Too Much TV: Your TV Talking Points For Thursday, July 6th, 2023

Streaming video and the innovator's dilemma

Here's everything you need to know about the world of television for Thursday, July 6th, 2023.

STREAMING VIDEO AND THE INNOVATORS DILEMMA
One of the most common arguments I have with other journalists is the one that focuses on whether the streaming video business is a financially wise business to be in for most media companies. It's a given that streaming doesn't throw off the revenue of the linear TV bundle, but what does? And, not sarcastically, it took the traditional linear TV business 40 years and a few well-placed legislators to make that gravy train happen.

I don't think there's any dispute that for most companies, streaming video is a tough business to be right now. And the conventional wisdom says that a bunch of otherwise profitable media businesses looked at Netflix's early success and deluded themselves at such a level that they blew up their existing linear, theatrical and physical media businesses in order to chase the magical streaming bucks that never existed and likely never will.

I disagree with this premise and in my defense I'll cite what is perhaps the most important business book written in the last hundred years. The Innovator’s Dilemma takes a look at a process that has played itself out in industries from railroads to personal computers. Why is that so common that market leaders and incumbents fail to seize the next wave of innovation in their respective industries? Why did Blockbuster look at Netflix and shrug off its importance? And in the past five to seven years, what has prompted a number of otherwise staid media companies to first jump directly into a new business that is built around disrupting the very industry that is making them Scrooge McDuck levels of revenue? 

Xenios Thrasyvoulou wrote about The Innovator’s Dilemma back in 2014 for Wired Magazine and he describes a product cycle that will sound very familiar to anyone who has worked in the streaming business at a large media company:

A common misinterpretation is that incumbents fail to develop these disruptive technologies or embrace them due to the inability of the organization to adapt operationally or technologically. In other words, management is unable to identify new trends, develop new ideas and reorganize to bring these new technologies to market. This interpretation, however, is plain wrong and the opposite is shown to be true.

What the theory — and the extensive evidence — in fact support is that incumbents often are the ones to spot and develop new technologies while easily reorganizing themselves to do so. The problem is they fail to value new innovations properly because incumbents attempt to apply them to their existing customers and product architectures — or value networks. Often new technologies are too new and weak for the more advanced and mature value networks that incumbents operate.

This leads to the ROI needed to advance the innovation to be seen as low. In other words, management acts sensibly in rejecting the continued investment in these new technologies and act in the company’s best fiduciary interests.

That's where we are in the life-cycle of the streaming video business. Disney and Warner Brothers and then Viacom didn't move into the streaming video business because they were hypnotized by the magical thinking of Netflix. At different levels, they saw the underlying weaknesses in their linear businesses and identified that streaming was the only business out there that was capable of eventually providing anywhere close to a comparable revenue stream down the line.

What these media executives either didn't understand or underestimated was the challenging and steep curve of streaming video's technology life-cycle (TLC). Think of any successful technology as looking like an "S" or a bell curve. Building the business requires a huge capital investment on the front side of the curve. That often means substantial losses and the prospects of failure are high. But if you execute successfully, the TLC matures. Investment costs drop, profits rise and the resources needed to continue to grow the business decline substantially.

You can't build a new business without a great deal of financial pain. And that's not one or two quarters of losses. That means deciding that if it requires torching existing business models to get there, you believe in this idea enough that you are willing to gamble everything in pursuit of success.

This retrenching we are seeing now in the streaming video business is the result of several intertwined causes. The high costs of mergers - both the Warner Bros. Discovery and ill-advised recombining of Viacom and Paramount - left those companies more focused on servicing debt and keeping Wall Street happy then gambling on an uncertain future. And streaming video hasn't had the articulate leader it needs to convince investors and those working in the business that there is no other choice for anyone who is hoping to keep Hollywood profitable and innovative in the long run.

It doesn't help that there are so many people working in Hollywood who just don't understand even the core business fundamentals of the streaming business. They don't understand the SVOD business or because of that inability, they continue to make the mistake of trying to apply the lessons of the linear business to streaming video.

But I also blame the major streamers, who could have made this transition easier if they hadn't decided that clawing back every spare penny from those writers, crew members and other staff was a sustainable approach. They could have structured deals in a way that would have likely meant a few less pieces of original content. But executives with vision would have also realized the offset of that decision would have meant they would have begin to convince a generation of creators that streaming video was the future. Giving up a bit in the short run would have made a massive difference in the long run. But whether we're talking about legacy media companies or streaming upstarts, one thing we've learned in this new streaming world is that even the smartest executive can make a serious strategic mistake in service of trimming costs. 

I'll wrap this up with a quote from David Packard co-founder of Hewlett-Packard, who has a warning that I think any of the major media companies should take to heart in the next few years:

"It is always possible to improve profits for a time by reducing the level of investment in new-product design & engineering, customer service, or new buildings & equipment. But in the long run we will pay a severe price for overlooking any of these areas."

THIS SOUNDS OMINOUS

ODDS AND SODS
* TLC is premiering its new series 90 Day: The Last Resort on Monday, August 14th. In the series, 90 Day Fiance couples who are struggling to stay together visit a beautiful resort where they will "work to see if their relationship can be saved." 

* Apple TV+ is premiering the new ten-episode adult animated series Strange Planet on Wednesday, August 9th. It is co-created and executive produced by Dan Harmon and based on the New York Times #1 bestselling graphic novel of the same name.

* TCM says the problems with the TCM Watch app will be fixed "shortly"

WHAT'S NEW FOR FRIDAY:
* A Place To Fight For (Hulu)
* Big Nate (Paramount+)
* Cardfight!! Vanguard will+Dress (Crunchyroll)
* Duck & Goose Season Two Premiere (Apple TV+)
* Family Law Season Premiere (The CW)
* Fatal Seduction (Netflix)
* Hack My Home Series Premiere (Netflix)
* Los Artistas: Primeros Trazos Series Premiere (Vix)
* Los Iniciados (Prime Video)
* Moonshine Series Premiere (The CW)
* Ready To Love Season Premiere (OWN)
* Reign Of The Seven Spellblades (Crunchyroll)
* Rent-A-Girlfriend (Crunchyroll)
* Seasons (Netflix)
* Sugar Apple Fairy Tale (Crunchyroll)
* The Ashley Madison Affair (Hulu)
* The Gene Of AI (Crunchyroll)
* The Horror of Dolores Roach Series Premiere (Prime Video)
* The Masterful Cat Is Depressed Again Today (Crunchyroll)
* The Next Black Millionaires Series Premiere (The Roku Channel)
* The Out-Laws (Netflix)
* Wanted: Millionaire (Se busca millonario) (Max)

Click Here to see the list of all of the upcoming premiere dates for the next few months.

SEE YOU FRIDAY!

If you have any feedback, send it along to Rick@AllYourScreens.com and follow me on Twitter @aysrick.