Facing the Sundance reality

Cablevisions' acquisition of Sundance and Newsday may light the direction the industry has to take. The industry is being transformed by content but we’re not even thinking much about how that content gets produced or how it’s paid for.

There’s a lot of interesting stuff going on in every industry, if you define “interesting” as the kind of thing that a practitioner of the space will jump for joy at the prospect of reading.

Think of how much fun reading about PVC pipe trends is to plumbers, for example. The problem is that a lot of the stuff that’s interesting to industry insiders isn’t relevant to where the industry’s going. The month that we’ve spent pouring over the questions of WiMAX that the Sprint/Clearwire deal raised might have been better spent talking about Sundance and Newsday.

No, not the Sundance Kid (though there’s probably some larceny in networking’s soul), Sundance the independent film company. Newsday is a New York-area newspaper. Both these deals were in the $650 million range, both were made by Cablevision. Google sunk about $500 million in Clearwire and it got a lot of attention, but neither of Cablevision’s acquisitions seems to matter much. But they both do; they may light the direction the industry has to take.

Service providers tell me that their revenue per bit is sinking at 50% per year. Bits are devaluing pretty fast, in other words. That doesn’t stop us from getting excited about stuff that promises to create more bits, though. We’re happy with 100G Ethernet, we’re ecstatic about 4G, fiber to the home (FTTH) sends shivers up our spines, and 802.11n? Name your price! All this when the only solution to declining revenue per bit is to consume more bits doing stuff people are willing to pay for . . . like content.

Content sure has a different price trend than bits. The average Hollywood film probably costs about $50 million to make these days, which is more than four times what it was 10 years ago. Content in general is not getting cheaper, not commoditizing — it’s getting more expensive. So why is Sundance, a film company, not a great thing to talk about as an investment by a cable company? What do we expect from cable TV if not . . . well . . . vision? That’s the second half of the word “television” after all. A cable company can’t produce a bit that looks any different from anyone else’s bit, but it can sure produce independent and unique content, providing it has the resources. Sundance provides those resources.

Then there’s news, and sports, and stuff that newspapers cover. Cablevision outbid News Corp. for Newsday, and probably only won because News Corp. was afraid of the antitrust implications after having bought The Wall Street Journal. What’s News Corp. buying? Not bits, gang, content. There’s no “Bit Corp.” out there making headlines with profitability, so why are we so focused on bits? Outside of perhaps the fact that this is the networking industry we’re in.

Perhaps we should think about our role differently; we’re not in business to produce bits, we’re in business to find things to consume them. Voice services are commoditizing fast, both wireline and mobile. Consumer Internet services aren’t a license to print money even today, or VCs would be funding FTTH start-ups. In fact, they’re letting FTTH start-ups go under, which should tell us something about what might be commoditizing down the line.

Video is the future of networking, so where does it come from? Do we believe that everybody is going to watch ads Google sticks on YouTube video and that this is going to fund the build-out of broadband Internet to everyone? If not, then who does the content? Cablevision thinks that Sundance can. Might a news organization, a company that gathers all that “Breaking News” stuff people read in papers, be able to generate something that people would watch? Could the ad sales process that sells space ads in newspapers sell ads for online services or commercials for TV shows?

The industry, OUR industry, is being transformed by content but we’re not even thinking much about how that content gets produced or how it’s paid for. A good example is advertising; all of the focus of the networking industry’s debate about advertising is about online, meaning Internet, advertising. Broadcast TV generates a heck of a lot more money, and even if we were to take all of television onto the Internet, how does that alter the processes of ad sponsorship of our favorite series, how viewer ratings are correlated with ad pricing, and so forth?

The money tree that we expect to shake to fund future experiences is advertising, and yet the whole broadcast advertising process is a mystery to pretty much everyone in networking.

We are at risk to falling from parochial vision into irrelevance here. The bubble should have taught us that technology can’t outrun demand, that innovation can’t trump utility. All of our babble about “content” and “video” and “IP transformation” is just noise if we take no responsibility for the market conditions that would have to be met to secure our industry’s success even under its own world view. A fast, cheap, empty bit is just as empty as a slow one. It’s the filling that counts.

Supply follows demand; fulfillment follows payment. The dynamic of the industry that’s most essential to progress is the dynamic that drives it, and that’s not network technology. It’s the production of the stuff we expect networks to deliver and the ads we expect to pay for that delivery. Cablevision’s deals trump WiMAX in any rational market, and only rational markets are successful ones.

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