Video Business Model Disruption Inevitable, But Not Imminent

What will media companies look like in a couple of years? Pretty much what they look like today. But what will they look like in 10 to 15 years? Very different.

There are clear reasons why the couple of years will look an awful lot like this year,  while a decade from now the whole media business could be structured in very different ways.

First, new IP technology and broadband is in place that will drive a long cycle of innovation for challengers and economic destruction for incumbents. That almost assures vast change over a longer time frame. But the emphasis here has to be on "long" cycles.

Changes in the media can take quite a long time to mature. Gordon Crawford, The Capital Group managing director, notes that in 1972 the existing media business was quite attractive, financially. But that changed after 1995, the year of the Netscape initial public offering, which ushered in the age of Internet-based media.

Only now, 14 years later, is the impact starting to really affect the print segment of the business. And most of the video impact has yet to arrive.

Still, Crawford thinks change is inevitable. "If you go out enough years, bandwidth will be there," he says. "Storage will cost nothing and rights issues will be resolved."

"People will have access to whatever they want, whenever they want it, on any device," says Crawford.  "That is where we are going."

But one has to remember that large-scale and fundamental technological changes seem to have less impact when the trends are just beginning, but reach some inflection point, beyond which vast change happens relatively quickly. That should not be too different for the video business.

There will be less change that you expect early on, and greater change later, in other words.

There are some possible outcomes, though. If regulators were, for example, to impose an "a la carte" pricing regime on video providers, 250 of 400 cable channels will disappear overnight," says Crawford.

Peter Chernin, former News Corp. president, also agrees that fundamental change is coming. "Non-consumer-friendly business models cannot be supported anymore," he says.

"The single biggest question facing the industry is the ability of niche cable channels to survive," says Chernin. "About 60 to70 percent of media profits of big conglomerates come from there."

But people only want to watch 10 to 15 channels. "Is that sustainable?" Chernin muses.

And while most people think Hollywood ultimately will change its "release windows," that might not have as much effect on what consumers decide to rent or buy as one might think. But there could be big changes in distribution.

Chernin thinks the days of people buying DVDs are numbered because of streaming. "The DVD business is declining 15 to 20 percent a year," he says. If networks are ubiquitous, can you convince people to own content for $15 when they can stream it for lots less?

Some "70 percent of DVD purchases are for new releases," Chernin notes. Even if the delivery format changes, that is likely to remain the buying pattern.

"It’s just a matter of time" before cable networks are faced with "digital destruction," Chernin says.

There are obvious implications for satellite, cable and telco multi-channel video providers, of course. The good news is that distributors have some time to get ready for the transition. Being "too early" is about as bad for business as "being too late."