Tuesday, June 28, 2011

Old models disrupted by new innovation

I listened yesterday to an NPR story about the difficulties that Hulu presents to its existing owners - primarily NBC, ABC and Fox.  The headline for the story:  what do you do with an interesting creation that you aren't sure you can control any longer?

I laughed out loud, because like atom bombs and genetically engineered creatures, the people who create really interesting innovations are always surprised when the creation is larger, more disruptive and more powerful than they can control.  Hulu was started almost as a lark - a way to provide more and better content on the web than cats playing pianos.  No one was sure if the millions of people looking at Youtube videos would watch feature length programming.  Now, however, while Hulu and other outlets are drawing millions of viewers, the traditional channels for content distribution - otherwise known as cable and satellite providers - are growing increasingly restless.  These distribution channels are losing the opportunity to control a franchise, and the traditional media distribution channels provide more revenue and profits today, even though viewership is growing far more quickly on the web.

What is NBC, ABC and Fox to do?  If they retain Hulu and it continues to grow and siphon viewers from traditional distribution channels, then the cash cow gets gored.  Cable and satellite distributors will demand to pay far less for the content, and may decide to look for other, unique sources of content.  If NBC, ABC and Fox decide to sell Hulu, they can either continue to provide content, which doesn't really solve the problem, or can delay or shift how they provide content to Hulu, which won't make it an attractive acquisition target.

NBC, ABC and Fox have innovated, without understanding or recognizing that really interesting innovation is almost always disruptive and cannibalizes the existing markets or channels.  Now, they are stuck with a creature of their own making, with no clear strategy about what to do or how to "control" their innovation.  People increasingly aren't tied down to a place to watch TV or content, or to a "time" to consume the content, or even to a specific channel or distribution media.  People will watch what they want, where they want and when they want.  The best content will be found, where ever it is, and on whatever device it can be consumed.  That's the customer need, which is ultimately paramount.

Hulu's success also identifies the misconception that we "all" are going to be publishers or content creators.  After all, if there were enough good content on Hulu, we wouldn't need Fox, ABC and NBC.  While more film makers have had their chances given new outlets, there's still a value in telling a good story.  So Hulu demonstrates the fact that there were at least two misconceptions of content and viewship.  First, that the major networks could control a disruptive innovation,  They are now afraid of the creature they've created.  Second, that having a publicly available and free media for exchanging content meant that anyone could be a producer of content, and that would detract from the major producers.  If anything, the web and Youtube have shown how important good storytellers and producers can be.  Otherwise, it's cats on skates all the time.

What shouldn't be surprising to the major networks, or to any innovator, is that a real, disruptive innovation not only creates new products and services, but if it is truly disruptive it will change business models and distribution channels.  The networks assumed they could control their innovation, but in fact their innovation to a great extent has impacted their business models in ways they didn't expect.  The interesting thing will be to see how the networks try to cut the Gordian knot and keep both their important channel partners, and web viewers, happy.  Doesn't seem like an easy solution.
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posted by Jeffrey Phillips at 1:34 PM


Blogger paul kelly said...

The interesting thing is that people are so concerned whether an innovation/invention may or may not be successful that they will rarely ever consider the effects of success to the degree described here. I suppose one trick is to be able to spot this happening early enough to retain some control.
Paul Kelly

3:11 PM  
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