" to avoid paying employees altogether.

Worst of all, in the media arena, this business turbulence results in a dramatic loss of quality. The trivialization of news—both television and print—is a good example. Citizen journalists replace real reporters. News staffs are cut to the bone. Stations pool crews to do stories. Bureaus in Washington, D.C. are closed down. And forget about long-term investigative reporting—it's over.

Thankfully, this won't go on forever. It's mainly the work of incompetent, risk-averse management that doesn't know anything else to do. In a few years, the old business models will disappear and new ones will emerge. The next generation of media professionals will appear as the winners who figure out how to build audiences and generate a profit. Most certainly, a new media establishment will rise from the rubble.

The whole scene today resembles the shift at the beginning of the last century from the horse-and-buggy era to the automobile age. Mega shifts in technology bring a huge level of disruptive change. We are living through it right now.

Frank Beacham is an independent New York City-based writer. Visit his blog atwww.beachamjournal.com and his Web site at www.frankbeacham.com.

Frank Beacham

Frank Beacham is an independent writer based in New York.