PhotoConsumers are probably cheering the news last week that Verizon, rather than trying to stop the revolution, is actually trying to lead it.

Verizon CEO Lowell McAdam revealed his company is preparing a 2015 roll-out of a customizable TV service delivered to digital devices. As McAdam pointed out, the channels would have to be offered a la carte because who, he asked rhetorically, wants 300 channels on their smartphone?

Who indeed? But what McAdam sees as logical – and many consumers would heartily agree – is in fact revolutionary, because that is definitely not how cable TV is packaged and sold. It would appear to open the door to changing the way television services are marketed.

If a consumer can customize their TV service on their phone, they are soon going to ask why can't they customize it in their living room.

Music industry lesson

The music industry has already been down this road. For decades artists released albums of perhaps 12 songs. Consumers might purchase the album because they liked 2 or 3 of them. To get those songs, however, they had to purchase the complete album.

Digital music services like iTunes changed all that. Individual songs can be downloaded for 99 cents. That's great for consumers but has not been so great for artists or music companies.

Just since the introduction of iTunes in 2003, music sales in the U.S. have dropped sharply. According to the Recording Industry Association of America, inflation-adjusted sales revenue fell more than $4.5 billion over a 10 year period.

At the same time, more people were buying music. They just weren't buying as much of it, for as much money. If the music industry had it to do over, it would probably try a different approach to digital.

Protecting the status quo

Content providers can be expected to be leery of any changes to the status quo, especially if these changes may systematically alter revenue models. Netflix learned this the hard way a few years ago.

In 2011 Starz Entertainment, a major supplier of feature film content, abruptly broke off contract renewal talks with Netflix, announcing it would no longer provide movies to Netflix.

The reason was not completely financial. Netflix was reportedly agreeable to terms and willing to pay a reported $300 million to continue its access to Starz's content. The loss had more to do with Netflix's business model.

“This decision is a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content,” Starz CEO Chris Albrecht said at the time. “With our current studio rights and growing original programming presence, the network is in an excellent position to evaluate new opportunities and expand its overall business."

In other words, Starz was concerned that Netflix's $8 a month price to consumers was too cheap, threatening its other customers – cable TV networks that charge a lot more.

Netflix has been able to adapt nicely, producing original content and loading up on TV series that have fundamentally altered viewing habits, with consumers now “binge watching” an entire season of shows over a short period of time. It didn't hurt Netflix that a lot of TV series are of higher quality than the movies Hollywood turns out.

The lesson may be that it's hard to stop a revolution. The landscape has changed significantly since 2011 and content providers may now be more willing to adapt to, rather than fight, radical changes.

Verizon's new customizable TV service, which McAdam says could be rolled out in mid 2015, may be the next test.


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