by Jeremy Allaire
October 11, 2005

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We’re in a period of dramatic change within the media and television industry, with a range of macro forces helping to force a collision between the Internet and the world of video and television distribution. This coming transformation—one we will not feel in full force for several years, but which will progress over the next decade—promises to reconfigure the video industry in the image of the Internet. Indeed, the Internet’s forces of openness, global reach, consumer control and participation, and Long Tail economies of scale will create a multimedia universe that no one can fully comprehend.

Television’s Fragmentation and ‘The Chaos Scenario’
The forces of digital technology in video production and distribution have been at work for well over a decade. Even in this first phase of adoption (e.g., within closed and proprietary distribution systems such as digital cable and satellite, or controlled retail distribution of DVD products) the impact of digital technology has been dramatic and mostly positive from both a programmer and consumer perspective.

Digital technology has ushered in all-digital linear broadcast networks, with an expanding spectrum that can support hundreds of broadcast channels, and now potentially thousands of video-on-demand (VOD) offers. It has brought forth significant reductions in the costs of producing video, and even lowering the costs required to achieve good production values (CGI, broadcast graphics, etc.). This in turn has spawned many new production companies and programming efforts, mirroring the growing range of options offered by cable, satellite and telephone companies.

Digital video technologies also have ushered in the first wave of consumer choice and control in their television viewing, through the adoption of personal video recorders, VOD systems, and DVD players and content.

While the choices are stronger than ever for consumers, and the opportunities for distribution for producers and programmers are immense, this wave of digital technology is also forcing fragmentation in the underlying economics of video and television distribution.

The growth in new programming networks has fostered fragmentation in audience, shifting the approach and metrics used in television advertising from large network buys to more focused buys across specific content products and niche networks. The adoption of PVRs has likewise shifted attention to the prospect of diminishing returns from and lack of visibility of broadcast advertising, the lifeblood of television.

Accompanying this new digital fragmentation in the broadcast and cable industry has been the shift in format and distribution focus for the major film studios, who have turned their attention away from broadcast syndication after-markets or TV output deals, and towards the much more lucrative opportunity presented through pay media and direct distribution through retail DVD sales, underscoring how digital technology even fragments distribution at the high-end of the video food chain.