Television Is the New Television

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Television Is the New Television Page 9

by Michael Wolff


  OTT devices, instead of becoming a way to bring the new interactive digital world to television, became a way to bring more television to television. And, too, they have become a back door into the television business. Amazon, Apple, and Google—distributors and potential programmers (Amazon is already a serious programmer)—are in the OTT business not just to facilitate their streaming products and services, but as a way to stake a claim on television territory too, each with network-like ambitions, or fantasies.

  Aereo, an audacious and harebrained start-up, proposed to use an OTT device to, in effect, restore original broadcast television. Its scheme was to rent you a remote antenna that would in old-fashioned form deliver you broadcast television stations, allowing you to bypass cable fees—or, that is, to pay Aereo a lower fee for the broadcast signals it was sucking from air and delivering back to your television over the Internet. This was a notion, cheered by the digital side, that traveled quickly to the Supreme Court, where it was made mincemeat by television’s collective legal mind and might.

  Aereo’s fallback position was to join a range of other such start-ups and use the OTT route to the television as an orderly and legal licensing method to simply deliver television programming as it now exists—but with the added value of a better interface and searching tools. That is, television is not changed, nor its value diminished, but rather the promise is to enhance it. (In fact, finding this market already crowded, Aereo accepted defeat and folded.)

  This is, of course, at a cost. “Pure” OTT bundles that would essentially replace what a viewer gets from his or her cable or satellite provider may well end up costing more than the original package—in a continuing effort to test the upper range (so far unreached) of the consumer’s willingness to pay for television. What’s more, these new bundles, while seeming to threaten cable, may be a boon to it. Charter Communications CEO Tom Rutledge seemed barely able to contain himself at a 2013 analyst conference, pointing out that the Internet access business (and no matter what OTT device you might have, you will need Internet access, most likely through a cable provider) has higher margins than the traditional cable television business, and that an ever more fractured field of content providers increased cable’s leverage with the individual players. (Of course, the content providers, given new ways into the home, argue the same thing about cable.)

  Smart TVs, trying to incorporate new capabilities, continue to threaten the individual solutions. But at least in the near term, as much as some people might want to get rid of the box or multiple boxes under their TVs, many also prefer the ability to swap devices in and out when there are improvements in the technology. Cheaper to replace a box than the whole television. Also, the stand-alone boxes usually have more custom capabilities—the ability to act as media hubs if you have multiple TVs in the house, for instance—as well as better interfaces for surfing or searching through programming. For someone who has accumulated a large library of videos and music via iTunes, for example, Apple TV is going to give you a far greater ability to view that stuff on your TV, or listen via your stereo. Roku, on the other hand, prides itself on its cross-platform search tools, allowing you to better hunt for a particular show you want to watch on any of the streaming services you subscribe to.

  Another range-war aspect of the OTT future is an effort, in effect, to repeat the early television model and create exclusive programming in order to sell hardware and technology. In this high-stakes world, specific boxes or connections will provide specific entertainment packages. As HBO was a premium channel, now, potentially, there is a world of premium boxes, which may both give you what you cannot get from other competitive services and cut you off from what you might want from other services as well—all, naturally, heating up the competitive landscape for programmers and program makers, as well as distributors, and naturally presaging a certain wave of consolidation.

  Still, the medium likely needs a new and improved metaphor—consolivision?

  14

  CONSOLIDATING CONSOLIVISION

  It was a curiously winding road for the television business to actually understand it was in the television business.

  Starting in the 1980s, the idea of the “media business” became something like a unified field theory. Except, in fact, there was little unified about this business. There were publishing businesses and there were entertainment businesses. There were movies, supported by ticket sales; there was television, supported by advertising. There were large consumer magazines supported by national advertising; there were newspapers supported by local retailers and classified listings. There was a production business, and then a mostly separate distribution arm. There were books, a unit sale business. There was radio. There were billboards. Even a classical theory of horizontal integration wasn’t going to bring many of these disparate disciplines into alignment or a logical relationship.

  It wasn’t so much a theory or a plan as it was the ability to finance acquisitions that brought the whole lot together. It was a grand scheme of opportunity and dominance, most of all envisioned by Rupert Murdoch, who, in addition to having the appetite and imagination, had, with his base in Australia, and his ambitions around the world, an accounting trick to finance it all. Under Australian accounting rules, aspects of what would otherwise be regarded as debt were regarded as equity—hence you could continue to borrow against it—and the value of “goodwill” remained on your balance sheet and was not, as it is under standard rules, depreciated.

  In little more than a decade, he transformed his company from a newspaper publisher to an international magazine, television, movie, satellite, and book company, creating, from a hodgepodge of largely unrelated businesses, the media business.

