In my forthcoming book, Seeing Around Corners (now available for pre-order wherever you buy books), one of the major themes is that a major blind spot for organizations is that they tend to see the world through the lens of their existing industry. There are a lot of good reasons for this, but it can cause otherwise smart organizations to stumble.
Arenas, not industries
Instead, I argue that we need to be thinking in terms of arenas. An arena represents a pool of resources that is important to sustaining our business. Different players in the arena try to appeal to customers, thereby offering solutions to what Clayton Christensen has famously called “jobs to be done.” The jobs theory suggests that rather than thinking of people buying goods and services, think of them in terms of helping you get jobs done in your life. In effect you “hire” them, not buy them. The important point is that similar jobs can be done by actors from many different industries.
For instance, historically, what “job” did taking pictures do for us? It allowed us to capture images, store them, and share them. That job hasn’t changed a bit since the overwhelming inflections points that undid the analog film business. Digital photos were the start. Then we had digital photo-sharing on social media. Then we had digital video capability becoming simple and inexpensive, and video sharing being easy (and free) on sites such as YouTube. The arena being contested is essentially any situation in which a person would want to share a still or moving image. And the traditional ways that job was addressed—clunky cameras, massive video recording studios, broadcast media even—are finding themselves at an inflection point in which many of these images are “good enough” for certain purposes (although not for all).
Organizations with legacy and analog assets now find themselves trying to figure out what to do with all that expensive hardware, traditionally trained staff, and conventional outlets. Let’s explore what that looks like in the media landscape.
The traditional structure of the television business
Television, like radio before it, was one of the original advertising supported businesses. Broadcast networks sent signals out into the ether, combining content viewers wanted to consume with the advertising that paid the bills. They received a license to operate on spectrum from some kind of governmental agency. End users, the viewers, could tap into the signals and watch programs for free. The “jobs to be done” had to do with getting information, being entertained, having a moment of peace while your kids watched Saturday morning cartoons, and so on. This was the era of limited choice, appointment TV. The content generators controlled what you could watch, when you could watch it, and to some extent where.
Some viewers who couldn’t get strong signals in remote places had an early version of what we would regard as today’s cable TV networks. Community antennae were set up in high places to pick up strong signals, then individual homes were linked to those. Cable’s increasing ability to pick up stronger signals meant that it could start to compete with local television stations and the whole sector was tied up in regulatory spats for years, as the rights to have access to what were in dispute. The improved quality and reach of cable systems proved valuable to some early adopting customers, and by 1962 some 850,000 American households were cable subscribers.
Enter the premium channel revolution
An inflection point started in this fairly staid business with the launch in 1972 by Charles Dolan and Gerald Levin of Sterling Manhattan Cable of the nation’s first pay-TV network, Home Box Office (HBO). HBO accomplished the remarkable—its mix of commercial-free content and uncut movies persuaded people to dig into their wallets and actually pay for something one might argue that they received before for free. By 1975, HBO was delivering its programming by satellite, thus becoming the first broadcaster to have a nationwide reach. HBO’s success encouraged competition from rivals such as Viacom’s Showtime. More importantly, the business model they pioneered presaged a dramatic shift in the way in which the television business made money. HBO and its peers started to use some of their profits to gain favorable access to better content—blockbuster movies, for instance.
The next business model change was to begin to blend the first two. Broadcasters agreed, for a fee, to send their signals both over the air and through the cable channels. Those producing programming could now generate revenue through advertisements, as they traditionally had, but also through subscription fees. In the quest to create more content that people would pay for, cable companies began to branch out. As a participant at the time observed, “We had to invent more content to deliver,” recalled Gus Hauser, who was chairman of Warner Communications, the cable company that launched Nickelodeon in 1979 and MTV in 1981. “Once there was something to sell, the cable industry developed.” In what was described as a “bargain” for the subscriber, the new content was bundled with traditional broadcast content, giving viewers access to more choices for a flat monthly fee, then considered affordable.
Then the high-variety but costly bundle
The next turn in the story took place with a proliferation of original programming on the one hand, and the consolidation of the content production players on the other. Disney acquired ABC, meaning it could put Disney programming and popular channels such as ESPN under one roof. Viacom by then owned MTV, Nickelodeon, and Comedy Central and merged with CBS. NBC acquired Universal Entertainment. The “aha” moment resulting from this turn of events was for the big programmers to figure out that they could essentially force the cable companies to carry less popular shows with smaller audiences if they also wanted to carry the more popular channels. And—this is the interesting point—the contracts they worked out listed a price that the carriers would pay on a per-subscriber, not per-viewer, basis.
This had the odd effect of producers being paid for shows the carriers broadcast, even if viewers were not interested in watching them. As one observer noted:
Given the way cable companies and networks carve up your monthly bill, lots of people pay for TV they don’t watch. ESPN, for example, reaches only 3 percent of the total cable audience, but gets paid 18 percent of cable subscription fees, according to MoffettNathanson Research. Fox, by contrast, reaches 13 percent of the cable TV audience, but gets only 3 percent of subscription fees.
The result was an escalating battle for ever-larger shares of viewers’ spending on television. Indeed, researcher Kagan S&P Global Marketing Intelligence finds that the average cable bill increased by 74%, even after accounting for inflation, between 2000 and 2018.
Muttering and grumbling about this got louder and louder as people complained about having to pay for channels that they didn’t watch in order to receive the programming they wanted. Congress members such as John McCain became critical. And the New York Post featured an unambiguous headline, “Cable Prices Have Been Too Damn High for Nearly 20 Years.”
