This article first appeared on the CEDIA Blog.
John Penny’s keynote address at CEDIA Expo 2018 included an analogy that’s most decidedly analog:
“The big shaving gear manufacturers realized long ago that the money’s not in the razor – the money’s in the blades.”
The average consumer buys a shaving handle assembly once every several years or so, but the blades – the business edge of your razor – is an item that needs replacing on the reg. Extend that idea to the dongles and sidecars and set-top boxes hanging from and surrounding your TV set, and you’ll quickly understand that all of those content delivery devices are means to an end: They merely make it easy to rent content.
Entertainment has swung from sales of physical media, of course, and has morphed, for the most part, into a model that’s based on subscriptions.
The Real Size of the Audience
Penney, who’s Executive Vice President of Consumer Business Development and Strategic Partnerships for 20th Century Fox (which is being swallowed by Disney), has some sobering realities facing those companies that are vying for that subscription dollar:
Only 42 million homes in the US (that’s roughly one quarter) have a combined household income of $75,000 per year.
And more than 200 million Americans have less than $500 in savings.
That means that everyone in the content-creation biz is vying for the eyes and ears of a fraction of the people in the United States.
And it makes perfect sense that a family whose disposable income is already spoken for will likely only subscribe to a single provider, if any at all. (Cable TV is one subscription, though, that’s losing viewers – Penney shares a prediction that we’ll see 55 million “cord cutters” by 2022.)
The Netflix Example
To borrow a gimmick from Jeopardy, the question to the answer “The reason all of these traditional media companies are merging,” is “What is Netflix?”
Netflix and similar companies are software companies. They build software that figures out what content you – yes, you, and you alone – want to see, and deliver that content to you. By creating a variety of quality content, appealing to the demos that use Netflix often, they’ve also created a terrific “gateway drug” to bring your eyes to their platform. The growth of companies like Netflix and Amazon has forced the old media companies, the ones that simply produced content and pushed it out through whatever distribution pipe was available, to merge and combine and try to create their own funnels of creation-to-delivery that hopefully keep consumers in their kingdoms of Jedi knights or standup comics or cartoon mice.
And a lot of what’s being produced is being viewed on mobile screens – Penney notes that the average adult spends 3.3 hours per day viewing all manner of content (long form, short form, everything from cute kitty videos to social media rants to major motion pictures) on mobile devices.
So Where’s the Cash?
For the content creators and delivery companies, the business model’s undergone a seismic shift. The old arrangement was a one-way street: A network produced a TV show, sold it to advertisers, and the Mad Men engaged in a practice called “spray and pray:” gresaturate the airwaves with an ad and hope the time they’d bought landed in the middle of a hit show.
Now, with the monumental growth of the software-driven, algorithm-based media giants, advertising is about targeting and engagement – when it’s even necessary. In a model such as Netflix, ads aren’t the revenue driver, obviously – eyeballs with money who want the Netflix content are the cash cows.
So how does an integrator profit from this knowledge?
The “paradox of choice” means that so much is available to so many people on so many boxes that the consumer can become miserable when faced the joyless task of navigating that box or this box and then actually finding the drama or documentary that they might want to see.
Penney envisions a geo-fenced home that recognizes who’s in the room and intuits what that person wants to see or hear, envisions a central, large screen as a kind of home-control dashboard, and envisions an integrated space with seamless updates and cross-platform communication – meaning that an integrator’s skills will be ever more in demand, especially as a kind of concierge service. A subscription unto itself.
“When complexity abounds, simplicity is what we crave,” says Penney. “And those who can make simplicity from complexity will be the most successful.”