VIDEO: Robert Tercek at PrimeTime on “TV’s New Ecosystem”

On Thursday, March 1, 2012, I gave the opening keynote speech at the CMPA’s PrimeTime conference in Ottawa. My topic was the future of the television.  This talk examines the disruption of the old television industry and the rapid emergence of an entirely new ecosystem for digital video.

This clip includes the full video of the speech.  I’ve included the text transcript below.

[Topics: second-screen apps, social discovery, over-the-top video OTT, cord-cutting, disruption in cable TV and pay TV, the rise of the new ecosystem, the changes wrought by Facebook, Google, Apple, Amazon and other technology giants, and the Motorola acquisition by Google. Also includes discussion about Aereo, Boxee, and other new players.

The following text is the edited transcript of my speech.

Television’s New Ecosystem
Keynote Speech by Robert Tercek
PRIME TIME in Ottawa March 2, 2012

Robert Tercek: Good morning, thank you Norm and thank you CMPA for bringing me back to Ottawa, I’m thrilled to be back here again to talk to you! And hello TV producers!

Producers, are you ready for a completely new ecosystem, because it is coming, it’s coming for you!

I want to begin with this observation: TV doesn’t make any sense.

I don’t mean the programming. Actually I happen to like Sponge Bob. His show is fine.

What I am referring to is the business model and the ecosystem of television that we currently have. It doesn’t make any sense.

No sane person would create this system from scratch.

Think about it this way: in the future your grandchildren and my grandchildren, they’re going to look at us and they’re going to say, “Grandpa or Grandma is it really true that there was a time where the whole country had to sit down in front of the TV at the exact same minute to watch a show?” It sounds funny when you say it like that, but if you still watch broadcast TV, that’s exactly how it works. That fact has not changed in 60 years.

And just when the TV show gets good, it is interrupted by a commercial. Actually a whole bunch of commercials.

And that’s not all. If you like a particular show and you want to watch another episode, well, then you have to wait a whole week to see another episode. And if you want to watch it again, then you have to wait till the next season. Six months must pass before you get to see the repeat of the show you liked. It doesn’t make any sense in this day and age of instant, on-demand media.

And, as a society, we still set aside huge chunks of scarce radio frequency spectrum for broadcasting: that spectrum could be used for many other types of data services. Think about the incredible innovation in wireless data in the past decade: those services are squeezed into a tiny fraction of the bandwidth that we devote to broadcasting. In the United States only 10% of the people are actually watching television over the air. It seems like such a waste of valuable spectrum. This, too, makes no sense.

Of course, nowadays most of us are watching Pay TV. In the United States nearly 90% of the households subscribe to pay television services.… and yet most of us feel like we’re paying too much money for way too many channels, more channels than we can possibly ever watch.

But strangely in the United States even though we have a surfeit of channels, we still can’t find room for one particular channel. (Editor’s note: Picture of Al Jazeera TV).

And we use this clunky interface to try to navigate through it, the dreaded screen guide, this grid-based system that really hasn’t changed much in the last 10 or 15 years. We’re trying to navigate through hundreds and hundreds of channels using that ugly grid… and by using these cumbersome remote controls which are still incredibly confusing. In this day and age of advanced technology, its really quite astonishing to think about TV and realize that it really hasn’t changed very much when everything else seems to be evolving so swiftly.

If you want the convenience of timeshifting your show so you can watch it at a time when you would like to look at it, then you must pay a little bit more for that privilege. You can rent or buy a DVR.

And here’s another crazy thing. In Hollywood, where I live, every year the TV studios spend approximately a quarter a billion dollars to produce between 120 to 150 new pilots… most of which never actually make it on television… and those that do, well,… most of those get cancelled. Seems like an incredibly inefficient process.

And then we turn to the advertisers, we say “We want you to pay us upfront. Please commit million of dollars upfront when we haven’t even finished producing all of the shows that we are selling to you and we still can’t tell you who is at home watching them when your ads run.” And they do!

And when the consumers say “I want out of this crazy system, I want to watch programs on my own terms on a device of my choosing at a time that I would like to watch”, well those people are considered criminals and the broadcast industry sues them.

So this is the TV system that we have today. No sane person would design a system like this.

It’s not really a question of “Is television getting disrupted?” Well, of course it is getting disrupted. Every single absurdity is being challenged and changed.

The question in my mind is: why did it take so long to change this crazy system?