  A series of competitors followed suit, gathering virtually all movie studios; television networks and stations; major book, magazine, and newspaper publishers; cable programmers and cable and satellite systems; and, too, radio networks and billboards companies, comprising hundreds if not thousands of separate entities, under the effective control of a handful of companies: Time Warner, Disney, Viacom, News Corp, Comcast (magazines and newspapers were consolidated under Advance–Condé Nast, Hearst, Tribune, Gannett, and radio under Clear Channel).

  There were a variety of screwball rationales to this. There was the one broadly known as synergy—companies that both performed different functions or that were competitive with each other would work together—that would quickly become a punch line. And then there was the visualization that saw audiences fracturing but being regathered by merely buying them back as they spread—an improbable notion, which, anyway, soon met the Web.

  Digital competition, changes in the advertising market, the collapse of the music and print industries, and the fracturing of television had, over the last ten years, both a paralyzing and transformative effect on these big companies. They were paralyzed because vast parts of their empires were under siege—clear to all, these outposts would be lost. Beyond managing decline, and hoping for some fortuitous intersection with digital media (Time Warner lost five years in its merger with AOL; Viacom fired its CEO, Tom Freston, for not buying Myspace, while News Corp bought Myspace, only to see it, in a matter of months, lose its dominance to Facebook and go out of business), nobody could really have described a plausible growth model and glowing future.

  They transformed by the almost random dumb luck of television’s dual revenue stream.

  This happens almost in an unconscious or happenstance fashion. Disney becomes the dominant media company because, in its 1995 acquisition of ABC, it also got ESPN, an insignificant add-on that would become the most valuable cable station. Hearst, which owns 20 percent of ESPN, and, in addition, 50 percent of A&E (Disney owning the other 50 percent), was lifted from the fading fortunes of magazines and the dismal fate of its newspapers. Time Warner dumped its music business (Warner Music), its Internet business (AOL), its book business (Warner Books and Little, Brown), its cable system (Time
Warner Cable), and its magazine company (Time Inc.), keeping only HBO, Turner Broadcasting, and the Warner Bros. movie studio—and, in the process, doubling its value. Advance Communications’s 31 percent passive interest in the Discovery Channel is now worth more than its newspaper chain (the fourth largest in the United States by circulation) and its Condé Nast magazine group put together. Viacom split off CBS, its low-growth network business (including in it its book business), from its fast-growing cable channel businesses (including MTV, VH1, Comedy Central, and BET Networks), but then CBS, by grabbing a piece of cable fees for itself, also vaulted forward. Rupert Murdoch, the first media conglomerator, whose newspapers formed the backbone of his company and his personal interest, was forced by the scandals involving his London papers to separate the troubled papers from the thriving entertainment company. Largely against his will, his company was split in 2013 into News Corp, holding the legacy publishing interests in the United States, United Kingdom, and Australia, and 21st Century Fox, with the Fox Network, cable stations (Fox News, FX, Fox Sports Network), movie studio, and its 39 percent controlling interest in Sky TV, the British Satellite Network. Fox’s value minus the value of its worldwide newspapers and as a pure-play television company climbed more than 20 percent over the next year.

  It is arguably only at this point, with 21st Century Fox a separate company forging its own strategy, that the new old media model becomes clear. If Murdoch invented the unified field theory of media consolidation, in which anything that could plausibly be called media became media, he was now concisely acknowledging the new field theory: media is television. (Murdoch has had a long and hapless history with digital media, including buying the first consumer-access Internet provider, Delphi, the then largest social network, Myspace, and launching the first tablet-only newspaper, The Daily. Each of these gambits was, in its own way, a disaster, sending him, chastened, back to his true business.)

  Accordingly, Murdoch’s 21st Century Fox, now close to a pure-play broadcast and cable television programming company, offers to buy Time Warner, another pure-play television programming company.

  Murdoch, quite unique among the figures who have shaped the television business, is not a television guy. He’s never made television, never sold it, never been truly part of the industry that does. In fact, he’s never really watched television. He’s even largely left Fox News to Roger Ailes. Murdoch would really not know the first thing about making a news show, or any show. He’s a newspaperman. And partly because newspapering is, for him, a process of judging and manipulating who has power, and, in that process, creating power for himself, he has developed a preternatural instinct for those two central public pillars, politics and media.

  Emerging out of the 2008 financial meltdown and the long recession, the strength of cable television became clear not just against the decline of almost all other media, but in and of itself, as a business in an exceptional position: cable customer fees continued to climb and, even amid continual complaints, did not reach even a sense of ceiling—hence, cable licensing and retransmission fees rose too; television advertising became ever stronger—given the Internet alternative, you could even say there was a flight to television.

  If Murdoch himself is temperamentally of a pre-television age, his daughter Elisabeth and his son James are consummate television executives and provide, in an almost spooky generational melding, something of an additional consciousness for him. He is, in a sense, able to process their experience as his own. Elisabeth has, after quitting his company in a huff in the late nineties, built one of the largest international production companies, not just making and acquiring shows, but creating and licensing “formats,” a new marketplace wherein underlying narrative structures and techniques (e.g., gimmicks) are bought and sold. James ran BSkyB (from 2003 to 2007), the British satellite broadcaster, which more and more has become a key component of the Murdoch growth strategy. The Murdochs own 39 percent of the company. It is in part their efforts to buy the entire company that leads to the backlash in the United Kingdom that helps fuel the hacking scandal, which results in the quashing of the BSkyB deal, the splitting of the company, and the renewed effort to double down on television in the form of Time Warner.

