TV Industry Is Facing ‘Innovator’s Dilemma’

WESTLAKE: BUSINESS MODELS NEAR BREAKING POINT
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SAN FRANCISCO — The TV industry’s incumbent players are operating under severe pressure — the classic “innovator’s dilemma” — according to Microsoft corporate vice president of the Media and Entertainment Group Blair Westlake.

“When you have a good thing that is making for money for you,” companies have a tendency to think, “if it ain’t broke, don’t try to fix it,” Westlake said last Wednesday (Sept. 11) at the Next TV Summit here, presented by Multichannel News and Broadcasting & Cable. “But when you realize it may not be broken, but that the pencil is being stretched to the point where it is about to snap,” then companies have to change, he said.

One example of successful change, he noted, was Netflix, which had a very lucrative rent-by-mail DVD business in the mid-2000s. But executives saw the decline in the DVD business and shifted to become a pioneer in streaming video.

“They are the best example of seeing what is coming and moving their business model before the pencil snapped,” he said. “In four years, they’ve gone from zero digital subscribers to 30 million. HBO was launched 35 years ago, and today they are also at roughly 30 million subscribers.”

TV companies in all aspects of the business — from pay TV operators to broadcasters — also face the “innovator’s dilemma,” in which the current business models are still performing, but under pressure. “Every one of these players has a business model that is being pushed and pulled and under stress in a way that no industry has faced, including the music industry,” he said.

One major area ripe for change has been traditional distribution models, which, Westlake noted, are threatened as cord-cutting accelerated and younger demos embraced new ways of accessing content.

“There has been a view that when the younger generation grows up, they will do what their parents did,” Westlake said. “But the numbers suggest otherwise.”

Change in this area would likely be complicated by rights issues and the need to maintain significant revenue from pay TV operators, he said. As a result, he predicted that a “sizable portion” of the population will continue to subscribe to traditional pay TV services.

George Winslow is a contributing editor to Broadcasting & Cable.

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