The entire media industry that we are familiar with, not just broadcasting but also print, radio, and recorded media of all sorts, it’s all going through a massive change. It looks like the whole edifice and the whole structure of published content is about to come crashing down, soon to be rebuilt, utterly reconfigured in an entirely new way.

• We’re moving from a world of fixed media to a world of software that can be shared and distributed easily as mere bits on the digital network.

• We’re moving from a world of scheduled entertainment to a world where consumers can demand content at the time of their choosing on the device of their preference.

• We’re moving from a world of one-way broadcasting, one to many, to a world of two-way dialogue. Although it has been possible to incorporate this into television for many years now, it is truly astonishing how few broadcasters take advantage of the opportunity to connect with their audience and incorporate them in the show.

• We’re moving from a world of fixed products like books, a 500 year old artifact that we’re still very attached to. We’re moving into a world of virtual goods like the prizes that you win in game like Zynga’s game Cityville.

• We’re moving from a world of search where you actually have to know how to spell the name of the thing you’re looking for to a world of social discovery where your friends and your extended friends network will help you find new experiences, new exciting things that will amuse you and entertain you.

• And most importantly these changes are changing us as the audience, we’re shifting from a world where we are passive observers sitting back being programmed to a world where we’re active participants.

And in the past year we’ve seen spectacular evidence of what this can do to an audience.

All around the world, people have started to come forth and tell us about the new media tools that they’re using. (Note: pictures of 2011 street protests all over the world.) And they’re using these tools not just to communicate and connect but actually to create social change. This process started in 2009 in the streets of Teheran, it then spread in 2010 to countries in South Asia and more recently we’ve seen it with the Arab Spring and in the Occupy Wall Street Movement, the Occupy Movement which occurred in more than 1000 cities around the world last year.

These people are using social media to organize and advocate for change. So when you give people the power to publish it’s not just content that they’re publishing, they’re really starting to express views that galvanize other people and others find validation in that. They discover they’re not the only ones who feel a certain way. And when they connect, you see this huge outpouring of human emotion that comes out in the streets. It’s a whole new era.

And these folks are letting us know what tools they’re using. They let us know because you will see it in the graffiti in every part of the world. (Note: pictures of graffiti about Facebook and Twitter)

All these recent street protests and activity reminded me of Antonio Gramcsi ‘s statement. He was an Italian philosopher from the early 20th century and he was talking about political change. He said

“The crisis that’s happening consists precisely in the fact that the old is dying and the new cannot yet be born. In this moment of interregnum a great variety of morbid symptoms appear.”

Well, that’s kind of a heavy thought. When I was reading it, I was thought: “Gramsci’s statement is kind of true for TV now, isn’t it?”

We’re between one system one that we’re very familiar with, but as I just explained, this old system is filled with all kinds of crazy paradoxes and some strange and hard to explain rules and arbitrary regulations and business rules.
We’re moving into an entirely new world. And that’s really what I want to talk about to you today.

So welcome, TV producers! Welcome to the Interregnum: a strange time when we’re going to be moving from one system that we know well to an entirely an unknown ecosystem.

And now let’s take a look at some of the morbid symptoms that Gramcsi referred to.

The first morbid symptom is denial.

For years I’ve been out in public, talking to people, saying that this change is coming. Quite often in the audience, I encounter people who say “Absolutely not , no, no, that change is never going to occur”. They are in denial. You’ve probably heard about this myth of the ostrich bird that buries its head in the sand. But have you seen this image? It’s the business person who does the same thing! I have called this picture the music industry in 2000 and now it’s called the television industry in 2010 . Because the change is here, its happening now, but they don’t want to acknowledge it. They bury their heads in the sand, hoping it will all pass by.

Last year some people in the audience took exception to my comments here about the prospect of cord-cutting. Some of the executives in the Pay TV industry said there’s no evidence of cord cutting. You may even hear that denial voiced today… but the evidence is now in. Now many analysts in many sectors are starting to report evidence that people are cutting back their cable TV and Pay TV services. Not in large numbers, not huge numbers yet but what’s far more important are the intenders. The intenders are the people who are considering cutting the cord, the people who are experimenting with online video. They comprise double digit percentages of the current subscriber base. This is a real thing.

In 2012, analysts estimate that at least 40 million US households will have access to digital video services of one form or another. And of course, if you take into account the 21 million subscribers to Netflix streaming service and the 28 million households that have HBO and will soon have HBOGO available to them, it is not too difficult to see how we can arrive at a figure that large. 40 million is a significant percentage of the 100 million homes that have TV in the United States.

