Henry Ford said, “If I had asked my customers what they wanted, they would have said ‘faster horses.’”
Just as Ford revolutionized transportation by developing assembly-line manufacturing of automobiles, today’s most successful entrepreneurs invented internet-based technologies that disrupted how we do business and communicate. Their innovations require all of us in media to rethink how we connect to audiences and earn revenues.
It’s not just us media types who are perplexed. In a recent Harvard Business Review article, “Are You Solving the Right Problems?”, 85 percent of business executives agreed that their organizations had difficulty discerning what were the crucial problems confronting their companies. In a sense, some businesses are trying to find faster horses when the threat and its solution lies elsewhere.
We’ve been thinking about how disruptions to the media ecosystem affect local public television stations, and solutions that will help them prepare for the next wave of technological upheavals.
New television/video ecosystem
Let’s start with the basics in the media ecosystem: 21st-century broadcasting has evolved from a commercial medium introduced in the 1920s. Since modern broadband internet began 25 years ago, waves of technology and entrepreneurial innovation — the success of Amazon, Netflix and smartphones, to name a few big ones — have disrupted many 20th-century business models.
Turner Broadcasting’s John Martin introduced a convenient analogy that sums up how the internet changed that TV ecosystem: a three-legged stool.
Before the advent of the internet, the mantra in the media business was “Content is king.” During that era huge production costs were barriers for anyone who wanted to produce movies, television series or music albums. And there were unbreachable barriers to content distribution. You needed movie theaters, broadcast stations or record stores to reach audiences.
Now, however, the first leg of the stool — content — is much cheaper to produce, and the sheer amount available has exploded. Distribution, the second leg, is easier because consumers can access programs through the internet. “Over-the-top” internet streaming businesses (Apple TV, Roku, Amazon Prime, Netflix) created new markets using these readily accessible avenues of distribution. Even Facebook is streaming live video. These many venues for content distribution have emerged and disrupted the old ecosystem in less than a decade.
Which brings us to the stool’s third leg: the consumer’s viewing experience. The explosion of content and new channels of distribution has given viewers more choices. Niche cable channels emerged (think BBC America, Cloo, Oxygen) because people were willing to pay handsomely for more choices. HBO demonstrated that people would pay even more money to escape ads.
Netflix, Amazon and Hulu allowed consumers to decide when they wanted to watch a program, instead of ceding that decision to a network programmer. The availability of content on-demand became very important to the consumer experience. It opened the door to new program packages like skinny bundles and even encouraged cord cutting.
For public broadcasters, the ability to manage all three legs of the video ecosystem presents new challenges. There’s no school for this; we are all learning to cope with these changes in programming, distribution and viewer satisfaction as we go.
Platform business on the internet
The viewer experiences provided by linear television programs are vastly different than what consumers have on YouTube and Facebook. Nevertheless, television and these newer media platforms share a key characteristic: All of them subsidize their users. The programming or content that users enjoy is free because someone or something else pays for it.
Television broadcasts have always been subsidized by paid advertising. Commercial networks create programs that target and attract audiences, and sell airtime — the attention of those audiences — to advertisers. It’s a nice two-sided business with a cash side and a user side: Networks and their stations get the cash, and users (viewers) get to watch for free.
But public television stations can’t do business this way because the Public Broadcasting Act prohibits advertising. FCC regulations provide some flexibility for advertisers, a.k.a. underwriters, to sponsor broadcasts of noncommercial educational licensees. With a mandate to provide free programming and prohibitions against selling advertising, public television stations had to develop other ways to raise revenue to support their operations. Enter membership and major donor fundraising, foundation and institutional support, and underwriting solicitation. It’s a much more complicated model than the simpler model of cash for eyeballs that our commercial cousins enjoy.
21st-century business models
Platform businesses, oversimplified, have three elements: a community or “commons” where producers and consumers meet; a computer infrastructure that manages those interactions in the community; and data that is generated from the various transactions.
Uber is a good example of a simple platform business. On one side are customers who need a ride; on the other drivers with cars who are waiting for a fare. Uber owns and runs the internet-based platform that matches riders with drivers. The money side of this platform business is the rider. Uber retains the data and mines it in different ways to extract value and insight from its day-to-day transactions. For many platform businesses, the data they generate are valuable sources of income.
Most people don’t think of broadcast stations as internet business platforms. Broadcast stations give away programming but lack the web-powered connectivity, data collection and analysis competency to find and interact with their viewers in the ways that Netflix or Amazon do.
In some platform businesses, a singular problem is turning consumers into customers. It’s all about getting people who are using their services to spend money. In platform business jargon, “friction” is the term for an impediment that restrains a customer from doing business.
Unpredictable shipping costs create friction for Amazon. Amazon reduced this friction by creating Amazon Prime, a once-a-year fee that guarantees two-day shipping along with some free video and music thrown in. It worked. Right now Amazon Prime has 63 million subscribers versus Amazon’s 19 million non-prime customers.
Public TV’s friction is twofold: for viewers, the expectation that broadcast programming is free inhibits their willingness to become customers, or donors; for advertisers, limitations on what they can say inhibits their willingness to purchase underwriting.
Public broadcasters have developed a platform, albeit a primitive one, that enables them to connect with viewers: the pledge drive. Pledge premiums reduce friction by furnishing a rationalization to support the station through a tangible “gift.” But the practice of relying on pledge premiums to earn money has high negative costs (e.g., interrupting the regular schedule for weeks at a time).
