Schmidt, speaking yesterday at the Web 2.0 Summit, landed on the broadcast networks for blocking their signals on Google's newest invention -- Google TV, which brings the Internet to what is usually the biggest and best screen in the house. In Schmidt's view, this should be all good because he thinks people will watch more TV, because they can go "back-and-forth between Web content and broadcast content."
His interpretation of the networks' concern is that it could damage "this enormous revenue stream that is targeted towards 'dumb television.'" His view was no doubt partially shaped by the comment of a network exec -- who Schmidt didn't name -- saying to him accusingly: "Did you realize that you're taking a dumb television and making it smart?"
Schmidt, of course, sees that as Google TV's power, and thinks the networks could multiply their revenue streams into gaming, and other things, if they'd just embrace it. He told his interviewers, Federated Media's John Battelle and O'Reilly Media's Tim O'Reilly, that Google TV "is a whole new platform play on your television. ... lots and lots of new revenue sources in there. C'mon," he exhorted, "Let's think about the creative possibilities. ... the way to get more revenue is to create more revenue sources and you can do that with things like Google television."
OK, so it's clear the two sides don't understand each other. So what's the main source of the disconnect? It's really about the great unknown -- and it's possible Schmidt doesn't realize how big that unknown -- or unknowns -- are for TV. He is generally right that more revenue streams is better, but from a network exec's perspective, the unknowns still loom extremely large.
It's not only about wondering whether Schmidt's assertion is right that people will watch more TV when TV and Internet are merged; in fact, there's plenty of evidence to the contrary. As the broadcast nets well know, the advent of that distraction called cable didn't help their ratings -- it eventually eroded them. At least in that case, they bought some of those cable channels up, hedging their bets. In the digital world, the same opportunities don't exist.
And then there's the issue of ratings. How will an Internet-enabled TV change that? In the short term, it could actually work in TV's favor, since even if the action on a Google TV or set-top box is measurable, the data won't be used to determine ratings or ad rates. The business moves too slowly for that. But imagine if every time a person shifted online -- say, during a commercial break -- that activity was recorded. It, in fact, could be damaging to the business model of "dumb television" since it would be further proof that people don't watch ads.
But it can also be said that whether the networks lighten up about Google TV and competing devices or not, viewership habits will change anyway. So, since it's almost always a mistake to completely discount what Schmidt says, here's what the networks should do: experiment with the other revenue streams he is talking about while it's still safe, which is now. Do it while big mass-market TV commercials still rake in billions of dollars per year.
The full 45-minute video is below.