  In one sense, the merger’s rationale is to build a better, more ultimate bulwark against the looming distributor conglomerate of Comcast and its impending combination with Time Warner Cable. That is, the more good video assets you own, the more necessary you are to do business with, the more leverage that gives you, the more your relationship becomes negotiable rather than take it or leave it.

  But it is also a pure, giddy sense of opportunity, the thing that most moves Murdoch. In part because of the Comcast consolidation, but in part because of the expanding television business—that is, a vast, growing consumer appetite—Murdoch foresees a new age of media (that is, television) consolidation, raising asset value across the television spectrum.

  And if he controls a lion’s share of the sweetest assets, and Time Warner would have made 21st Century Fox the dominant cable programming company (what’s more, Fox’s sports assets with Time Warner’s sports assets would make a formidable ESPN competitor), then his assets would rise the most in value.

  How can he not play?

  But in fact, it turns out he may be too late. His bid for Time Warner may have confirmed television’s pure-play strength, but the market may be close behind if not even with him.

  His own shareholders, driving down 21st Century Fox’s share price after the bid, clearly feel the assets are powerful enough that, to get them, Murdoch is going to have to pay a substantial premium. What’s more, Time Warner shareholders, even looking at a premium bid from Murdoch, seem perfectly willing to believe TW CEO Jeffrey Bewkes that, in the relative short term, he can raise the value to well beyond Murdoch’s already rich offer.

  Effectively priced out of the market, Murdoch withdraws his offer. It’s a bitter blow. His timing is usually more prescient than this. But now everybody seems to know television’s value. What’s more, everybody knows that Murdoch’s restless appetites and long history of never leaving the fight mean his own interest will help keep values high.

  Rather miraculously, the entire idea of media (that is, television) conglomerates seems back in vogue, along with media moguls, energized by—along with Rupert’s predator’s interest—the impending fate of the Sumner Redstone–controlled Viacom and CBS.

  Sumner Redstone, at ninety-two, continues to control one of the choicest pools of television properties. Post-Redstone, and a parceling of assets, if not a complete breakup of the two companies—or even one of the divided companies now bidding for the other—the outcome is likely to move the market ever higher and configure new empires.

  15

  TELEVISION WANTS TO BE PAID FOR

  The American media business and, arguably, the entirety of American culture was based on the fact that television was free.

  Curiously, a central aspect of the early Internet debate was the emphasis on the importance, or even moral imperative, of low-priced or no-cost information—“information wants to be free.” Even though most information, or anyway most media (to make only a slight distinction), was free. A free Internet was hardly a disruption—instead, a continuation.

  The nature of mass media, since the introduction of low-priced newspapers in the nineteenth century, was to make it as cheap as possible so that more and more people could afford it—so it could become more mass. And having mass, you could support it with advertising, which was a better economic proposition than actually trying to get people to pay the real value of information. This wasn’t in fact a necessary model. Movies charged a straight user fee. So did books. Periodicals tried to balance the equation with two revenue streams, circulation and advertising. But the power of radio and then television, growing vastly larger than all other media, consigned pay content to a smaller, if not small-time, business. Even movies began to gen
erate a great portion of their income from television sales and free-to-the-consumer distribution. Few periodicals actually covered their costs with subscription fees, and most lost money on newsstand sales.

  The idea that freely provided information was a social and intellectual advance was, along with being a constant pat on the back to Internet virtue, part of the scheme to cast the Internet as a television and new mass-media model.

  And yet, at the same time, in a wholly parallel world, television itself, without announcement (to a certain degree under the darkness of a complicated cable bill), was, topsy-turvy-like, converting to a paid business.

  The very nature of television, of how it was received, regulated, and supported, was—far removed from the Internet—undergoing fundamental changes.

  The rapid growth of cable adoption, only slightly slower (and from an infrastructure point of view vastly more complicated) than the adoption of television itself, started in the late seventies and reached critical mass penetration by the early nineties, just when consumer adoption of the Internet began. Cable’s attractions had, initially, nothing to do with cable programming, but with better reception for broadcast programming—several decades of intermittent fuzz suddenly cleared. And then porn, or at least nudity, built demand (a demand that the Internet would extend and more than satisfy in coming years). And then premium channels, notably HBO, showing first-run movies and exclusive sports events. And that rather defined the universe of why people would pay for TV: better functionality, sophistication (not just sex but, as the cable programming model developed, attitudes, plots, and sensibility that you couldn’t see on mere broadcast TV), exclusivity, and sports.

 

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