I'm en route to New York today, where the largest TV advertisers and broadcast networks are converging for the annual Upfronts Week, a $9 billion media auction for sponsorships of next Fall's TV Season hits. On everyone's mind this year: it was only a matter of time before the internet changed TV in a way more profound than color or cable. That kind of disruption calls for a VC road map...
The entertainment industry managed to ignore the net for a decade. Only 250 miles apart, Hollywood and Silicon Valley might as well have been on different planets. Happy with their structural oligopoly, TV networks resisted change, and (just as buyers and sellers keep each other coming back to eBay) the talent and the audiences stayed loyal to the networks.
Back in the 90's a few startups tried but failed to repurpose television talent online--like Den (the most egregious flame-out of all), and my own doomed investment icebox (but you can still delight in Jesus and His Brothers, Queer Duck, and Hard Drinkin Lincoln). There was neither enough chicken nor egg to shift the center of gravity away from the TV.
Strategically positioned between the audience and the talent, TV networks protected their cash flow by resisting the growing economic pressure to bring the interactivity, e-commerce, and community of the web to TV's huge, loyal audiences. But Tivo cracked that dam, and over ten years the crack expanded to jeopardize the integrity of that industry structure. Exploiting computers and the internet to displace channel-surfing with random access content, DVR's so enhanced the TV experience that viewers changed their habits, causing the Dammed Networks to sprout dangerous leaks of ad revenue.
Compounding the Tivo risk, computer and phone screens now attract so much viewership that the vacuum of quality content invites new competition into the distribution game. And so this year, finally, the dam has collapsed, as progressive voices in the entertainment industry have overcome complacent inertia.
Hollywood video now flows through web sites, cell phones, and iPods, as new business models wrestle vigorously for sunlight in the new landscape. Soon there will be no more network loyalty, no more 30-second spots, no more $70 billion a year in brand advertising revenue. So how will advertisers reach large audiences with high impact messages? Who, if anyone, will control the new distribution channels? Will cable providers evolve or stagnate? Most importantly, who will pay Eva Langora, Chris Carter, and Jerry Bruckheimer to keep the yucks coming?
Worry not--venture capitalists are waving checkbooks, and the talent agents are tuning the contractual fine print to carve out rights for online and mobile syndication, merchandising. endorsement, ringtones, screensavers. games, etc. Soon enough, new revenue streams will subsidize Desperate Housewives and Scrubs so they're always an RSS feed away.
In the next week I'll post some news on 8 recent investments Bessemer made in the pioneers of Television 2.0.