10 Signs Internet TV is Ready to Disrupt the Industry

Posted on Nov 14, 2011 | 69 comments

10 Signs Internet TV is Ready to Disrupt the Industry

I recently gave a talk about the Future of Television. I’m still planning to write some in depth pieces on the topic but I thought I’d do the quick version here.

Since this is about how video will consume the Internet over the next 5 years, what better way to exemplify this than with a 10-minute video? Here’s a link to watch it or click the image above (Sorry for speaking so quickly. I was given the impossible task of covering this in just 10 minutes.) The the text summary is below.

1. The promise has been made for too long, People are cynical – We’ve been promising digital, interactive video since the Time Warner trials in Orlando Florida in the early 90’s. So the industry has heard this claim for long enough that nobody really believes it will happen.

2. The right factors are finally in place – I believe that for any innovation to take place you need a variety of factors to be present. For example, YouTube took off rapidly because they timed some changes of Flash perfectly that allowed you to be able to watch video on the Internet with limited hassle. The key factors that had to come together are depicted in the graphic below

3. YouTube is the new Comcast – Many people perceive YouTube as “dogs on skateboards” and don’t realize that it is now professionally produced content that is driving billions of video views each month.

The first two companies to realize this en mass were Machinima & Maker Studios (where I am an investor. If you press on the link to the company you’ll see a very cool, short video that describes the company). If you add Vevo & MovieClips these companies are doing well in excess 3 billion video views / month. They are becoming very large businesses in a rapid period of time. Note that the logo of YouTube used to say, “Broadcast Yourself.” It no longer does.

YouTube is the new Comcast. It is the new distributor of video. Yes, it’s lower quality than network, primetime television. But many network shows cost up to $100,000 PER MINUTE to produce. Maker Studios costs about $500 per minute. Guess who has a huge advantage in the future of the medium.

4. The distributed ad platform enabled this industry to evolve – What people often don’t realize is that until we had a “distributed ad market” it was very hard to build a low-cost video business. But with YouTube / Google now selling both pre-roll (the 15 second spot before a video) and translucent overlay ads), video producers can now make profits on producing ads – provided that they can produce them at a low enough cost.

This is a point that is lost on many in the industry who complain about the “low CPMs on YouTube.” They don’t realize that “low” is relative. If you don’t have the huge costs of production & distribution you can build a meaningful business on “low.” And keep in mind that YouTube sells your inventory for you. This allows startups to reach a certain scale before hiring a direct salesforce.

5. Internet TV is following the CLASSIC case of the “Innovator’s Dilemma” – the most fundamental driver of the Internet destruction of industries that we’ve witnessed over the past 15 years. If you want a quick description of the Innovator’s Dilemma and why it chews up existing industries see this short post.

6. Cable & Satellite packages will become music albums – In fact, I believe we’re finally on the verge of seeing some of the signs of television following the music industry. My analogy is that “cable & satellite bundles are the album. and given choice consumers prefer either singles or to make their own bundles.” Watch the video if you want to understand this analogy more deeply.

The TV industry in the US is worth $350 billion in its own right. 91% of all US households pay for television bundles. This is overpriced and consumers are paying for content they don’t watch. In a world of controlled distribution the powers that control the distribution can force that on consumers. The Internet changes all of that. The industry feels slightly complacent due to the “cry wolf” problems of saying it’s right around the corner for nearly 20 years.

It’s not “right around the corner” but the sea change has already begun.

7. Mass adoption of Internet video has already taken place – 86% of all Internet consumers in the US now watch online videos. That means your mom is now watching online videos. Yup. In fact, 108 million people will watch 1.3 billion videos. TODAY. (according to Comscore). In August of this year 185 million people watched 42 billion videos for 17 hours. That’s 228 videos PER PERSON.

8. TV is the medium people prefer (whether we like it or not) – Much as intelligent people don’t want to believe it, Americans watch on average of 5.3 hours of TV PER DAY and read less than 1 hour. They are online for 3 hours / day. So I would argue that the future of the Internet will be video. And lots of it. In fact, 12-17 year olds already spend 33% of their online time watching videos.

9. Video is different than text. It requires unique, creative skills – And who’s going to produce all of this content? It’s not as easy as text. It takes screen writers, sound people, lighting, editing, costumes, direction, post-production and acting. I think that creative talent is going to play a major role in the next wave of the Internet. And I find that exciting.

10. This revolution is starting in Los Angeles. This is the first time LA has had our own locally produced, massive tech opportunity that is unique to our city – the majority of these people live and work in Los Angeles. Where I call home. And where GRP Partners, the VC firm in which I’m a partner, is based. We’ve seen other centers of excellence in the Internet era here (lead generation, price comparisons, affiliate networking, ad technology) but nothing of this scale. And it’s exciting.

If you want the PowerPoint version in stead of the TV version of my presentation I can still do that, too. I’m Old Skool. Deck is below. You can download it, too.

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  • http://www.yourcabs.com Rajath Kedilaya

    I like your album analogy a lot! But one of the joys of TV is to channel surf with no specific intent! Hence I still think a lot of people would like bundles; maybe not the way it happens now. There would be infinite possibilities of mix n’ match, and dedicated services may come up to help a consumer build their package. 
    Do you see anything happening on the hardware front? Will the television just end up being a thin client?

  • http://www.DavidCDean.com David C Dean

    A good article.  I like to think there’s one, sure way to know if something is going to thrash the old guard, and it shows up in your list a couple times.  People want something bad and they’ll pay for it.  That’s all I need to know to be a believer.

    Cable sucks *and* it’s expensive.  That kind of business can’t hold out forever.  Good thing for the cable co’s, they hedged and became our ISP’s too.  Now we need formal net neutrality and we’ll be gtg.

  • http://noisepatterns.com/ Tim Altman

    Thanks, Mark. The post is compelling and reassuring at the same time. I can’t wait to cut the cable myself. 

    Once Amazon, Apple, Google, and Netflix start buying up content rights, the game is over for cable TV. I just watched the new Harry Potter movie on YouTube for 99 cents. OK, give me a break, guilty pleasure . . . 

    Harry Potter just came out on DVD and On Demand – it is a very popular movie and Google was able to get the rights. I would have paid $5 on Time Warner, $4 on my PS3 and been fine with it. But I paid 99 cents and was perfectly happy. The quality was not great but if I’m a 9 year old kid with an iPad, I could watch a lot of 99 cent movies and TV shows with my allowance.

    I took great pleasure in my little role in the disruption of bundled content. Down with the album model of content! 

    @cameronchurch – 12seconds.tv already tried and failed the “twittering of video content,” as you describe it. Probably too early.

  • Diddy Kong

    Hey Mark – Great Post! I’m wondering how you got to that “$100,000 per minute to produce” number. It’s a shocking comparison to production costs and I’d love to know its origin. 


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  • http://twitter.com/MattEnroe Matthew Clark

    Good presentation.  I wonder if there is one more element helping accelerate the move: true interactivity.  This didn’t exist 5 years ago.  It was difficult to interact with friends as you watched and the remote limited the interaction with the show.  Now with, for example, Xbox Live, you can interact with friends as you watch tv/movies.  And soon I expect, with Kinect, you will be able to interact with the show and/or make your own — think child acting out and recording a skit in front of Kinect for her grandparents.  I expect people will really enjoy the true interactivity giving the new platforms that provide it (FB, Xbox Live, etc.) greater distribution power.

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