UK broadcaster ITV announced their results yesterday and the differing fortunes of the two halves of their business show the way forward for traditional TV companies everywhere. The two parts of the ITV business are content production and content distribution. The production business is doing well with shows like Downton Abbey getting large audiences in the UK and selling well abroad, but revenues at the distribution business declined. The good news for ITV shareholders is that investors thought the positives outweighed the negatives and sent the shares to a 52 week high.
I say this is the future for traditional TV companies because distribution (or access) is being rapidly commoditised by the web and the old model of producing content in house and shovelling it out to consumers with limited choice over what to watch is dying fast. Content production and distribution are no longer tied for technical reasons – any show can be streamed or downloaded at any point to any device with a broadband connection (Downton Abbey is available on iTunes in the UK) – making any future coupling purely a business model decision. We are seeing distribution businesses like Netflix, Amazon and Youtube commissioning their own exclusive content to drive subscriptions to their platforms but this will only be effective beyond the margin if both the content and the distribution are best in class. Otherwise consumers will reject the bundle.
Traditional one country broadcasters have a shot at being great content companies (as ITV is showing) but over time their broadcast TV audiences will dwindle and ad rates will fall as more money moves on-line, and in the next few years the distribution sides of their businesses will lose their value. Their only hope is to build big audiences for their web properties, but I see the chances of success here as slim. The US might be different due to the size of the market where Time Warner (owner of HBO) might combine great content production with a great distribution business – but even then the execution challenges of managing artists and techies within the same organisation will be challenging.