Monday, May 18, 2009

A problem even Jack Bauer can’t solve

Jack Bauer is having a really, really bad day. This has happened six other times (since 24 first aired in 2001). This particular day, Jack lost one of his best friends (Bill Buchanan) to terrorists and found out the other (Tony Almeida) was alive, but a double agent.

Still, Jack is a survivor, now on his 7th president: one truly great, one truly evil, and the rest (as with the last 20 years) of varying degrees of mediocrity. Having run out of the likely threats — Islamic fanatics, the Chinese, the Russians — the enemies get more improbable ever season.

Jack fights at all costs to protect a society that he can never fully join, much like Batman or Dirty Harry. As the author of several 24 books summarizes it:

Jack is the sheep dog, the terrorists the wolves. Although the sheep fear the wolves and are guarded by the dog, the dog — with its fangs, claws and willingness to kill — has more in common with the wolves than with the sheep he protects. Despite the dog’s role as protector, he possesses the same predatory instincts and violent tendencies as the wolf, so he can never be a part of the flock. Jack is estranged from his daughter, constantly robbed of a normal life, admired by the audience but alienated by much of the fictional world he inhabits.
As with every season, Jack saves the day. Presumably being infected with an incurable virus will be solved in tonight’s final two episodes — while at the same time, some dear friend will die, or some deadly villain will skate free.

While Jack is a creation of Hollywood, one problem he has not been asked to solve is the impending destruction of its failing television business models. It probably doesn’t fit his skill set, since it can’t be done by pointing a gun or blowing something up.

The core problem is that the 20th century concept of mass media is approaching its end — in this case, the idea of one-to-many prerecorded entertainment. Jack Bauer and 24 are the last gasp of a dying breed, the network television hit show that is watched by a wide enough audience to become part of the popular culture.

The demographics are all wrong for Hollywood. The middle aged and geriatric set will continue to watch TV, but even the CEO of one of the major motion picture studios admits that coming generations are lost. In an (online) interview posted earlier this month , Howard Stringer of Sony said
Children today don't watch that much TV. Take my 16-year-old son, for example. Apart from watching some sports, he almost never watches TV with the rest of the family; instead he spends most of his at-home leisure time communicating via the social networking site, Facebook.

It's clear that customer preferences are changing, and I think this fact indicates what the next steps in TV evolution are likely to be. We'll never recapture our customer's hearts by merely offering better color or higher resolution.
Allowing for this new generation, 24 is available online at the Fox website, or on a limited basis at Hulu. Because I’ve been teaching Monday nights, I’ve watched most of this season in a tiny window on my desktop computer: a lousy experience, but a convenient (and free) way to catch up on the plot twists.

The problem is, TV will never monetize as well online as it did in the 60s, 70s and 80s. As with Internet “real estate” vs. physical real estate, there are no natural limits for online video the way that 3 or 5 or 7 local broadcast TV stations created a scarcity (and thus premium pricing) for TV advertising. The market will be more fragmented — with both domestic and overseas content providers — and the per-viewer prices lower than during the 20th century era of the great broadcast networks.

Some will argue that Google, Amazon and others demonstrate that the Internet can create great wealth, and thus the same will happen for online video. Certainly companies that previously had nothing (cf. YouTube and its three founders) can enjoy explosive growth in demand and market cap (if not revenues). But for every winner there are losers. Advertisements placed with Google are ones not placed with newspapers, books purchased through Amazon are not purchased at the corner bookstore.

Internet media (first print, now video) is the classic commodization of a fat, dumb and happy industry that Clay Christensen (in his 1997 book) termed a “disruptive innovation.” The new technology is cheap and at first appears to be a toy, but it finds a new untapped market and eventually gets “good enough” so that most existing users switch over. New entrants are happy, because they enjoy explosive growth. Consumers get what they want at a lot lower price.

But for Hollywood, an assumption of higher volume, lower margin will never work: its volume has long since peaked. In its heyday, All in the Family drew 20 million households on a Sunday night in a country of about 65 million households. Except for the occasional man walking on the moon or the Super Bowl, there isn’t anything that networks can do to grow this penetration rate — so a show like CSI has less viewers in a country with 50% more people.

If Christensen’s maxims hold true, then the old media will be unable adapt to the Internet threat, because it will be too fixated on protecting existing margins to embrace the online world. So far Fox (like Hulu) hasn’t made this mistake: my free episodes of 24 have an occasional pre-roll ad, but certainly less ads than if I spent 60 consecutive minutes in front of the idiot box on a Monday night. Giving it away virtually free today builds market share, but (as newspapers have found) makes it hard to monetize later.

Even if Hollywood does emerge the winner in the online media, it will be a Pyrrhic victory: both the volumes and unit revenues will be lower than in the late 20th century. Being a TV star won’t be as lucrative as it once was, and unlike rock stars, there’s no alternative revenue model to make up for it.

More urgently for the Hollywood media companies, being a TV producer or studio executive won’t be as lucrative as it once was. I’m guessing this will spark a frantic round of related diversification (videogame companies?) that prove as successful as the AOL Time Warner merger.

1 comment:

Simon Rodan said...

There may be a niche market for movies sold at very high prices to a very few people who like high-def, whether it be in the cinema or on a humongous 100" LED TV at home. Perhaps our government will subsidize movie theaters like the Europeans do their opera?

But if you are right, the days of high budget (high fixed cost) productions are over. To the extent that Hollywood provides significant support, financial and branding, to the Democrats, and these two elements disappear,the political, as well as the cultural and economic, landscape will shift.