Pando

Half a trillion in market cap is betting that the Internet finally displaces TV

By Sarah Lacy , written on February 15, 2017

From The Disruption Desk

The Internet has had a spotty record for the last few decades of claiming it would take on television.

I remember covering all those tech companies “battling” for the living room in the early 2000s when I was at BusinessWeek. Guess what? TV makers just installed the Internet into sets and mostly won.

I remember the charts Yahoo trotted around when Terry Semel was still there, showing the gap between time spent watching TV and TV ad dollars and time spent online and online ad dollars insisting gape-mouthed: At some point there has to be a correction! As if those dollars would just start flowing into lame video online.

Then there was the first/second/third screen phenomenon, where shows would program for a TV and an iPad. We’ve mostly…. Just got back to watching TV and doing different things on our phone or laptops while it’s on.

Steve Jobs was always obsessed with Apple dominating the TV… and the company still hasn’t quite pulled it off with or without him.

One thing-- and pretty much one thing only-- has succeeded at chipping away at TV’s dominance from a hardware, advertising, content or glitz point of view: Netflix, and to a lesser degree, Amazon.

Both are winning or nominated for Golden Globes and Academy Awards, they are the places that the top talent is flooding to, they are taking creative risks networks won’t, and writing checks their old-school competitors simply can’t afford. Unlike people who claimed User Generated Content could be the next version of reality TV shows, Netflix and Amazon have shown that tech companies can-- with enough cash-- get creative.

And so now the floodgates of TV disruption have opened again.

Facebook is betting on it.  It’s releasing a new app, for the TV. To watch…. All those Facebook live videos that are just as good as “Game of Thrones.” Someone please tell them an aggregate 100 million hours of video everyday of auto-loading Facebook posts isn’t the same as binge watching “House of Cards.”

Snap is betting on it. Ben Thompson broke down how Snap is in worse shape than Facebook or Twitter at time of IPO, because its cost of revenue per user is going up. It needs to grow users faster than those costs increase to get profitable. And its daily active user growth is flattening. “The payoff, though, at least in Snap’s telling, is a big opportunity to dramatically increase the average revenue per user by capturing technology’s white whale — television advertising money,” Thompson writes. Without this transition occurring, Snap is essentially the next Twitter. Someone please tell Snapchat that a BuzzFeed video on how to microwave a brownie in a mug isn’t the same as staying up all night unable to turn off “Stranger Things.” [Although, sidenote, a brownie in a mug is a great snack when staying up all night watching “Stranger Things.”]

Buzzfeed is betting on it, too. They are developing a true crime docuseries along with NBC. Ok…. that one makes the most sense. A news organization could very well collaborate with an entertainment company to produce something as good as “Making of a Murderer.” Hell, VICE basically did that on HBO.

But that’s the distinction between the two playbooks. The Snaps and the Facebooks and the YouTubes are trying to be the pipes without the content. The Buzzfeeds and VICEs are using their audiences and content sensibility to fill pipes old and new.

There’s another huge difference: The former is trying to displace companies, the latter is really just working with them. I’ve written before how heavily old media is backing every legit new media challenger.

Ben Lerer and I discussed this dynamic at length in a recent interview. He was the CEO of Thrillist is now the CEO of the rolled-up Group Nine Media, backed with $100 million of Discovery Communications cash. “I mean the relationship with Discovery is a tight one. I mean A) They wrote a meaningful check. And B) they contributed their digital business in Seeker. So they put their money where their mouth is, and they’re serious about this partnership and we’re trying to do the same,” he says. “I think it’s inevitable that the smartest traditional media companies won’t sit on the sidelines and decide not to participate in digital…. It’s not a phase. If this is the future of where the consumer is spending their time, than this is the future of their business. And so you are going to see the smarter ones move more aggressively.”

Although he admitted there was a “trade off.” “They need you and you need them,” he says. “That’s a pretty good set-up versus what I’ve seen with VCs, where it’s a lot more of a one-way street. I’ve made a bet that the right relationship means a real commitment, not a $15 million round, own 8% of your business and you have a board seat and have some co-production dollars and we do that with 12 of your competitors and watch and learn. That’s not a real commitment.

“A real commitment is more along the lines of what we have with Discovery or what NBC has with Buzzfeed, more along the lines of maybe VICE and A&E,” he continued. “The real commitments are the ones where you have some security when things take longer because time takes such a role here. If it takes another two years for Facebook to deliver dollars at scale, you have a partner who is a partner who can help you in that time. But it limits you in that right now, I’ve made my bed with Discovery.”

And here’s the risk that Facebook, YouTube and Snap face (Snap far more than any others as Thompson explains in his piece): They don’t become the pipes quickly enough. The risk the Buzzfeeds and VICE face: Those guys don’t become the pipes quickly enough. Meantime, the only two tech companies that have in anyway displaced TV-- Netflix and Amazon-- are both pipes and content. (While by the way, leveraging other companies’ pipes and content, to some degree.)

Right now, hundreds of millions of dollars in market cap are riding on a bet on timing that’s already a few decades late.