What is the Future of TV?

I want to preface this post by saying I have very little knowledge about the business side of television.  The below analysis is the result of some surface investigation combined with my own experience in building new technology platforms, attacking distribution inefficiencies, and disrupting markets.

This weekend, I decided to finally take a look at the HBO series Game of Thrones.  After watching a few episodes on iTunes, I took to the Internet to do some deeper research on the characters and the creative process in making the series.  But, I unexpectedly found something else that was very interesting…

Game of Thrones stands to become the most pirated TV program of 2012.  In fact, piracy for Season 2 has reached beyond 25 million downloads already.  Now the interesting piece – a significant amount of these pirated downloads are originating from viewers that would gladly pay to view the show, but cannot.

How could this be?  Well, HBO owns the show and the only way to view the current season is to be an HBO subscriber through Cable or Satellite. HBO does offer the “HBO Go” streaming Internet service, but this is only available to existing HBO cable/satellite subscribers.  Why would HBO allow this piracy to become so rampant when they could distribute Game of Thrones through iTunes/Netflix and monetize it more efficiently?

To find the answer, let’s take a step back and look at the distribution of content.  HBO funded the creation of Game of Thrones and owns it rights.  HBO is a network that has deep relationships with the cable and satellite companies, which it uses for distribution.  Together, this network/distributor partnership has created a viewership base that it can control and monetize.

Unlike the pre-iTunes music Industry, the traditional television industry and the network/distributor partnership has still managed to maintain profitability even with the advent of pervasive broadband Internet because viewers still spend a lot of time watching cable and satellite TV.  However, the Game of Thrones piracy situation has exposed the traditional model as being incredibly inefficient by today’s standards.

I believe this traditional model will change.  The television Industry will inevitably undergo a massive change where traditional distribution mediums like cable and satellite will become increasingly primitive; and eventually completely replaced by Internet distribution.  In this future, there will be no television channels or traditional remote controls.  Everything will converge to the ideal user experience – the ability to choose the content you want to buy and view it from any web-connected device.

However, this change is not necessarily in the long-term financial best interest of the network/provider partnership.  And that is the reason why I believe Game of Thrones is not available for Internet distribution today.  The traditional players are in a difficult position as they know that the more viewership is shifted to Internet platforms, the more the financial viability of their traditional model becomes exposed.  Naturally, they are defensive about enabling a new model that will compromise their main leverage position (their viewership base).

In the end, the traditional model will fade away, but how fast this happens will depend on who can enter the market with a disruptive Internet distribution platform – one that quickly can own the viewership base.  Once this happens, I believe traditional networks will be reduced to older content licensing companies and content creators will have a newfound control over their financial destiny.

Although Netflix, iTunes, and Hulu have made significant progress, I believe for the television Industry to be changed overnight, a more dominant platform must be established that has a mission of aggressively buying the viewership base.  With that in mind, let’s see what Apple has in store for their upcoming iTV platform.

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