Ok, lets have a look at the core of Disney’s announcement or more precisely the core of it’s impact: As I understand, cable companies usually pay Disney a certain proportion of their revenues in order to be able to distribute Disney content. So what would happen if Disney would fully switch to Internet-based distribution (I know, I know, this won’t happen soon, but lets just assume…)
Assuming not only Disney but all content-owners switch to Internet-based distribution, cable companies would easily lose their existing business model. Who would want a cable connection if he/she can get all the shows, all TV over the Internet?
So, TimeWarner is using AOL network to distribute their content. I don’t know all the details of who owns cable networks in the US, but I assume all content owners will start considering either owning distribution networks or providing their content over “free distribution networks”, like the Internet.
Which brings us to various questions, for which I will try to come up with some ideas/answers:
What happens with cable companies if, one day, all of the distribution of content is via IP?
I assume the best solution for cable companies is to switch to IP-based services. Since everything is moving towards IP, the winner will be the company which first switches to fully IP-based content delivery. This is true for delivering TV content as well as telephony and Internet access (so called “triple play” services).
I believe that content-owners will be fully disconnected from distribution networks like cable providers. Content owners will provide their content themselves, not like today where they “give” the content to cable companies who then distribute it. It is a lot easier to having a content distribution system, where you get a chance to actually know your customers (the consumers) by either collection consumer behavior data or even identity data (for free-content and pay-per-view content, respectively).
I always believed in the fact that media companies must own the customer-contact, not the transport companies. And the transition from broadcast/cable to Internet will definitely, finally make it possible for media companies to do so.
So this is the role-model for the future: The content will be owned and provided by content companies and the cable operators will provide access to that content for their customers. The cable operator providing the best, fastest and most reliable service/access to such content, will probably be the winner. The content-companies should always be on the winning-side.
What happens to “free distribution networks” (like terrestrial broadcast and Internet) once it is full of content?
Terrestrial broadcast is probably dead because it’s usually one direction (downstream) only and you need upstream for some interactivity in the future.
The Internet on the other hand will grow and at one point take over the role of the preferred distribution channel for any kind of content.
What happens to “net neutrality”?
This is the big question, right? In fact, I believe that net neutrality needs to die in order to provide reliability, QoS and high-speed content delivery.
The reasoning is easy: The content owners will generate revenue by selling their content or selling advertising. The cable companies will generate revenue by providing access to such content to their customers. How do the backbone operators generate sustainable revenue? Of course, they have peering agreements and such, but since the biggest revenue generation is done on the two ends of the service, the backbone providers will need to have access to some of this revenue.
So, I believe they will offer various degrees of QoS to the two customers they have: content owners and cable operators. In both cases, their customers can choose between various degrees of QoS: speed, reliability, security, etc. So, “net neutrality” will need to die in order for the Internet to survive.
What happens to incumbents?
This is probably the toughest question. I believe that fixed-line phone companies relying mostly on fixed-line phone revenue will die out, because most of the telephone traffic will be transferred to the Internet. It’s cheaper. Telephone is a commodity and there is really no other way of differentiation other than pricing anymore. Better service? Better voice quality? Better what??
So, I am 100% sure pure fixed-line phone companies will die out sooner than later. Of course, they can switch to becoming cable operators (actually, “cable operators” here means someone providing cable-connectivity to your home, be it by using DSL or real Cable-TV-network, fiber-optic, or other means of cable-connectivity over which you can run IP).
Cable-TV operators must fully switch to IP-based services or die out.
Radio and TV companies must start offering their shows over IP (radio companies already doing this) ASAP in order to experiment and learn how to best provide their content over this new medium and reach out to the new breed of consumers.
And… regional limits on TV, radio and other media content must be killed at one point. This is probably another one of those most stupid “inventions” of the media industry. Regional limits made sense back in the old days where you couldn’t really broadcast worldwide.
But it was doomed already with the invention of satellite TV and it must die (rightfully) with the dawn of Internet as distribution medium – quickly, ungracefully and forever! There is no real reason from the consumer perspective to have regional limits on media distribution, except for language but then again, the consumer knows best which language he/she understands/prefers, not the media companies (this doesn’t mean that there should be one language for all media; this idea is stupid and crazy. There must be localized media for regions, where localized means customized to regional language, culture and needs; but there must not be artificial limit on whether people from other regions can enjoy it too or not!)
And what should Disney do in order to gain access to a nice distribution network?
Well, since this issue came up with Disney’s announcement I though I might also think a bit further on what Disney should/could do.
No, Disney doesn’t really need an own cable company! That’s not the idea I had. But I know how difficult, costly and technologically challenging it can be to setup an infrastructure for distributing high-volume content over the Internet.
Since Disney already has an agreement with Apple about the distribution of some of their shows for iPod for a fee (pay-per-download), why not extend that agreement to additional, for-free content, too? Of course, this needs a solid business model but I am sure Steve Jobs and Bob Iger, being both on the board of Disney and Steve being the biggest single shareholder, will find a nice business model for this – even if that means that either Disney buys Apple or vice-versa (though full-out purchase wouldn’t really make sense because that would definitely hurt Apple’s agreements with other media companies).
Another possibility with respect to Apple would be of course if Apple would spin-off their iTunes business and offer minority shareholdings to Disney, TimeWarner, and other big-time content-owners. How about this?
Well, of course, all of the above-said is just my thoughts and may be completely wrong. But I doubt…