Michael Wolff on HBO, CBS Streaming: TV Is Disrupting the Internet

MOONVES TV Disrupting the Internet illo MAIN - H 2014
Illustration by: Jason Schneider

MOONVES TV Disrupting the Internet illo MAIN - H 2014

Streaming services from the two networks don't signal television's capitulation to Netflix and the web; it's actually the opposite, as the medium expands yet again to gobble up more revenue

This story first appeared in the Oct. 31 issue of The Hollywood Reporter magazine.

The solipsism of the tech community sees the CBS and HBO migrations to stand-alone streaming services as a satisfying disruption of the TV business. But that's a striking inversion of what's actually happening: TV is disrupting the Internet.

A funny thing happened during the Internet's seemingly epochal displacement of mainstream media. While digital media was becoming overwhelmingly ad-supported — a mass-media model reminiscent of the three-network era — television gained a subscription revenue stream. Paid television — that is, cable subscriptions — became the most powerful growth driver in the media world, producing a new kind of high-value, culture-shaping programming.

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Meanwhile, digital media, from Yahoo to BuzzFeed to the websites and apps of magazines and newspapers — and including even Google and Facebook — found itself overwhelmingly reliant on advertising income. Because of the glut of space, new automated ways of buying and reaching audiences in digital venues and persistent complaints about the caliber of digital attention, ad rates largely have continued to sink — meaning, in a terrible cycle, content must be cheaper and must grow broader in an ever-dumbed-down effort to reach a larger and larger audience, for which advertisers pay less and less. This downward trend now is moving almost every significant Internet platform and media site into the video business, with its higher ad rates and opportunities for user fees.

The digital worldview holds that seamless streaming platforms challenge television's basic business model and its relationship with its viewers — and digital is the way to cut the cable cord. Recent announcements by CBS and HBO about their streaming plans are old media's capitulation to the Netflix model and an acknowledgement that television's riches are coming to digital.

Yet it is the Netflix model that breaks from web formats and reverts to traditional premium TV. It charges subscription fees; it licenses content (largely TV content); and now it makes, a la HBO, highly regarded programming using top talent. Other than residing on the web or as an app, Netflix actually rejects the conventions of digital media. It is not user-generated; it is not social; it is not bite size; it is not free. And now its approach is the one most other digital companies with big media ambitions — Google, Amazon, Yahoo — are looking to pursue: that is, to become like television.

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But, they say, it's a new distribution paradigm! IP delivery breaks the cable stronghold! The great unbundling — that Internet grail of consumer choice — is undermining the control of traditional distributors and producers!

Or is it that digital joins broadcast and cable as a third way the TV industry can deliver its product, actually strengthening it? That, in fact, the digital revolution is a digression, and television — the real video revolution that began in the 1950s — continues on.

Television, in the digital view, will go the way of music and print, low-value fuel for the high-value digital engine. But television always has been a different sort of media product, never one thing (broadcast, cable, syndicated, first-run, rerun, VHS, DVD, DVR, etc.) but ever transforming, protean. It's currency in the hands of savvy traders: You want my hit show, you give me this distribution advantage; you want my distribution, you give me your hit show. The more platforms, the more leverage.

Indeed, traditional television's establishment of streaming outlets is not merely an effort to compete with native digital TV platforms but to deliver a warning to satellite and cable distributors — mostly Comcast — that content producers have another way to weight the scales in negotiations for cable fees. Of course, at the same time, in this finely balanced ecosystem, Comcast, controlling the largest share of broadband delivery, also benefits from the growth of digital TV platforms. And with a two-tier net-neutrality rule coming — that is, a faster and slower speed — Comcast will have another thumb to put on its side of the scale. (Likewise, traditional TV powers likely have greater leverage than their digital competitors to negotiate for more speed.)

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It's a tough guy's world. CBS' Leslie Moonves might be the totem of the old-media establishment, preserved in amber, all the more galling for not understanding — or certainly not seeming to care about — his throwback status. And yet, in 20 years of competition from digital media, he is more powerful (and more ebullient) than ever — and with sharper and more adroit elbows. Both Moonves and HBO's Richard Plepler have announced their new moves into streaming with strikingly few details — but, notably, with just enough to hammer Netflix's stock. If Netflix wants to inflate production fees with me-too original shows and raise the price of licensing deals, well, the empire strikes back. It's television as usual: If I bleed, you do too.

In the digital imagination, the key disruption is to create a wide menu of on-demand choices, undermining the media establishment's power to make the consumer buy dross as well as gold. Netflix, for instance, has to license lots of junk in order to get the good stuff. And yet, digital platforms are now, to their certain bewilderment, pulled ever more into show business reality. Unlike digital media, television is not a flattened, long-tail world. It's about the hits. Those unique moments of creative synchronicity that give you amazing power — and the wherewithal to bundle. And, indeed, that's the game digital media more and more wants to play. To get hits, you need a way to finance duds, without which you can't have hits. That's TV, as the Yahoos and Xboxes and Amazons are learning (thereby buoying the coffers of traditional Hollywood producers of the hits and duds).

The digital world believes, too, that it gains key advantages on its own turf. But television, curiously, always has been very good at competing with itself. The archetype of the TV executive as rapacious and ever-calculating — a truly heartless suit — probably is an accurate one, meaning he or she negotiates well. TV product, available in myriad ways and through often competing distributors, has remained both carefully controlled and artfully profitable — now, with subscription and advertising revenue, more than ever. Once we believed television would be diminished in a fractured world; in fact, it turns out television's power grows as it accommodates greater and more varied demand.

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Assume HBO bought Netflix for $30 billion. What would it own? A streaming site that competes for its subscribers. By saving $30 billion and creating a stand-alone version of its HBO Go app, it essentially will have the same outcome: a streaming site that competes for its subscribers. But for every subscriber who shifts, it will make money at the Netflix rate of $8.99 a month (in many instances, more than it makes per subscriber from its cable deals). So it: a) hurts Netflix and all other digital competitors; b) does not hurt itself; c) establishes a new platform, potentially raising the share price of parent Time Warner; and d) has an empirical learning curve for how to grow across new platforms and extend its ubiquity. Ditto for CBS.

The only question: Why did it take them so long?