Can E-Commerce Save Free Television?

The e-commerce revolution is destined to receive an enormous boost from a new technology that is now making the rounds of consumer households.

While this technology is critical to the developing world of e-commerce, it may be of greater importance to today’s television industry. While enabling the coming world of television-based e-commerce, the technology is also likely to destroy the economic structure of the television industry as we know it today.

The technology uses computer hard disks and MPEG encoding techniques to record television shows digitally. Presently, two companies — TiVo and Replay TV — have adapted the technology for consumer electronic products.

Technology Creates Personal TV Channels

It is a heady claim indeed that a technology has the potential to destroy the economic underpinnings of the television industry, but it is the case. Both Tivo and Replay TV allow consumers to create their own personal television stations by keeping track of programs that consumers like and recording them automatically.

As an example, if you like Clint Eastwood movies, Hill Street Blues reruns, and Wednesday night’s NBC lineup, either system will record all of those shows on a regular basis. You can then watch the shows whenever you want and just skip over the ads.

Time, as well as convenience, will drive people to skip the ads. Because advertising takes up about 20 minutes out of an hour, a busy person can cram more than four hours of television programming into three hours of viewing time by jumping over the ads.

When you are watching a live show, furthermore, you can put it on pause, make a sandwich or take a phone call, and then start watching right at the point you left — skipping over the ads until you catch up with the program.

Destroying the Economic Structure of the Industry

So how will this technology destroy the economic structure of the industry? In 5 to 10 years, the technology will be as widespread as today’s videotape recorders. The difference is that it will be so routinely used that perhaps 30 to 50 percent or more of television advertisements will no longer be viewed because so much of what we watch will be recorded.

When the technology reaches this level of usage, it will ruin the economic structure of paid advertising that has supported television since its popularization in the 1950s and 1960s. Advertisers will no longer know how many people actually saw their ad, because nobody will know how many people skipped over it.

Even if the number of skips can be estimated, furthermore, it will compress advertising revenues substantially. How many industries can survive if their revenue base gets cut in half?

The Connection to E-Commerce

Okay, but what is the connection to e-commerce? TiVo and Replay TV are not important to e-commerce. They are products. The underlying disk-based television recording technology, however, is absolutely critical to the development of e-commerce.

The technology is going to allow everything that you see on your TV screen to become a potential entry point into the world of e-commerce. If you see a dress you like or some exotic destination you may want to visit, you put the show on pause, visit an associated Web site, buy the dress or make immediate travel reservations, and then resume the show where you left off.

The scenarios for e-commerce in this arena are virtually endless. However, every one of them begins with the television programming being placed on hold and ends with the show being resumed where it left off. Hence, the technology is critical to e-commerce.

Will E-Commerce Be Television’s Savior?

Here is where this little tale gets tied together. While advertising rates plummet, television networks will need to replace its revenues with something else. Otherwise, consumers will have to make up the difference through increased cable television rates.

Advertising will not end, and neither will television. Advertising rates, however, will be adjusted to take declining viewership into account.

Television and free cable TV networks will look to e-commerce revenues or direct customer payments to offset lost advertising revenues. If history is any kind of guide, however, e-commerce in the coming world of digital television will be more than up to the task.

Today’s world of advertising is a comparatively inefficient way to reach a specific customer. Tomorrow’s coming world of instant e-procurement will prove to be far more efficient and effective.

Will the economic structure of television as we know it be destroyed? Yes, it likely will. However, when that happens, a more effective world of e-commerce-based digital television will replace it.

And what if that scenario does not come to pass? Then get ready for increased cable rates. The only thing that is certain is that television will not end.