Future TV Disruption - Forbes says it's Worth Half a Trillion Dollars For Internet Companies

written by: Richard Kastelein

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Published on Tuesday, 27 September 2011 14:11

And I thought I was generous in forecasting USD$200 billion up for grabs around global TV ad spend... The Trefis Team writing over at Forbes has just blown the lid off the numbers and Edward Daciuk says that the:

"... battle for $500 billion TV market is going to be more entertaining than most shows on air".

And with some bite he adds:

"... Cigar-chomping East Coast incumbents pitted against left coast tech giants and intrepid TV mogul wannabes. We've seen this in other content markets (see books and music). Distribution usually dies first. Borders and Tower Records died in the books and music battles. However the stakes in this battle are bigger, a lot bigger. Incumbents are better prepared, bring more to the table, and are more aggressive. It's unclear that if or which distributors in the TV battle will be victimized as easily. Yet clearly companies are going to die. People are going to get hurt. It's going to be great."

Daciuk and the team from Trefis have put together a great piece - albeit slightly myopic - with a total-focus on the US (while still using global numbers). There is more to the world in fact - and quite to the contrary, the value chain has been changing in European and Asian markets faster than it has in the US with ten years of IPTV in France, HbbTV standards in Europe, NHK in Japan with Hybridcast, the Koreans building Samsung and LG Smart TVs hand over fist and Youview popping it's weary head out in the UK in 2012. Yahoo was a market driver globally, most people probably don't realise... but their 2007-08 drive with Samsung to create Connected TVs with Apps sewed the seeds of Web TV Part II - along with companies like NDS and Orca Interactive in Europe and Israel. This a decade after Microsoft's way-too-early foray into the living room with WebTV. But first in the market does not always win.

I don't know how many VC, Angels and other investors  (Marco from Noah - you listening?) I have said they need to watch this space using my own blend of verbiage around parallelling Print and Music - then tossing in a couple hundred billion in TV ad spend - even going as far as to call it the next tech bubble... and Daciuk is clearly on the same page:

If you're a large tech company looking for your next phase of growth a $500 billion market being massively disrupted by the Internet would be pretty interesting right? Turns out you're in luck. Say hello to the television market. For the TV battle, it's not just ad and subscription revenue at stake. Apple has proven that hardware revenues are at risk too. Add these three up and you get about $500 billion globally. About $190 billion in television advertising. About $200 billion in pay TV subscriptions including cable and satellite. And about $75 billion in television hardware revenue. There's probably overlap and some additional ancillary markets I'm missing. I'm not counting set top box revenue because that's largely subsidized as part of the pay TV fees. Internet access probably shouldn't be included either since the cable, satellite, and telco companies have got that locked up.

Not to mention that Google is secretely spending hundreds of billions on content according to Business Insider:

A second source, this one involved in Google's acquisition talks with Hulu, says that the company's initial outlays for content are indeed in excess of $100 million and that they could easily reach $600 million over time.

The TV business is going to get democratised - and fast. Here are a few reasons why.

1. Users are acclimating to movies and television outside of their cable box as distribution of digital video breaks out.
2. Tablets and Internet connected TV do a better job of merging traditional video and the Internet. Watching movies at your desk wasn't cool or fun. Web-based movies really didn't take off until Netflix broke into the living room via game boxes. But now that Netflix has blazed a trail the big guys will pile on.
3. With multiple sources and modes of viewing, consumers will expect a unified experience across TV, mobile, and the web. This puts Verizon, AT&T, Google, and Apple in interesting if slightly different positions. They are the only players who span all three arenas.
4. The content guys are playing the field to maintain hold of ad and affiliate fee revenues but will go with whomever controls eyeballs. They could play king maker but are more likely waiting for proof that the likes of Google, Apple, and Amazon aren't going to eat into their $200 billion in ad and affiliate fee revenue.
5. If the big content guys don't play ball, challengers might look to alternative sources, as seen by Netflix and YouTube moves toward original content.
   

And last but not least - Daciuk pins some of the great tackles we are going to see in the new sport - with a series of predictions and peeks for our future entertainment:

1. Who buys Hulu? Both Google and Apple have struggled to get significant content deals cut. Hulu gives them, or some other player, a quick path to critical mass of content. The price is more than the acquisition cost though. It'll require a believable story that they're only after a small slice of the $500 billion market, not a big slice.
2. Can Netflix build a content library and expand? Can it actually find some competitive advantage? Netflix brings none of the natural competitive advantages of a Google, Apple, Microsoft (Xbox), Amazon (reach), or Facebook. Unless Netflix gets some key asset in a hurry, they are going to get crushed by competitors who already have relationships with Netflix. My money would be on Netflix selling out for a low price in the next 12 months.
3. What the heck is Apple going to do? Rumors have been flying about a real Apple TV. One with a screen and a native Internet connectivity. What could they do with a 4G TV and their platform?
4. Traction for cable/telco media platforms. Verizon and AT&T have a ton of muscle. They forced Google to back down on offering phones online and on net neutrality. What can they do on the pay TV front?
5. Internet connected TVs. Right now over 30% of TVs have an Internet connection. Wire those things up to a web-based content platform and what do you need a cable company for?
6. Tablet penetration. Tablets are a cool way to watch movies on the go and break the cable monopoly. Their penetration is a forcing function on television convergence.