At the same time, the Motion Picture companies still persist in denial as well, because they’re using artificial scarcity to control the pricing of their goods. They’re basically withholding their films from this conversation. They are trying to use an age-old tactic of withholding content in order to extract a maximum payment. I’m not sure that works anymore in an era of abundance.

There were about 250 motion picture releases last year. If you look at just the six big studios it was more like 150 films that were released. But according to the people who manage the software for the film festivals, they recorded more than 50,000 independent productions were created and submitted last year. But that’s not all…

There are some 300 million clips on YouTube now. That’s a number that no one actually can determine because that number changes every second: that’s how fast YouTube is growing.

Do release window still make sense to us in an environment where we have literally hundreds of thousands, even millions, of choices?

Here is a picture of the vast number of choices in the United States today: consumers can choose from among 200 TV channels and thousands of video games and magazines. Every year we publish almost 300,000 books: about 1000 books a day published in the United States. Plus we have 500,000 mobile apps and 350 million web pages. Does scarcity pricing still make sense when we’re awash in a sea of content?

The second morbid symptom is that we’re using litigation. Our incumbent media companies tend to use litigation instead of innovation to compete in the space.

More than 100,000 people have been sued by Motion Picture companies in the past year for file sharing. So the Motion Picture companies are taking a page from the playbook of the Record Labels. That strategy didn’t work so well for the Record Labels and I can predict with some certainty that it won’t work very well for Motion Picture companies, either, to deter this behavior.

Last year I spoke to you about a new trend a thing called a virtual cable operator this company is called IVI.TV. They were also sued by the broadcasters for taking the TV signal and putting it in digital environment. This type of redistribution without consent is something that the cable companies did about 40 or 50 years ago: they took the broadcast signal and put it into their own platform and they also had to go through that phase of litigation. It doesn’t necessarily stop progress, but it does slow it down somewhat.

Last year, I also mentioned a company called Bamboom. They’ve now rebranded themselves to something called AEREO. AEREO is a company that’s worth paying attention to. What AEREO has done is this: they have virtualized the DVR. AEREO knows that there is a government rule that requires a consumer to have an antenna in order to get a broadcast signal, so they’ve created a facility that’s got thousands of these little tiny antennae. You can see them on the left side of this picture: they are about the size of a penny. Thousands of them, packed close together, so each individual subscriber can have their own personal antenna. What that system does is it takes a broadcast signal, records it and then makes it available on any digital device at the time of your choosing. This is exactly the scenario the broadcasters do not want to see and so of course we can expect a lawsuit is imminent. This company will be hit with a lawsuit soon to test whether or not this is legally permissible. (Editor’s note: Aereo was named in two lawsuits within one week following this speech).

Another tactic you will notice the incumbent companies tend to use that I consider a morbid symptom is that they depend on legislation instead of innovation.

One of the new innovative companies that’s out there selling digital setup boxes side boxes that you can attach you can buy for about $100 in a retail store is called Boxee. There are many such companies. But Boxee has added a new innovation. For an extra $50 you can buy an add-on part. Its a little dongle connector that will connect the device to the coaxial cable from the cable TV company. This allows you to watch the broadcast TV channels in the US in the clear, free of any kind of encryption.

Well, naturally, the cable companies don’t like this because it feels to them like their content is being hijacked. Specifically, the broadcast TV content that they pay significant retransmission fees for is being made available free of charge by Boxee’s innovation. And so they’re lobbying right now to change that rule that requires them to send their broadcast signal unencrypted in ClearQUAM through their cable network. They want the right to encrypt broadcast TV on their cable system. Instead of competing by innovating and adopting IP video, they are using legislation to stop the innovation.

One more morbid symptom is the blurring role of key players. It is an identity crisis that seems to be endemic to the entire industry. You’ve heard about “TV Everywhere”. That’s the scheme whereby the pay TV companies make accessible the television programming, they make it available on other devices apart from the classic combination of TV and setup box. So here for example is Comcast’s Exfinity service on Apple iPad . Most of the other pay TV companies in the US have followed suit, at least on tablets.

This year we will start to see a large number of these offerings reach the market. Finally, people at home can kind of watch the programs that they’re paying for from their pay TV service on other devices in their home besides the TV set. This is the TV industry’s way of countering the so-called “over the top” threat from the Internet video companies: they are offering a similar kind of programming on tablets.

But all is not well. One media analyst analyst, Laura Martin at the Needham Company, feels that this could actually be the beginning of World War III in the TV industry.

