1. Television Strategic Investment Scenarios: Your Role as a Disruptive Innovator Dennis L. Haarsager Digital Distribution Implementation Initiative

2. 2 CORE WORKING GROUP Ed Caleca, PBS Jeff Clarke, KQED Dennis Haarsager, DDII consultant; KWSU/KTNW, NW Public Radio Byron Knight, Wisconsin David Liroff, WGBH Pete Loewenstein, NPR André Mendes, PBS Jim Paluzzi, Boise State Radio A strategic investment initiative funded by the Corporation for Public Broadcasting. JointRadio TelevisionExternal

3. 3 Multidiscipline Experts Group Jon Abbott, WGBH Brenda Barnes, KUSC Rod Bates, Nebraska Joe Campbell, KAET Scott Chaffin, KUED Beth Courtney, Louisiana Vinnie Curren, WXPN (now CPB) Tom DuVal, WMRA Tim Emmons, Northern Public Radio Fred Esplin, Univ of Utah Glenn Fisher, KTCA Jack Galmiche, Oregon John King, Vermont Ted Krichels, WPSX Jon McTaggart, Minn Public Radio Paige Meriwether, KUED Steve Meuche, WKAR Peter Morrill, Idaho Meg OHara, WNET Maynard Orme, Oregon Allan Pizzato, Alabama Lou Pugliese, onCourse Don Rinker, Alaska Meg Sakellarides, Conn. Pub R-TV Bert Schmidt, WVPT Jonathan Taplin, Intertainer Kate Tempelmeyer, Nebraska Tom Thomas, SRG Mike Tondreau, Oregon David Wolff, Fathom (now Sunburst) Art Zygielbaum, Nebraska

4. 4 Disruptive Technologies Innovations that result in worse product performance, at least in the near term. Bring to market a very different value proposition (typically cheaper, simpler, smaller and frequently more convenient) Usually are the cause when leading firms fail – not sustaining innovations From Clayton M. Christensen, The Innovators Dilemma

5. 5 Examples of Established Versus Disruptive Technologies ESTABLISHED Photographic film Wireline telephony Full-service brokerage Campus-based instr. Medical doctors MRI/CT scanning Offset printing Cardiac bypass surgery DISRUPTIVE Digital photography Mobile telephony Online brokerage Distance education Nurse practitioners Ultrasound Digital printing Angioplasty From Clayton M. Christensen, The Innovators Dilemma

6. 6 Disruptive Innovation The pace of technological progress generated by established players inevitably outstrips customers ability to absorb it, creating opportunity for up-starts to displace incumbents. There are times at which it is right not to listen to customers, right to invest in developing lower- performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets. From Clayton M. Christensen, The Innovators Dilemma

7. 7 Public Broadcasting Today Everyone is baking their own cookies Hail Mary method of funding depreciation Usage strong compared to other public service providers (11.8B person contact hours annually for public radio, 5.8B household contact hours for PTV) Policy support of public broadcasting less assured Our esteem is an asset that can be leveraged or squandered Other public service entrants entering electronic media, usually using disruptive technologies

8. 8 Electronic Media Today Conglomerates dominate ownership and control diverse distribution outlets, with both horizontal and vertical operations and pricing advantages Users are beginning to take control of when they access programming Subscriber-based economic models (e.g., HBO) are competing with ad-supported ones

9. 9 Television Today Cable/DBS are gatekeepers for the main receiver in 85% of homes Cable/DBS increasingly deliver original programming Cable/DBS focus is on quantity vs. quality Non-broadcast channels are on threshold of overtaking broadcast channels in viewing Television advertising may erode as cable & DBS develop greater advertising options No federal support for multicast; no active support for non-HD models

10. 10 Pubcastings Diverging Fortunes Terrestrial digital transition is mandatory for TV, market-driven for radio Content production entities are generally licensee based (with major exception of NPR) Public TV viewing and number of members is steadily declining, while public radio listening and memberships have increased; revenues generally following the same vectors Public radio players have explored alternative distribution platforms to a greater degree than have PTVs

