TCS Daily


Will Broadband Kill the Broadcast Star?

By Jerry Brito - September 6, 2006 12:00 AM

Katie Couric made her debut as the anchor of the CBS Evening News last night, and if there was something historic about the broadcast, it might be this: you didn't have to watch it on TV. CBS had announced that it would be the first network to simulcast its nightly news program online.

Although probably the most ambitious effort to date, Couric's show is only the latest traditional television program to move online. Apple's iTunes Music Store sells individual episodes and entire seasons of current TV shows -- from Law & Order to The Daily Show. This summer, ABC made five of its hit primetime shows, including Lost and Desperate Housewives, available online for free the day after they aired, and it plans to offer more this fall. In2TV, a service of AOL, offers hundreds of hours of classic TV shows from the vaults of Time Warner, like Eight is Enough and Falcon Crest, on a free, ad-supported basis.

This migration of video content to broadband has prompted several analysts and pundits to predict the death of broadcast television. If the broadcast and cable networks put their shows online, and if thousands of small niche producers join them, why would anyone subscribe to cable? Why wouldn't consumers simply look up and buy the shows or movies they want to watch from iTunes or some other online service?

While the telephone companies, including Verizon and AT&T, spend billions of dollars on new infrastructure and on a regulatory fight over local franchising in order to challenge cable in the video marketplace, some pundits believe they're fighting over dead air. Financial analyst Steve Kamman has said that, with the advent of digital video recorders and video on demand, there will no longer be any demand for broadcast television. "The vast majority of TV will be downloaded onto a hard drive," he has said. "[The telephone companies are] firing an artillery shell at a moving target."

However, don't send the flowers yet. Social, technical, and economic forces won't let broadcast TV perish.

Watching television is a passive activity. To be entertained, you don't have to do much more than turn on the TV and surf until something good comes up. If there were no channels to surf, only thousands of programs you could call up on demand, how would you know what to watch? Sure, you could use a search engine to pinpoint a show on a particular topic, but that requires effort and knowing ahead of time specifically what sort of program you want to watch. Even if shows are available for download online, consumers appreciate the effortlessness of a boob tube with its preset package of a couple hundred channels.

Additionally, some of the most-watched television programs -- the Super Bowl, the Academy Awards, the American Idol finals -- all have one thing in common: they're live. Delivering high-quality live video over the public Internet to massive audiences is not yet technically feasible and may never be given the architecture of the Net. Jupiter Research analyst Joseph Laszlo recently suggested that quite likely the initial Couric broadcast "will crash the Web." During March Madness, CBS broadcasted video of out-of-town games for free on its website, attracting 1.3 million viewers over the course of the tournament. CBS' scheme worked because it targeted a small niche of sports aficionados and fans that couldn't tune in locally to the games they were interested in. Its peak number of viewers at any one time was only 268,000, piddling compared to the 90 million that watch the Super Bowl, and many viewers still had to join a queue before they could watch one of the limited number of video streams. Moreover, Internet video streaming does not compare to the clarity and quality of a traditional television picture and it is also is very expensive to originate. Consumers' appetites for live entertainment, news, and emergency information won't be completely satisfied online any time soon.

CBS President Leslie Moonves has talked about creating a "cable bypass" by taking the network's content directly to consumers online. But unless television networks can make more money from advertising and sales online than they currently do by selling their channels to cable and satellite operators, a "cable supplement" will be the more likely result. Consumer demand for new and instant ways to acquire video is increasing, but that demand will not supplant the existing demand for broadcast. A telco video service that only offered on-demand programming would not be able to compete with cable and satellite. Therefore the networks that produce television's content -- and that are paid by cable and satellite operators for the privilege of carrying their channels -- have little incentive to exit the broadcast model in order to pursue online distribution exclusively.

There is an incentive, however, to give consumers more choices in how they can access video content. Disney President Robert Iger doesn't want his company to make the music industry's mistake of resisting the deep consumer demand for online content. "The bottom line is they were not in tune with what their customers wanted and what the world was demanding of them, and I think it hurt them significantly," he recently said. "I don't want to wake up and see all the traffic moving onto new platforms [without Disney]."

Direct distribution to consumers will give small niche content producers the ability to reach viewers profitably, and large networks will tap a new revenue stream as their back catalogs find new life in broadband distribution. While these developments will create new options for accessing video content, they won't necessarily replace older options. Instead, they will generate more competition and more programming choices for consumers.

The success of the iTunes Music Store and the iPod has not spelled the end for radio broadcasting or CDs, and the same is likely to be the case in the video market. Satellite radio, iPod and iTunes have shown, however, that consumers are hungry for new ways to access and consume media. The telephone companies' efforts to roll out robust broadband networks in order to compete with cable, helps get everyone closer to a competitive market. Not only will these networks offer new services and increased broadband capacity, but the burgeoning competition will also spur cable companies to make upgrades of their own, as well as lower their prices. Consumers don't need to do anything new. They just need to sit back and flip the channels.

Jerry Brito is a legal fellow at the Mercatus Center at George Mason University.

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