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Four years from now, in 2017, the global human population is expected to reach 7.4-billion. By this same time, we expect the global installed base of connected video devices to surpass 8.1 billion. What can we expect from a world where, on average, every person on the face of the Earth possesses at least one connected smartphone, tablet, PC, game console, Smart TV, or set-top box?
The economic consequences of connectivity extend far beyond the realm of media and technology. Commerce, education, healthcare, trade, banking, the structure of interpersonal relationships… none of these areas is likely to be left untouched by the propagation of connected devices through the market. Nonetheless, given the fraction of our leisure that we spend plopped before the TV, and the relatively large share of disposable income that we allocate to media consumption generally, it’s worth examining what connectivity may hold for the media and technology space at large.
From a consumer perspective, today’s media markets exhibit elements of oligopoly. By and large, digital content such as video, music, and books is still sold through a relatively limited number of aggregators. For premium video in particular, households typically select their content provider from among a handful of pay TV operators active in a given market.
Analogously, a consumer media market characterized by oligopoly exhibits — from the perspective of content owners — elements of oligopsony. Since content aggregators have historically controlled the video-processing gateway in the home — the set-top box — as well as the infrastructure which serves this gateway, content owners sell through a limited number of buyers, who in turn regroup and provide access to pools of pay TV households.
In markets where distributors and creators enjoy tremendous market power, and where physical networks segment the total addressable consumer audience into discrete catchments, unique business models are able to incubate and prosper. The practice of channel bundling for example, or restrictions on multi-device content access are a function – however partially – of a media market that is concentrated, and where exclusivity plays a large role.
The rise of connected audiences
It may difficult to anticipate whether or even how quickly the nuts and bolts of today’s TV industry will come undone, but it is also impossible to understate how prominently connected devices figure in the industry’s future direction. Together with broadband, a far-reaching connected device installed base fundamentally restructures the relationship between buyers and sellers of media.
In a world where broadband is a diffused commodity, connected devices transform all households in a given territory into a single, addressable platform. The inherent accessibility of such a large audience provides new entrants with instantaneous scale, has the potential to re-shape the economics of pay television channel distribution, and may alter the calculus whereby content producers choose to sell their productions through large, established channels.
Over the long-term, media spend allocated to entities like Netflix, Amazon, or future entrants may represent a new, additive form of demand. Alternatively, this spend may significantly subtract from money that would otherwise be directed toward the existing, subscription pay TV market. It may even be that over-the-top entities derive their greatest fortunes from integrating themselves more deeply into the traditional pay TV universe. One way or another, connected devices lay the bedrock for a media market where any producer or distributor possesses an open avenue to a huge pool of consumers; this necessary condition for major disruption has now been reached.
Of patents and manufacturers
However, connected devices don’t merely have the potential to create new media distribution opportunities, or to re-shape the economic arrangements that govern content. Their sphere of influence extends directly back to the manufacturers responsible for their production, and in turn, to the legal framework under which devices are bought and sold. Over the past few years, it has been hard to ignore the markedly higher incidence – and outright scale – of patent litigation and intellectual property assertion. Highly visible, highly costly proceedings between device manufacturers have drawn attention to two realities.
First, the return on ‘winning’ a market has never been greater. Connected devices are multi-functional, and are used by manufacturers to sell myriad services and content. These services and content, beyond their immediate pecuniary value, are often exclusive to manufacturers’ platforms, and form part of a longer-term strategy to wrap consumers into an ecosystem where the cost of ‘defecting’ is high. The unstoppable march of device adoption is likely to reward aggressive patent assertion, and strategies that revolve around having multiple irons in the fire.
Second, this assertiveness has drawn huge attention to patent systems themselves, and has fostered the perception of needing to reform these systems. At issue is the extent to which software ideas should even be patentable, and how fully and explicitly claims to uniqueness should be specified. The USPTO, for instance, is already soliciting feedback from, and holding informational roundtables with major device-and-software manufacturers.
Over the medium term, we’re unlikely to witness much litigious abatement. Longer term, we may well be inching towards an environment where methods – algorithms in the software world – protect innovation, instead of generalized descriptions of software function. Such a movement would revise the very way in which ideas are rewarded, and competition curated.
It is too soon to foresee, categorically, how connected devices will change our relationship to media, or influence the very laws that structure how devices reach the market. A device-rich, broadband-connected world where content and information are intrinsically accessible is however – any Orwellian dispositions aside – a categorical positive.