11. 11 Television In Five Years - 1 OTA terrestrial will be of minor consequence as last- mile distribution to mass audiences Viewers will choose from increasingly customized, personalized programming options Revenues from other than spot advertising will become significant and competitive Must convince replaces must carry for multicast channels; some stations will be shut out of cable/DBS

12. 12 Television In Five Years - 2 Erosion of audience and revenue threaten existence of many licensees; may be fewer licensees A variety of technologies, wired and wireless, to compete for delivery of services Audiences will still value storytelling, but truly compelling content will continue to be scarce First stations in the new mobile video/multimedia service will begin operation

13. 13 Plausible But Unexpected Wins DTV killer application – content or service – that accelerates adoption DTV universal set-top box works with a wide variety of digital services, including DTT New broadcast models (rich media, mobile) prove economically viable

14. 14 The Closet of Our Anxieties DTV DOA with stranded $1B+ investment; diminished credibility with funders Minimal or no federal funding for public TV NGIS – capabilities drastically reduced Early surrender of analog spectrum Continued reduction of funding for public broadcasting (now seems likely for television)

15. Strategic Investment Scenarios Investments may be individual or collective

16. 16 Collective Investment Modalities Toolkits – activities or tools licensees can use to achieve best practices without need for collaboration Service Clouds – stations outsource significant activities created for specialized purposes Colonizers – efforts to operate public broadcasting mission elements independently with or without station involvement

17. 17 Scenario 1 – Sustaining Make strategic investments in initiatives that sustain the legacy (broadcasting) business Tends to maintain operational independence Preserves as much gross tonnage of public service as possible, at least in near term; lengthening the glide path High investments in toolkits, somewhat lower investments in service clouds, little in colonizers

18. 18 Scenario 2 – Repositioning Make strategic investments in initiatives that reposition public television in new directions consistent with historic mission Capacity and scale created at collective level Emphasis on editorial (programming) rather than operational independence Accepts the current glide path but creates new climb paths Increased investments in service clouds and colonizers

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20. 20 Consultants TV Provocations Form virtual broadcast groups, digital distribution companies that operate key functions of current stations across markets Provide elective, centralized station operations services through PBS Create public service digital condominium association with other state, national and international advanced networks Task system economics panel with devising strategies to redeploy [insert ambitious amount here] to priorities

21. 21 Questions/Provocations for Integrated Media Professionals Most broadcasters seem to treat the Internet as a sustaining, rather than disruptive, technology innovation. Most indicators, however, point to it being the latter. How do you design your services differently in each world? If we consider the Internet as a disruptive technology for broadcasters, what investment and service strategies should we follow in delivering IP services? How do we exploit the emerging Wi-Fi and (at least for joint licensees) DTV wireless data capacities?

22. 22 Contact Information Dennis L. Haarsager, DDII Consultant 1019 Border Lane, Moscow, ID 83843-8737 208-892-9445 e-fax 206-770-6100 haarsager@moscow.com www.technology360.com Associate Vice President, Educational Telecommunications & Technology, Washington State University Box 642530, Pullman WA, 99164-2530 509-335-6530 e-fax 888-455-1070 haarsager@wsu.edu

23. 23 Quotes Appropriate to Change Where a calculator like the Eniac today is equipped with 18,000 vacuum tubes and weighs 30 tons, computers in the future may have only 1,000 vacuum tubes and perhaps weigh only half a ton. – Popular Mechanics, March 1949 We would rather be ruined than changed, We would rather die in our dread, Than climb the cross of the moment And let our illusions die. - W.H.Auden The first principle is that you must not fool yourself - and you are the easiest person to fool. - Richard Feynman

24. Television Strategic Investment Scenarios: Your Role as a Disruptive Innovator Digital Distribution Implementation Initiative