The right to disrupt

Ooyala CEO Jay Fulcher had a provocative op-ed on AllThingsD yesterday in which he argued that the TV business has not — and likely won’t — suffer the same disrupted fate at the hands of digital technology as beset the music industry.

Only a decade after Napster, he writes, the music industry “looks radically different” than before:

Sure, Rolling Stone and “American Top 40” still rank the week’s top-selling songs and artists, but today’s starsare often self-produced and self-distributed — their success isn’t inextricably linked to backing from a major label. CDs have been relegated to attics, and listeners everywhere tune in via smartphones, tablets and PCs. The popularity of iTunes, followed by free and subscription streaming services like Pandora, Rdio, Spotify and iRadio, have made it impossible for even major artists to make the kind of money they did before Napster.

By contrast, Fulcher notes, the TV business looks pretty much the same as it did a decade ago. Live sports is still the most popular form of programming, the bundle is intact, and, while TV content can be consumed today on many more types of devices than in the past most of what’s being consumed there is the same as it ever was: long-form programming produced by and large by the same dominant players. The headline on the piece, in fact, is “Same Sh*t, Different Screen.”

You could argue that music sounds pretty much the same as it did before Napster, too, but you can’t really argue with Fulcher’s basic observation. The TV business remains stubbornly un-disrupted, despite the efforts of everyone from Apple, to Google, to Netflix and Intel.

What Fulcher doesn’t offer is much of an explanation as to why the TV business has resisted disruption where the music industry succumbed. He seems to think it has something to do with cost of creating hit programming for TV, which is orders of magnitude greater than recording a hit song:

The truth is, digital hasn’t created a surge of independent producers — the economics of creating an award-winning program are just too daunting. YouTube has poured at least $300 million into the production and marketing of its original channels, and has opened production studios for its program creators in Los Angeles, London and Tokyo, hardly a bootstrapped operation. The runaway new series created by upstarts Lena Dunham (“Girls”) and Jenji Kohan (“Orange is the New Black”) didn’t stay upstart for long — they were scooped up by the big guns at HBO and Netflix.

There’s another critical difference between the two industries, however, that Fulcher doesn’t mention: the far more complicated rights structure of the music business compared with the TV business. The shifts in how and where music is consumed may not have changed what music sounds like but it changed everything about who gets paid, how much, and by whom.

Recorded music tracks embody two distinct copyrights — one for the composition itself and one for the sound recording made of the composition — which are typically controlled by different rights owners. When music was sold and consumed primarily via physical formats, the rights in the sound recording — controlled by the record label — were the more valuable of the two. Now that music is increasingly being consumed as a service, the performance rights in the compositions have become — potentially at least — far more valuable, which is why the current tug-of-war over those rights has grown so fierce as the industry tries to work through the tangled legacy of compulsory licenses, statutory royalties and blanket licensing arrangements that had governed those rights for decades. There’s simply more money at stake.

Economically speaking, the music business rested for decades on the exclusive right to make copies of sound recordings. The shift in how music is consumed has undermined that foundation, which is why the industry crumbled.

The TV business, by and large, does not have that dual-rights structure, and, a part from a few years when sales of DVD boxed sets of TV series was bringing in some cash, has always rested on the exclusive right to perform TV shows. Digital technology has changed where and when those performances are viewed, but it hasn’t changed who gets paid for them and how. The tensions within the industry arise primarily over how much gets paid (i.e. what the licensing fee should be), but that’s a far less disruptive argument than the one over who gets paid.

Unlike in the music industry, digital technology has not yet changed how the money flows in the TV business or (for the most part) who gets it. If and when it does, the TV industry, too, will experience its moment of disruption.

 

 

Relevant Analyst
Sweeting

Paul Sweeting

Principal Concurrent Media Strategies

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