Clay Shirky wrote a great article that contained another example of how we must adapt or die:
Fifteen years ago, a research group called The Fraunhofer Institute announced a new digital format for compressing movie files. This wasn’t a terribly momentous invention, but it did have one interesting side effect: Fraunhofer also had to figure out how to compress the soundtrack. The result was the Motion Picture Experts Group Format 1, Audio Layer III, a format you know and love, though only by its acronym, MP3.
The recording industry concluded this new audio format would be no threat, because quality mattered most. Who would listen to an MP3 when they could buy a better-sounding CD at the record store? Then Napster launched, and quickly became the fastest-growing piece of software in history. The industry sued Napster and won.
If Napster had only been about free access, control of legal distribution of music would then have returned the record labels. That’s not what happened. Instead, Pandora happened. Last.fm happened. Spotify happened. ITunes happened. Amazon began selling songs in the hated MP3 format…
The people in the music industry weren’t stupid, of course. They had access to the same internet the rest of us did. They just couldn’t imagine—and I mean this in the most ordinarily descriptive way possible—could not imagine that the old way of doing things might fail. Yet things did fail, in large part because, after Napster, the industry’s insistence that digital distribution be as expensive and inconvenient as a trip to the record store suddenly struck millions of people as a completely terrible idea.
This reminds me of the example I like to use of my grandfather’s fight with adaptation. I wrote about him here before:
In 1890, at the World’s Fair in Bremen, Germany, F. E. Ives had a small booth to show off his improvement of the halftone photograph processing technique. Again, the pencil illustrators of the newspapers covered this quaint technical oddity without understanding its significance. (The image’s backing had moved from hard glass to transparent, flexible plastic sheet – flexible enough to curl around a printing press’ roller.)
The newspapermen and the illustrators may not have grasped the importance of Ives’ advancement. After all, it was a little booth at a giant trade show. It took some time for photography in papers to catch on because of the engraver guilds’ protection, and because publishers had sunk a lot of money into flat bed printing machines. My Grandfather was born in 1898 and yet worked as a newspaper pencil and ink illustrator up through the 1930s. His trade didn’t end overnight like the Pony Express… but it ended.
The thing is, unlike engraving evolving into photography, the internet disrupts the distribution of content. That’s a bigger problem. If your revenue depends on delivery (whether by pony, or cable package, or newspaper vending machine), and a new delivery method comes along that’s better, plus it also changes your customer’s sense of the possible – you have to adapt, or you’ll die.
Shirky continues: “once you see this pattern—a new story rearranging people’s sense of the possible, with the incumbents the last to know—you see it everywhere. First, the people running the old system don’t notice the change. When they do, they assume it’s minor. Then that it’s a niche. Then a fad. And by the time they understand that the world has actually changed, they’ve squandered most of the time they had to adapt.”
When you’re on top, and a big chunk of your revenue comes from controlling distribution, your position is tenuous. If you aren’t constantly looking for what’s next, you risk losing it all. The way I see it, cable companies are just begging to be disrupted. People hate them. Increasingly young people are getting their content from “over the top” sources such as Hulu, Netflix, and YouTube and falling in love with the a’la carte feel. A lot of young people are moving into apartments and never signing up for cable.
Live sports is the big thing keeping the MVPD ship propped up, but ironically, that love will inspire the perfection of mirrored streams via IP on U-Verse, an innovation which will spread to all other channels. It will look like XBMC on steroids.
Evan Shapiro is right that people love the product television supplies but that there are some dark clouds forming when it comes to the business model of flat story delivery. Execs in the newspaper, book, and music industry will all tell you that there was nothing wrong with their revenue models until they broke down.
To paraphrase Shirky: when someone demands to know how exactly technologists are going to replace cable companies, or newspapers, they are really demanding to be told that we’re not living through a revolution. They are demanding to be told that old systems won’t break before new systems are in place. They are demanding to be told that core institutions will be spared from the chaos of revolution. They want to be lied to. The truth is, we’re living in a revolution.
The thing they teach you in startup school is solve an existing problem. But, you say, television ad spending is $70 billion in America. True. Networks and producers have a lock on the industry that’s not going to be disrupted this year, or next. And yes, TV execs will keep telling advertisers that the level of engagement on TV is great. This will make it very difficult for technology startup types to disintermediate what is currently a booming business.
Admittedly, the current second screen experience leaves much to be desired, and only a relatively small group of people participate. But that’s not the point. Come on. For as long as cable companies exist so hated, transmedia second screen is an opportunity for networks to stop the slide, it’s a chance for production companies to get locked into sweet POD deals, it can help make live TV more of an event again, to give people a reason not to jump ship as other entertainment venues become more immersive and mainstream. The TV industry does have a problem, they may just not think it urgent enough to address.
But they are also the ones in the best position to do the work that needs to be done in order to remain on top: Leverage the power they have being inside TV to evolve the storytelling on the flat media of TV into a multidimensional experience can’t be pirated by cut and paste.