Intel joins the 2013 TV throwdown
(MoneyWatch) News about a rumored TV service launch by Intel (INTC) caught a lot of attention at the turn of the year. Intel will reportedly announce a set-top box and Web-based television programming service, which could let people bypass traditional cable and satellite providers. If Intel has its way, the approach would overturn the current practice of large numbers of channels, which force consumers to pay for all or nothing.
The chip giant has already found, like so many others -- Apple (AAPL), Google (GOOG), Amazon (AMZN), and Netflix (NFLX), to name a few -- that getting media companies to agree to changes in business as usual is difficult at best, and often impossible. But the business landscape is quickly changing, and the ability for content studios to get their own way is getting tougher.
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Intel's efforts have already hit delays, at least in part because of the difficulty in reaching content agreements with Hollywood studios. That has been the sticking point for Apple, Google, Netflix and anyone outside of the traditional cable and satellite companies.
Over the years, the studios have developed a lucrative business model. They and the cable and satellite carriers used bundle groups of channels for consumers, who don't have the option of picking and choosing exactly what they want. Instead, they pay the going rate, less whatever promotional discount may be running, and get everything.
An equivalent would be the old days of CD sales in the music industry. To get one song, you typically had to buy the whole lot. The labels -- often belonging to the same media companies that are television and movie gatekeepers -- eventually let themselves be persuaded by Steve Jobs to make individual tracks available through iTunes. The eventual result was devastating. Between 2006 and 2011, global sales from physical music media like CDs dropped from $33.1 billion to $19.9 billion, according to eMarketer. Meanwhile, global digital music revenues went from $2.9 billion in 2006 to $14.8 billion in 2011. It was grand growth, but not enough to make up from the drop in physical sales. Furthermore, the lack of digital bundling probably means that the industry had to make a much higher volume of sales to even offset that degree of loss.
The television industry as it exists hasn't wanted the same thing to happen. But this seems to be a clear case of the so-called Inventor's Dilemma, in which companies can find their businesses overturned because of technical innovations. It's unclear how long the industry can hold out for the good old days. Such companies as Google, Netflix, and Amazon have already begun to commission programming independent of the major media distributors, an Apple certainly has more than enough money to do the same. Video streaming over the Internet continues to grow in popularity, and the distribution points are controlled by the video upstarts.
To ignore new forms of distribution is to place a large and dangerous bet that the future of television use will be exactly what it has been for decades. Even if it worked in the short term, the risk of losing younger audiences that have different media habits would be too great. So chances are that in the next year or two, there will be more than one deal announced (to keep any one tech company from becoming the singular Apple of video) to let the studios transition into an uncertain future.
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