In the February 3 issue of The New Yorker, Ken Auletta does one of his signature media-mashups, using Netflix to take on the future of television.

The story attacks the question from the point of view of capital: what businesses, and which business models, will thrive in the future, and of the current players, are there any that are doomed?

After all, we have the spectre of entire media industries that have been eviscerated: Newspapers, Magazines, Music.  Why not television?

The question is about the form, about the tension between consumer and provider.  Every modern media industry has developed around the economic leverage that accrues to the provider by being able to dictate the terms and conditions of access to consumers.

Basically, the traditional media model lets the provider say to the consumer, “If you want to experience X, you also have to buy Y and Z.”

But digital consumers don’t see things that way.  They are expecting frictionless access to all media.  If a provider wants to extract a payment, then the product is going to have to be demonstrably more valuable than anything available for free.

In The New Yorker piece, venture capitalist Marc Andressen, inventor of what became Netscape, lays out the inevitable future for TV.

“TV in ten years is going to be one hundred percent streamed.  On demand.  Internet Protocol. Based on computers and based on software.”

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What’s fascinating is how far away from that consumer experience we currently appear to be.

PQ Media, which does a remarkable job compiling global statistics on media volume and usage, estimates that consumers in the US spent 63.33 hours each week in 2013 consuming media across multiple platforms. Overall usage is expected to grow 45 minutes over the next two years.  Traditional media will decline from 77% of the total to 74% of the total.

That is not the stuff of wholesale disintermediation.

Video is the most frequently-consumed form of video, accounting for just over 34 hours a week, or 54% of total consumption.  According to PQ Media, video will grow slightly as a percentage of overall media use, increasing by almost an hour of use.

PQ Media sees increases virtually across the board for video, with the biggest growth coming from OTT Video, which encompasses services like Netflix and Hulu.

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The macro analysis of media consumption suggests that the consumer habits that are going to drive the change that Andressen forecasts are already in place.   What this analysis doesn’t wholly capture is the consumer benefit that IP-based video strategies deliver.

IP-based video allows consumers to seamlessly combine their two most frequent media activities: watching TV and going online.  According to research by The Temkin Group, consumers spend 7.7 hours a day on those two activities.

eMarketer research from last year demonstrates how agnostic, yet persistent consumers are in accessing video across multiple platforms.  The eMarketer research shows that US adults spent approximately 4-1/2 hours daily on media “select digital activities” across their computers, smartphones and tablets.   Video increased from just 17 minutes in 2011 to 1:12 in  2013.

Voila Capture614Voila Capture616As Auletta contemplates the future of television through the prism of Netflix, he capably defines the positions of the insurgent and the entrenched providers.  Netflix is clearly positioned in a way that will deliver continued growth.  And the entrenched players are safe in assuming that the majority of media consumption is happening within the confines of their traditional models.

After all, video is compelling.  The content is discrete.  Consumers are obviously hungry for it.  And the demand will continue to be high, even as the delivery platforms expand.

All true, but there is one truth about the digital consumer that the current business models are challenged to accommodate.  The digital consumer — read this most specifically as millennials — don’t want to pay for things that they don’t use.  That is the ethos behind the sharing economy, behind the unbundling of cell phones, behind the use of ‘pay-as-you-go.’

The study “Millennials and Digital Video,” conducted by YuMe and IPG Media Lab, shows that millennials are the heaviest users of video apps.  These are the kinds of apps that represent the disaggregation of cable — containers that allow specific content sets, like ESPN programming or all the shows on TNT to be accessed directly.

This is the ultimate vision that Andressen is selling.  IP-based video means that the consumer is able to access bits of content.  When you look at the behavior of millennials, that horse is already out of the barn.  The future of video isn’t how to manage the development of that behavior, but how to shift the business model in order to stay relevant to that behavior.  That is a problem that Netflix has still to solve.

It’s what the money quote in Auletta’s article is ultimately all about.

“That’s like saying when color TV came in that people were going to go back to watching black-and-white television when they got older, because that’s what their parents and grandparents did!…The next generation, our audience and even younger, they don’t even know what live TV is.  They live in an on-demand world.”


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