Gold in them there clicks
However, public stations can develop additional and perhaps more effective platforms. Using the internet to build platforms that function like YouTube or Facebook, stations can turn metadata about their users into dollars. “Metadata” is another one of those awkward jargon words that can mean a thousand different things depending on who is using it for what purpose. For our purposes, metadata is the “big data” that we collect about our users. Google and Facebook compile data about individual users’ search behavior into metadata that they sell to advertisers, who then create ads that follow the users around the internet. Broadcasters have lacked the data-collection and analysis capability to generate useful metadata on viewers/consumers.
Pubcasters currently have some data about their members — mostly information about contributing patterns — but not in the depth that the internet furnishes. At present, most stations are collecting some data from their websites and social media platforms like Facebook and YouTube. Integration and standardization of that data — in other words, turning it into metadata — is key to the viability of local stations. Knowing more about all of our viewers — not just contributors — will enable us to form deeper relationships with them, better serve their media needs and ultimately request their support in more powerful ways.
Fortunately, there are quite a number of customer-relationship management systems to choose from, and many of them deal with these issues. WGBH has developed a unique iteration, NGO Connect, that adapts the Salesforce software platform for specific problems facing public media stations.
Why stations need their own platforms
To keep their licenses, stations have to maintain their broadcast services to FCC standards. At the same time stations have to adapt to the disruptions created by the internet — those it has already wrought to media consumption and those yet to come.
We can see the disruption in audience viewing behavior, which is already changing how stations do business. Viewing of live linear TV is declining. These days the elderly (65+) constitute a majority of the linear TV audience.
Most audience shifts appear first in younger generations and then diffuse to older cohorts. Because older people prefer linear and live TV, public television’s audience might seem secure, but that view is shortsighted. See how people aged 49 and younger are spending so much less time with traditional TV? That does not bode well for our audience stability in the coming decade or two.
Stations need to adapt to competition from internet and OTT providers because broadcast audiences will keep shrinking. The internet will enable more companies to develop more complex programming platform businesses. Stations may have to clone an “internet platform/station” and collect metadata that can eventually be turned into financial support.
Long-held assumptions about the loyalty and passion of the public television viewer will require readjusting. The heaviest, almost addicted viewers of CBS, PBS or TBS, for example, are very old and not very donative. The passionate, loyal and committed public TV viewers and members are very light viewers of all television. They are loyal but infrequent viewers of their local PTV stations. Specific program genres are the trigger for their passion and donations, not viewing frequency.
What will public TV look like in 2025?
The fact that Mark Zuckerberg was in his dorm room founding Facebook just 12 years ago should give us pause about predicting too far into the future. Nevertheless, we have to try. Here’s our best guess of what the ecosystem will look like in eight years.
Many stations will have upgraded to ATSC 3.0. The menu-driven viewing paradigm popularized by Netflix and Amazon will have become dominant, and ATSC 3.0 will bring that menu-driven capability to broadcast stations as well as OTT services. Menu-driven access will be possible for local content as well as national programs.
The broadcast schedule will likely still be with us, though, as a clickable viewing option alongside a menu of on-demand programs. Other capabilities of ATSC 3.0 open up additional opportunities for public television stations, such as the ability to send related content to “second screens,” like smartphones and tablets in the home. Stations will be able to interact with viewers through surveys.
With a few tweaks, public television can be well-positioned for this platform world. Children’s programming is a crucial necessity for any programming service, and public television has this well in hand. Netflix and other similar services spend significant sums on children’s programs. Public television has been in the children’s programming business for quite some time and the trust that parents have in our content, proven to be of educational value and free from commercial messages, is a key advantage.
In the platform world, it is best to conceive of two programming models for local stations. The programming that attracts viewers to a station is common to both. Broadcast schedules will be pretty much like today, a legacy service that some consumers continue to use. However, your platform-based program service will resemble that of Netflix or Amazon. Platform management will be less about “scheduling” and more about warehousing programs, long-tail management and collecting tons of metadata about viewers. Stations will mine that metadata to convert consumers into customers (or viewers into members, for the old-timers) and generate station income. To do this, though, we will need to acquire program rights for a long, long time. The longer we have the rights to keep the content in our warehouse, the better we can mine the metadata to extract value.
To a great extent, the local station’s future is beyond broadcasting programs and into the ether. When broadcasting began as a mass medium, Herbert Hoover was president. The rise of manufacturing and consumerism that produced the Ford Model T and Sears Roebuck has given way to internet-enabled hyperconnectivity that fuels Twitter and Amazon.
TRAC and Public Media Company have been developing tools and strategies for local stations to use in this ecosystem through TRAC Locale, a new service that focuses on proof of performance metrics from Nielsen, linked to the data beyond broadcast that stations already collect from the internet, social media, viewer services and education departments. Through staff training and building data-based narratives, Locale seeks to connect a station, its programming and audiences together in relationships that create value in numerous ways. These can be monetizing audiences or building a compelling case for public broadcasting when the system is under political siege.
PMC also is working to equip stations with strategies and tools for the next generation of television, ATSC 3.0.
What we have reviewed here is merely the tip of the iceberg of this new industrial revolution that is now sweeping across the global economies of most nations. The key is to study the right problem(s) and forget about faster horses in a world that parses nanoseconds. We believe that local stations can adapt and thrive in a future that is admittedly hard to predict.
David and Judith LeRoy are co-founders of TRAC Media Services, a research company that provides audience analysis and programming services for public TV stations. Craig Reed is TRAC’s executive director. Vincent Curren, former EVP of CPB, is principal at Breakthrough Public Media Consulting. The authors recognize and thank Matthew Ball of MediaREDEF for the audience data and Fred Nahat of Detroit Public TV for the Henry Ford quote.