And the next inflection point?
Meanwhile, the internet as we know it today—with always-on broadband, fast data speeds, and widespread availability—was coming into being. Netflix sort of snuck into the TV business, with the allure (for content producers) of finding new audiences (and therefore new revenues) for older content. Up until that point, the way in which content was released into the wild had a distinct sequence, all based on the idea that those who wanted the content most badly would pay the most for it. So it began with movie theaters, then first-run on television, then eventually became available for home viewing, and then re-runs. The first disruption of this formula came with the advent of large-scale at-home viewing (remember Friday nights at Blockbuster?), when some content was made available for home viewing in a somewhat more rapid pace.
By 2010, Netflix had surpassed 20 million subscribers, gone full bore into the streaming business, found itself competing with Amazon Prime Video, and learned that its powerful recommendation algorithms gave it a real edge in learning exactly what customers were looking for in streaming content. The big-media content companies gradually became aware that what they thought was just another revenue stream for low-value old content had created a fast-growth monster that was not only putting the traditional model at risk, but training an entire generation of viewers to consume television in an entirely different way. By making whole series available at once, binge-watching became easy and convenient (and a spontaneous decision). And the company entered the cultural vernacular—“chilling with Netflix” became a thing.
The incumbents tried to fight back—one floated the idea of creating a platform that would make TV episodes available to anyone at anytime. Called TV Everywhere, it was a thought to slow Netflix down. But…investors wanted more of that Netflix cash. And the creative talent that was behind the shows could easily have sued if they didn’t make as much from the TV Everywhere deal as they did when their shows went to Netflix. By 2015, the investors had changed their tune, with one analyst in 2015 saying that the incumbents would have been worth from $45 billion more if they had refused to do business with Netflix.
And of course, the big media companies that used to be pretty much the only game in town when it came to original content are now finding that given sufficiently large budgets, Netflix, Amazon, and their contemporaries can also produce original content. Award-winning, must-see content at that.
Netflix in particular has also made a very interesting declaration with respect to its own competitive arena. It wants nothing less than an ever-larger portion of viewers’ disposable time. It’s competing against books, against walks in the park, against magazines, and of course against other media companies counting on soaking up your free time to fuel their business models. The company is also going where established media companies can’t—for instance, introducing the first interactive shows, in which viewers themselves decide what happens next.
Revenge of jobs-to-be-done
The changes in the television business reflect the arc of a strategic inflection point. In the early days of a new sector, a business is designed to deliver new jobs-to-be-done to willing customers for whom this is a big improvement over whatever came before. Television’s roots in bringing video programming into your living room added to what customers could get from radio and became transformative. Bringing color into living rooms further enhanced the experience. But, as with all things, what once excited customers eventually got taken for granted. And what customers were once willing to put up with became less and less satisfying—appointment TV with its limited choice and fixed schedules started to get a tad irritating. (See my article with Ian MacMillan, “Discover Your Products’ Hidden Potential,” for more on this way of thinking.)
Inflection points begin when the constraints that held together a business model change in some significant way. The advent of cable, the emergence of powerful standalone channels and a beyond-the-broadcast subscription model, and finally the highly profitable bundling of content into single subscriptions with each channel getting compensated on a negotiated—not a usage—basis, all took the model further. And created their own user backlash. High cost, rigidity, the inability to choose which provider to use (in many cases, cable companies are de facto monopolies) all began taking their toll on user loyalty.
As some participants in the ecosystem began to respond, offering so-called skinny packages or less expensive bundles, of course the lawyers got unleashed and everyone started suing everyone. As Patrick Parsons, a professor at Pennsylvania State University’s College of Communications, noted back in 2015, fights over the bundle will soon be akin to “debates about whether there should be headlights on buggies,” given how fast the means of media consumption is changing. “The technology of Internet-delivered TV programming is swamping the argument of whether cable operators ought to bundle or unbundle their cable channels,” he said. Sling TV was a direct-to-consumer new entrant that offered a “skinny bundle” beginning in 2015, the first operator to break the bundle paradigm.
Indeed, the “traditional” cable bundle hit its peak subscribers in 2012, according to Bloomberg. Part of the incumbents’ response has been to merge—AT&T buying Time Warner and Disney acquiring much of Fox, and other acquisitive consolidation moves, as we’ve seen with earlier days of television, a common response to an inflection point.
Incumbents are also revisiting streaming, recognizing that there are customer segments who are simply not going to go for a cable bundle, no matter how much they tweak it. ESPN is offering plus, a $5/month package. Disney and Comcast are also planning streaming services. HBO has had one for years. And everybody, it seems, is going to have to have a “streaming strategy.”
An even bigger inflection point than the breakup of the bundle, however, is the rise of mobile consumption and the preferences of so-called “cord nevers”—people who consume a lot of content, but think sitting in a living room and watching a box on the wall is simply archaic. Instead, they consume content on mobile devices that are not televisions. Moreover, an increasing part of their attention is going not to professionally produced high-end programming, but to videos on places like Facebook and YouTube. In the arena that is disposable time, the threat of competition from “free” is a non-trivial issue. Back to that transition from film-based to digital photos…
As industries blur (movies, television, streaming, news, all battling for the arena of our attention, for example) you are better off thinking more broadly about what arena you are really competing for.
You can never go wrong in deeply understanding your customers’ jobs to be done if you are trying to figure out what your future holds.
Infuriating customers is never a long-term recipe for success.