Mark Cuban is Wrong

A few weeks ago, Mark Cuban blogged his thoughts on the challenges that broadcast TV networks face as they move towards the on-demand programming format of the Internet.  It's a provocative piece with a dire message, particularly as he concludes...  "On demand video. Unlimited choice. Sounds so good. Everything you always wanted, right at your fingertips. It doesn't work."  Now this is Mark Cuban talking, a new media guy who made his fortune on the Internet, not some entrenched old media type trying to protect his out-dated business model.  So when Mark says that today's linear broadcasting format is a far more efficient way to program TV shows, you can't help but to stop for a moment and listen hard.

Mark’s argument centers on the importance of broadcast television’s unique ability to create captive audiences… an advantage it derives directly from its linear programming format.  For example, when FOX schedules “House” directly after “American Idol” on Tuesday nights it does so with the specific intention of capturing the spill-over of viewers from one program to the next.  This not only maximizes ratings, it’s an effective and efficient way of exposing viewers to new programming and developing viewer loyalty.  In an on-demand world, this kind of captive audience is nonexistent, and according to Mark this will make it far more difficult and expensive to launch new programs and develop loyal audiences.  This problem is further compounded by Mark’s assertion that if "there's one certainty in the TV industry” it’s that “programmers are going to be wrong 95% of the time" in their ability to pick programming hits.  In his view, were it not for the safety net of having a captive audience, Mark implies that the TV industry would be in dire straits as their ability to pick winning programs is so bad… and he warns of exactly such pending chaos as going on-demand will remove that safety net.  While I can’t argue with his logic behind the benefits of a captive audience, I cannot help but feel that Mark is missing the big picture and that he may be prematurely throwing the baby out with bath water. 

In my view, the big reason why it’s so difficult for programmers to pick potential winners is due to the inefficiency and limitations of the broadcast medium itself.  Due to the scarcity of prime time slots that’s inherent in the linear programming format, programmers are forced to choose a very small percentage of available projects/shows.  So for every project that gets the green light, there are countless others that didn’t make the cut.  And the probability that potential winners were rejected is very high.  As Mark points out himself, some of today’s top rated shows like “Lost”, “Desperate Housewives” and “American Idol” almost didn’t make it on the air.  But what if programmers didn’t have to take such high risks and they didn’t have to choose that one from a pool of a hundred or a thousand.  So instead of making that one big bet, what if they took the same development dollars and spread it out amongst a number of different projects.  This is precisely what Internet TV will allow them to do… something they really couldn’t do effectively and efficiently on broadcast TV.

Simply put, since there are no time slots and distribution scarcity on the Internet, the whole process of programming will be democratized.  Many shows that would have never have seen the light of day under the old system will now get their day in the sun.  This will result in what I call the rise of "Fat Belly” programming.  This is not the "Long Tail" of user-generated short-form clips like those found on YouTube, nor is it the "Big Head" of Steven Spielberg’s blockbuster movies and billion-dollar TV franchises like Dick Wolf’s Law & Order.  Today, and despite much effort by independent and studio-backed producers alike, the Fat Belly doesn’t really exist because Hollywood’s existing distribution outlets foster an environment of extremes... you’re either a superstar, or you work as a waiter.  If Hollywood was a country, it would be a nation with no middle class.

But as the abundant distribution capacity of the Internet inevitably gives rise to Fat Belly productions, the business models and practices that dictate programming today will change materially.  For instance, more and more development projects will be subjected to the Darwinian process of survival and popularity by the viewers themselves over the Internet, and not by studio executives in pitch meetings (not dissimilar from what we see today on YouTube).  In fact, networks will shift much of the programming responsibility of choosing winners to the viewing audience itself.  So instead of risking millions of dollars upfront buying multiple episodes of their uncertain selection, programmers will keep track of all them to see which ones gain traction and then further invest in those with Big Head potential.  So at the end of the day, such shifts in the underlying dynamics of programming will enable the TV industry at large to experience much higher success rates because the Internet will bring efficiency to the process of programming by tightly matching viewers’ desires with programming alternatives.

Yet having said all that, don’t look to the established TV industry to lead the charge and jump on this opportunity.  And when a new media billionaire like Mark Cuban pushes the alarm button, you can just imagine how fearful and paralyzed the entrenched Hollywood executives must be about the on-demand future.  Instead, the players that are positioned to pave the way, and therefore the ones to watch in my opinion, are the new online video ventures that are specifically designed from the ground up to accommodate the efficient carriage and distribution of Fat Belly programming.  The two that come to mind are Veoh and Brightcove.  And it’s telling that they are both backed by ex-entrenched media moguls, Michael Eisner and Barry Diller, respectively.  These startups have the opportunity to do to  Hollywood what Google is currently in the process of doing to Madison Avenue.  Just as Google used the highly accountable ad format of “pay-per-click” to turn the world of advertising upside down, Veoh and Brightcove can blaze the trail for Hollywood to survive and succeed in a world that’s driven by on-demand programming… even without a captive audience.

UPDATE:  This just in from the NY Times and the San Jose Mercury News… Microsoft is jumping in to finance Fat Belly productions.