The evolution of new business models

We all know the story of how a house of bricks helped the third little pig to survive in "The Three Little Pigs." But brick structures won't protect you

We all know the story of how a house of bricks helped the third little pig to survive in "The Three Little Pigs." But brick structures won't protect you from every danger. If your wolf takes the form of a fault line and you build your brick house atop one, it very well might shake apart during the next earthquake. Rigidity is good at certain times, but flexibility is required at others.

Television broadcasting certainly has its share of wolves at the door these days, the biggest and baddest of which is the stalled DTV rollout. Although a few broadcasters are striving to make DTV live up to its potential, most are doing the minimum necessary. We know this situation can't continue. At some point Congress is going to get mad. Its remedy, whatever it may be, probably won't make a broadcaster's life any easier. But in the broadcasters' defense, there isn't currently a DTV business model that makes any sense. Most GMs can't see spending money on operations that not only can't break even, but in most cases don't even make a dime. This makes the dismal return on investments of many of the pure dotcoms (whose only business is being a dotcom) look stellar in comparison. It appears that if broadcasters don't do something soon, Congress will. But it also appears that most of the people who are to rollout DTV can't see a way to do it that makes financial sense.

Maybe what is needed is a new type of model station. The first model station has done its job. It showed the early DTVs how to get on the air. It hammered out how ATSC transport streams would be created and processed and how that stream would modulate the DTV channel's carrier. As we know now, we are still in disagreement as to the modulation technique. The first model station worked out (at least temporarily) the technical aspects of DTV. Maybe a second model station needs to work out the business model, to find the "killer app(s)" so to speak. We could think of it as terrestrial television's version of the old "Bell Labs." What might be needed is a facility with the infrastructure to allow manufacturers and entrepreneurs (or anybody with a good idea) to test products or systems. If nothing else, the industry might see what doesn't work. There are already a few attempts to use DTV bandwidth to deliver data ranging from Internet pages to application software to end users. There is every indication that one or more of these fledgling businesses will survive. But the data sent via terrestrial television must have significant value added by DTV, as the bandwidth is so small. Multiply the total DTV bandwidth of all the possible DTV stations by approximately 53 and you have the potential bandwidth of a single fiber optic strand using the latest wavelength division multiplexing (WDM) technology. DTV data must be compelling to shove it into the narrow ATSC pipe. The industry owes it to itself to investigate what is possible.

What should the model station's infrastructure consist of? It should have three components. Obviously it will need a DTV transmission component. But it should also have a telephony component. Actually the telephony component should be considered two components. One telephony component would be the Internet - mainly IP-based traffic. The other telephony component would be everything else, such as ATM (yes, much IP traffic is wrapped in ATM). The third component would be LAN and associated servers and PC "clients." Thus DTV, Internet/telephony and computer components would comprise this "convergence" lab. Why all these components? Because at this point we don't know what mix of technology will save the day. Broadcasters are finding telephony solutions in increasingly diverse areas of business. Some have found that point-to-point transmission is often cheaper via ATM over SONET than via satellite. The problem today is that most broadcasters are more comfortable with satellite gear than with telco terminal gear. The industry must learn new tricks.

Broadcasters are not alone. Look at the present leaders in the telco industry. Nortel is a 105-year-old company that used to sell fire alarms and ladders. While Cisco controls routing, Nortel controls the optical switching market. Nortel was first to roll out OC-192 (10Gb/s bandwidth). Nokia is a 135-year-old company based in Finland, home market of just five million people. Nokia sprang from a company called the Finnish Cable Works, which merged with the Finnish Rubber Works and the Nokia Forrest Products Company. The company used to sell diapers and rubber boots. It got into mobile radios in the 1960s and was on the ground floor of the cellular system setup by the national telcos of the Nordic countries in the early 1980s. The Nordic system was eventually adopted by a number of countries around the world - Spain, Russia, Thailand and Cambodia. Nokia made the phones, while another area company, Ericsson, made the systems network equipment. Qwest started out as a construction company that figured out a new way to lay fiber along railroad rights of way at a rate much faster than anyone ever imagined. Instead of selling or licensing its patents, it laid its own fiber, giving some strands (approximately 1/4 of the initial 192 strands) to others in return for capital.

Other industries are making forays into areas far from their home turf. Kmart has started its own ISP so that it can act as an Internet portal. Broadcasters have talked about sending webpages via DTV. Maybe some brave broadcaster should take that one step farther. Become a full-fledged ISP, in that way capturing the upstream traffic as well. If nothing else, imagine how must faster the station's website will be delivered to the end user if it sits on a server as part of the station's ISP. If the DTV signal was to be used to deliver webpages to the end user, think how much more efficient the streaming of pages could be if the station knew what its data users were requesting. But this is outside your current area of expertise, isn't it? That didn't stop the companies mentioned above from evolving. But how do you direct bill a hundred thousand customers (let's be optimistic)? Not every mom and pop ISP (yes, they're a dying breed) does its own billing; there is an industry that does this. What comprises an ISP? Something most broadcasters are already surrounded by: computers, LANs and application software. The ISP also needs a decent portal into someone's SONET backbone. Maybe this is an application to be tested in a new model station.

No, the Internet is not the whole answer. Broadcasters are in a business where the barriers to entry are high. The barrier to be a dotcom is low. To be a successful dotcom you generally need a brand that is recognized outside of cyberspace. The broadcaster has that. The dotcoms that don't have a brand outside of cyberspace usually go bankrupt because of the capital sucked into the necessary marketing effort. The Internet will be a supplement to the average broadcaster's business to some extent. Shouldn't the industry investigate how sophisticated its involvement in cyberspace should be? Or are we absolutely sure that having a webpage is enough?