TV Milestones – Connecting the Dots

Tracking movement within the television industry these days is like watching grass grow. The DTV transition – if one actually exists beyond cable and satellite – is in slow motion. The economic slump seems to have cast a pall over many developing technologies. Yet, change is taking place. One just has to look closely to find it.
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Tracking movement within the television industry these days is like watching grass grow. The DTV transition – if one actually exists beyond cable and satellite – is in slow motion. The economic slump seems to have cast a pall over many developing technologies.

Yet, change is taking place. One just has to look closely to find it. Often, the first hints of these trends come at industry conferences where the key players in the television business are momentarily cut loose from their PR flacks to find themselves in heated exchanges with competitors.

Industry observers take note of these rare nicks in the corporate shield and then later look for hard evidence that a prediction is becoming reality. Sometimes it takes years, but tracking change is often just a matter of connecting the dots. Two recent developments, previously predicted in unguarded moments, fit this category. Each is a small milestone that may be a harbinger of more significant trends ahead.

NOT SO ‘FREE’ THROW

One prediction made repeatedly in recent years was that premium content (translation: anything worth watching) is migrating away from free, over-the-air TV to pay services. We’ve seen it happen with dramatic programs, as with HBO and Showtime, but a spate of recent newspaper articles brought a more harsh reality to the remaining viewers of terrestrial TV – the days of free sports broadcasts are numbered.

In January, NBC refused to pay the high price for continued broadcast rights to the National Basketball Association, losing future NBA games to cable. The $4.6 billion price for six years of games paid by Disney and AOL Time Warner for broadcast rights on pay media was too rich for the network and its parent, General Electric.

NBC Sports Chairman Dick Ebersol put it bluntly: "For the first time a major sports property has largely migrated from network to cable. In the future it will become almost impossible for broadcast television sports to match the power of those subscriber fees, which are unique to the cable world."

So there! One of the great engines of free TV viewership is vanishing. It will be years before the disappearance is total, but the migration to pay media has begun. NBC chairman Robert Wright has predicted it many times in previous years, lamenting the fact that terrestrial broadcasters have only one revenue stream – advertising – while pay TV services have income from advertising, subscriptions and transactions.

Howard Stringer, chairman and CEO of Sony America and a former CBS programming executive, warned last April at an industry conference that the biggest threat to the traditional broadcast networks is cable channels.

"Cable television is really now in its heyday," he said. "Individual cable channels are forging a distinctive identity and spending more and more money on original programming, which was our worst nightmare 10 years ago ... though we ridiculed it at the time. But now, cable is fully engaged in giving niche alternatives to the audience."

One wonders what is the end game for free TV. The best dramatic and sports programming is moving to richer territory. Even local news, the mainstay of the call letter station, is now finding its way to pay media through 24-hour news channels. DTV or no DTV, what programs will drive viewers to watch free television in the future? Answers are in very short supply.

MURKY WATERS

A second milestone – one a bit more murky in its "ultimate" resolution – was news that Microsoft is disbanding the 420-employee unit that makes its UltimateTV set-top box. Launched only a year ago as part of Microsoft’s overall television initiative, UltimateTV offers digital video recording and ‘Net access through a set-top box on DirecTV’s satellite network. The company claims it will continue to produce the product, but with no support organization behind it, UltimateTV’s future seems very cloudy.

Word is UltimateTV will become part of the division at Microsoft that includes MSN TV (formerly WebTV). Neither of these previously high-profile technologies has been successful with subscribers. MSN TV, after several years of aggressive marketing, has only about 1 million customers. Subscriber numbers for UltimateTV are unavailable, but one would suspect they are dismal.

The tales of woe from Microsoft’s TV initiatives strongly suggest that two once-hot TV technologies – the personal video recorder and television-connected Internet appliance – have fallen on hard times.

Eddy W. Hartenstein, the Hughes Electronics executive who oversees DirecTV, made a foreboding comment at the time of the UltimateTV launch last year that may have revealed at least a personal doubt. "The biggest challenge will be keeping it simple," Hartenstein said of the new set-top box.

Sony’s Howard Stringer, in musing why the company’s branded TiVo personal video recorder had experienced poor sales, suggested it might be related to consumer technology overload. "There’s resistance to too many devices in the home. Everyone [who] has a TiVo likes it very much and swears by it. The only explanation I can think of as to why the sales haven’t absolutely gone through the roof is that there is consumer resistance to the technological chaos in the home," said Stringer.

"Too many set-top boxes and remotes look like the cockpit of a 747. When the consumer staggers home, he doesn’t want to take a degree in consumer electronics engineering to operate the equipment. We are going to have to work very carefully on the electronics side to find a way to link these objects seamlessly so that there’s more than one person in the household who can turn something on," Stringer said.

The dots are connected.