Is Network 1.0 also Network 2.0?


By Robert Young

As the debate and discussions reached a boiling point last week about the strategic implications surrounding the major TV networks and their bold moves to embrace the web, the big question that popped into my head was… where does this leave Google, Yahoo!, and all the other established web players who were counting on becoming major distributors of Hollywood media products?

For instance, by deciding to offer up primetime fare directly on their web site for free (with ads), did ABC just dis-intermediate the portals? If so, what does this mean for the fledgling Yahoo Media Group and Google Video initiatives, in terms of long-form, high-production quality content? My bet is that Lloyd Braun and Co are going to be busy contemplating “plan B”, and in fact working on “plan C”.

I find it telling that ABC chose not to include even their own affiliates, where local stations could have used their own web sites to stream episodes. As for Rupert Murdoch, while his Fox network did reach a revenue-sharing agreement with their affiliates, they also did not provision the affiliates with the ability to distribute shows on their own sites.

As the major TV networks increasingly place their programming on the web, what’s interesting is how little differentiation there is between the Yahoo’s of the world and the networks’ affiliates (e.g. when everything becomes a bit, the Internet is the great equalizer). It essentially becomes a game of who can offer larger audiences and better financial terms.

Wittingly or unwittingly, the major TV networks may be setting up their own affiliates to compete head-on against the major web portals (setting up your old distribution channel to compete against the new outlets is actually a smart chess move). The same competitive dynamics will also impact the traditional syndication market and home video/DVD distribution. Of course, a cynic could view all this simply as an stunt by the media companies to appease the stock market mandarins who have been baying like a pack of wild dogs.

But assuming that the broadcast networks have indeed turned over a new leaf, what should Yahoo et al do? In one sense the answer is simple… given that they already have the Internet audience, they can win the battle as long as they’re willing to put up the money (and Google certainly has the cash). But the reality is much more complex, of course, and the old distribution channels will fight hard. Either way, the major broadcast networks are looking at a chess board where they can’t lose… and they may end up proving that content is king after all.

Having said all that, there is one media player that stands out with unique leverage, and guess who that is. Yup, it’s Murdoch. With his ownership now of MySpace, he doesn’t need a Yahoo or a Google. This will give him tremendous leverage, and a significant comparative advantage, against all other networks as well as distribution channels, both old and new. Like him or hate him, call it luck or skill, his brilliance never ceases to amaze. I should also mention that the other media giant that’s nicely positioned, given the shifting strategic landscape, is none other than Time-Warner… their ownership of AOL may turn out to a major win after all.

Check out, MySpace versus networks via Alexaholic.

Robert Young is a serial entrepreneur who played a major role in the invention & commercialization of the world’s first consumer ISP, Internet advertising (pay-per-click ads), free email, and digital media superdistribution.


Robert Young

Michael E and Arik… I totally agree that short-form video, which is increasingly consumer-generated, is a growth business. It’s also a new art form in many ways, so just like TV didn’t put radio out business, I don’t believe short-form content competes directly with long-form storytelling (except at some broad level of consumer attention). And for this reason, portals should not ignore one or the other.

And Mike D, your point about digital distribution rights is a highly relevant factor. But even with the huge internet audiences that portals have, it’s not yet for viewing long-form video… which makes the economic equation very tricky and difficult to justify at the moment. Therefore, when it comes to paying for production, the broadcast networks have a built-in advantage to secure those digital rights. But that advantage will diminish over time, which is precisely why I believe they are making the necessary pre-emptive moves now to lock-up the portals.

J Lee

Ah don’t we all love those crazy college students and baby boomers with too much time on their hands :)

Mike D.

Great article. Regarding the “chess board where they can’t lose” statement though, let’s not forget that it’s not the TV networks who actually create the shows in most cases. It’s the production companies. Desperate Housewives was a “show” before ABC decided to buy it and put it on the air. Yes, it was not produced yet, but the idea was property of the creator and all it was missing was two things: A) money to get it produced and promoted, and B) distribution to get it delivered. The equation for ABC is pretty simple. If we provide A and B, will it be profitable for us? The equation for the production company is even simpler: Who will pay us the most money for this?

