Online Search Engines, Employing the Latest Technology, Are Posing A Significant Challenge to TV Broadcasters...
...and When It’s John Malone Saying That The Industry Had Better Listen.

Philip Stone May 16, 2005

There was plenty of publicity in April when Rupert Murdoch told a New York meeting of newspapers editors they ignored the Internet at their own peril, but very little coverage was given a week later when John Malone, visiting Japan, made similar comments about the television industry. The TV industry needs to really absorb Malone’s thoughts.

Malone has probably made more money out of cable television than any other person – he sold Tele Communications Inc (TCI) to AT&T in the 1990s for some $50 billion. He hit the headlines late last year when he scooped up about 18% of Murdoch’s News International and Murdoch wants those shares back bad enough that to get them he may give up his 67% of the National Geographic US channel and NI’s 50% ownership of National Geographic’s international operations.

Malone, who decided he couldn’t remain idle after selling out to AT&T started over again by forming Liberty Media and then spun off Liberty Media International (LMI). LMI now claims to have more video subscribers than any other cable operator outside the US.

His biggest Liberty deal is awaiting shareholder approval in June when he joins LMI with UnitedGlobalCom (UGC) to form a new company, Liberty Global. UGC currently provides video and broadband Internet to more than 11 million customers in 15 countries. The merged company, serving more than 14 million customers in 17 countries, will be one of the largest broadband communications companies outside the US.

So with those credentials, when an entrepreneur like Malone says that video search devices utilized by search engines such as Google and Yahoo are going to change the face of television, it behooves the industry to listen.

Malone believes paid search is where advertising money is going to flow. “It’s about one technology getting in front of the others and stealing the flow,” he said during a recent visit to Japan where he previously had floated 22% of Jupiter Telecommunications, that country’s largest cable operator.

Malone warns that the consumer, armed with the latest video search tools, will ultimately pay for and watch what he wants when he wants. The days of set television schedules are numbered. He urged the industry to embrace the new technology such as personal video recorders that allow viewers to create their own schedules, and perfect business models around them.

Malone expects to see convergence in the video business – that cable companies and mobile phone operators will form partnerships to deliver video content to wireless phones.

“People want one bill and they want portability and to see video across all platforms,” he said.

As if to prove Malone’s point Yahoo just this month announced that its video search is no longer in beta but is released as Yahoo Video Search 1.0. It still has quite a ways to go but it doesn’t take much imagination to see where it will eventually lead, and the only real question is “how long?”

“People want one bill and they want portability...”
John Malone

Google’s Video service is still listed in beta, and it is making available content from several San Francisco stations plus some cable networks including Fox News. The Google search matches the user’s text search string with text from the closed captioning (subtitles) of the stored programs. Again, still very raw but little imagination needed to see where it is all heading with the same question of “how long?”

Both Yahoo and Google are said to be in discussions with TiVo, the digital video recorder pioneer. It could be as simple as a cooperation deal in getting the search engine product out of the PC (Google/Yahoo territory) and onto television screens (TiVO territory with 3 million subscribers). Or it could be an equity investment – neither Yahoo nor Google would have any financial problems doing that.

The ad-skipping feature in TiVo is seen as the biggest curse yet to the current commercial television model. Various studies indicate that users skip about 70% of the advertising.

Take those numbers plus Malone’s warning about where video search is leading to, and commercial television, in addition to its increase in product placement advertising, may well need to start looking at different business models sooner than it may think.