It hasn’t happened yet… but the picture is pretty scary. Let me share the scenario with you.

You see “TV Everywhere” really means every company in the current television ecosystem is going to try to launch their own direct-to-consumer offering, in due course. They will all compete to reach the end user. So here at the top of the diagram you will see the cable channels like HBO and movies studios like Sony here with their online video programming service called Crackle. And broadcast networks in the US like ABC already have a robust direct-to-consumer online offering. This is now true of every cable channel and TV network: they’re all readying or have already got a direct-to-consumer service on offer. However, what they are soon going to discover is that their offering competes directly with the direct-to-consumer “TV Everywhere” service from the telcos like AT&T and Verizon… and it also competes with the offering from the cable operators and satellite operators who have their own “TV Everywhere” initiatives. And then they will also crash into offerings from TV manufacturers companies like Samsung and LG and of course Apple. Everybody is scrambling to distribute video directly to consumers.

They can’t all win. Some of them will certainly lose.

But they will all compete fiercely to get consumer attention. And what this competition will certainly do is hasten in the new era because it’s going to condition the consumer to the expectation that they can get the content of their choice on any device at any time. So in fact these old media companies, by competing in the space in this way, will inadvertently accelerate consumer adoption of the very trend that they’re trying to stop.

Another illustration of this paradox is the competition to launch a video app for mobile devices. I think it’s quite interesting most companies in the TV business have now got an Apple iPad application on offer, and they’ll eventually make that app available for other tablets, such as the new crop of Android-based tablets, because tablets have become one of the most preferred viewing devices in the home.

In their rush to compete for eyeballs on the tablet, these companies have entered a competitive arena unlike any that they’ve ever been in before. They face so many new competitors on the tablet, and they bring so few natural advantages to this competition. So here in this slide you see your broadcast networks represented as Chiclet-sized icons on a tablet computer. But what’s humiliating to these big broadcasters is that they find their application sits on the exact same shelf space alongside a number of other companies that they don’t traditionally compete with in the real world. Their app must compete with offerings from pay TV operators, local TV stations, satellite companies, newcomers like Netflix and Hulu and then the companies at the bottom of the diagram such as TED, Vevo, AOL TV, Crackle, These last several examples are companies that the big broadcasters didn’t even know existed, they didn’t even know they were competing with. And now they are sitting on the exact same shelf with these unanticipated upstart rivals.

What’s happening is that TV is turning into an app. TV is just another app that runs on somebody else’s platform. That’s bad news if your company happens to own broadcast stations, spectrum and towers, because this old infrastructure brings no inherent advantage in the new digital arena.

So let’s take a closer look at these new digital platforms because this is the fifth morbid symptom. Platform fragmentation occurs when each manufacturer seeks to exert some influence over the market place via proprietary software. The device makers seek to control the content to some extent via closed proprietary systems. If you are a content provider you must be prepared to port your content from one proprietary system to another if you want to be competitive on every single device. The result is fragmentation on a massive scale.

Today, Netflix, the market leader in over-the-top online video services, is available on more than 800 devices. The Netflix client application is “embedded software” or “pre-loaded software”. That means that Netflix’s software engineers have taken the immense effort to write a special version of their client software that runs perfectly for each particular device from each manufacturer. That takes a great deal of effort. If you’ve ever developed any content or games for mobile you know exactly what I’m talking about.

What that means for the consumer is good news: when they buy their device they don’t have to download or install anything! Netflix is already built in. The consumer just turns the device on and they can click the Netflix icon to get instant access to the service. Which is exactly what consumers want.
Anyone that wishes to compete with Netflix will be obligated to do the same.

This presents a huge challenge for content companies who wish to go direct-to-consumer. This is not necessarily a skill set that TV channels and movie studios possess. They’re going to have to go to the consumer electronics companies (say for this example Microsoft with their Xbox device which is a great way to watch over the top video) where they will find that they need to license a proprietary software development kit to create a unique app for each device. One-by-one, each content company must sign up for the developer program for each device maker.

For example, as you can see in this diagram, Microsoft already has a very rich ecosystem of content partners who are developing video programming for their platform. It’s a very good device for watching online video; so is the Sony Playstation.

Soon, every content provider who wishes to connect with the tens of millions of people who use Xbox or PS3 will be obligated to develop a special app for those devices. And then they will have to port that app to every subsequent version or upgrade to this device. This process will impose terrible friction on the TV industry where budgets are already stretched pretty tight.