One thing a lot of people don’t realize is that when production companies have negotiated the deals for their shows over the last 50 years, there have almost never been internet rights included in those deals. Only over the last few years have networks wised up and insisted that full internet distribution be included in any production deal. That’s a huge part of the reason why this TV-over-IP thing has taken until now to release. Trust me, I worked on the ABC OnDemand product at Disney over two years ago. It was practically ready then from a technology perspective. You just have to wait until you have the rights in order to make good use of it.

But back on point, and back to the equations mentioned above. If internet distribution of “TV” shows really takes off, what’s to stop companies like Yahoo from disintermediating the whole thing and offering these bright up-and-coming production companies the money they need to produce the shows themselves? They have the money part covered already. And they have the internet distribution part covered as well. The only disadvantage is that as long as traditional “TV” is still the vehicle of choice for most viewers, they can’t offer the breadth of distribution that big networks can. But wait, did someone say Apple set-top box? :)

Arik Czerniak

Where is User Generated Content?

the main media player is missing here, and it will not be newscorp, NBC or ABC.

it will be User Generated Content. hundreds of thousands of clips are uploaded to the web each week. out of these are a lot of user generated content. with incentives and filtering in place – they are going to beat the old networks.

They may soon find that their old digital assets are worthless and being replaced by an avalanche of cash crazed college students with webcams and mobile cams looking to make a fast buck selling their content on the net.

Michael Eisenberg

When the networks zig, expect Yahoo and google to Zag. I think you may see a bifurcation whereby the networks offer long form video and the internet sites offer short form (read: Youtube and Metacafe) video. Google video is already populated with a bunch of short form video and yahoo is linking to many of those short-form sites on yahoo video. (full disclosure: my firm is invested in metacafe).

Robert Young

Aswath, the long-term implications of long tail economics are precisely the reason why the broadcast networks may be trying to be pre-emptive. They essentially have a small window of opportunity to set up new business models and agreements that will assure them of lucrative payments for redistribution. Put another way, they need to offset the growing reluctance of traditional distributors to pay for retransmission rights.

And Matt M, while the future for affiliates looks bleak indeed, today they are collectively still a very powerful group with deep pockets. Even Murdoch needed their financial support to secure NFL rights. And it seems that the broadcast networks will force them to pay-to-play when it comes to digital, non-linear programming.

Put those factors together and you have a situation where the broadcast networks may be doing what they do best… creating artificial scarcity and competition in the market, but this time between their affiliates and the portals. So to your point, David T, if the portals with the high traffic are hungry enough for content, the broadcast networks may end up getting exactly what they want.

David Touve

I think your linked alexa graphic offers an answer, in fewer words. Networks have a long way to go before they are competing online with what are now leading internet portals. Even the addition of some webcasted shows won’t be enough to equalize the distance. In fact, it would be worthwhile to your readers to look into which sites are now comparable to network sites, in terms of traffic and time.

The two sectors operate under different business models, a fact made more obvious by News Corps’ acquisition of MySpace, rather than the attempt to build one internally. Networks are not dead in the water, but just like the music industry, it will be a long time before we see growth.

matt m

In the extended version of this scenario where the local network affiliates are cut out- what happens to local advertising? We already see this “problem” with sat-tv/radio. Sat-tv can only offer so many local stations. The local weather/traffic is the only station currently playing ads on XM.

Will producing local news soon be the only thing left for affiliates to do? At some point syndicated content (re-runs, talk shows, etc) will be affordable to web content aggregators and their unique local content mix will be reproducible by the consumer directly. I don’t even know anyone who still has a non-sat tv-antenna…


Didn’t “Long Tail” anticipate what is being argued here? After all in Long Tail, the audience knows how to locate the content thereby negating the need for a distribution channel?

Comments are closed.