Increasingly we’re hearing about Smart TVs. Some analysts estimate that quite soon half of the televisions in living rooms will be considered “smart TVs”. What makes a TV smart is that a computer is embedded inside the device. Like any computer, these so-called Smart TVs have proprietary software. Indeed, the manufacturing companies are relying on proprietary software to differentiate their otherwise-identical flatscreen TVs, which means that, once again, the content company will have to license a software developer tool kit and develop a special app that works just for that particular device.

Think about it for a moment, TV producers, did you ever want to be in the software porting business? Is that really what our TV companies are here to do?

Let me use an example to explain just how serious this issue really is.

When the mobile phone industry reached the peak of device fragmentation in 2006, my mobile game company at the time was delivering about 10,000 ported pieces of software each and every week. Those were apps and games that were optimized for a particular phone on a particular mobile network. And we were not alone. Every major mobile game publisher was cranking out something on the order of 50,000 ports each month. If you wanted to compete on every mobile device, this was the price of admission. We hired a small army of software developers to re-code the exact same game, over and over again, so that it could run well on each mobile phone. And we had another big team testing the same game on each and every device.

It was incredibly inefficient, but the competitive dynamic of the mobile industry at the time decreed that every device manufacturer had to compete by making their devices slightly different: different screen size, different resolution, different user interface, different keypad configuration, different memory, different processor, different operating system, different software development kit. And so this created an obligation for content publishers: we were forced to port our content so that it would run correctly and display correctly on every different mobile device. That was expensive. At the time, half the cost of developing a mobile game was devoted to porting the finished product to hundreds and thousands of different phones.

We are soon about to see something quite similar emerge in the TV industry, because the device manufacturers do not want to become commoditized, so they will compete by differentiating on their embedded software. “Smart TV fragmentation” will impose a massive burden on TV producers and channels who must port their software to be compatible with every device and every configuration in the home.

And finally there is another aspect of fragmentation, which is content fragmentation. That’s where each piece of content is subject to different rules on different platforms. What the consumer expects is to get everything he or she seeks on any device. But that won’t actually happen in the near term, because each content company is applying a completely different set of business rules or conditions or licensing terms on each online video service. And so what very frequently happens is that the consumer will click on a show that they want to watch and they’re confronted with a unfriendly barrier that informs them a subscription is required to get access to this content.

And so when we think about platform fragmentation we really have to think about it in three different ways. First, there is device fragmentation that involves proprietary software and a proprietary toolkit that obligates a content provider to develop specifically for each and every device. Netflix has done that 800 times. So if you’re developing a direct to consumer offering you’ll have to follow Netflix’s example.

Then we have advertising fragmentation: now that consumers are watching on many different platforms we’ll now we need a new set of standards for the measurement of the audience that’s migrating across those platforms and a new set of rules that allows us to price that audience for advertisers, no matter which platform they are accessing from. We don’t have that yet. Uniform measurement and pricing are nowhere in sight. So different rules, different advertising rules, different advertising metrics determine pricing for each platform.

And of course then there is content fragmentation which is to say we have inconsistent rules about what content is made available on which device so that the experience of browsing and watching is incredibly confusing to consumers. For instance on some services you will find that a show that you watch may be available 24 hours after it aired on TV, sometimes its available 48 hours after it aired on TV, sometimes its available eight days after it aired, sometimes its not available that season (you can only watch a previous season and in some cases they only have a few seasons back, say two seasons ago or more). This is incredibly confusing to consumers. They actually must be aware of which content deals have been struck with which platforms. It’s ridiculous. These arbitrary business rules should be transparent to the end consumer.
Those are the morbid symptoms of an industry in transition.

Last year some of the folks in the audience responded to my comments about innovation and change in a defensive way. They reacted by saying, “Well, actually, our company is also doing innovation.” Well, of course they are. Every company innovates in some fashion or another. Every company must. If you don’t innovate, you’re going out of business in very slow motion.

But there is a big difference between sustaining innovation and disruptive innovation. This is really the heart of the speech for today. You see, the companies that do sustaining innovation, well, they’re really innovating in order to defend an old business model so they’ll do the minimum amount of innovation necessary to protect the business that they‘re already in.

That is very, very different from disruptive innovation.

One way to think about is the difference between sustaining innovation and disruptive innovation is to think about playing defense and playing offence. You can’t win a game by playing defense.

And meanwhile, the companies that are playing offence, they’re not seeking to make tiny incremental changes to the existing business model. They are there to blow it up completely.

These companies are rethinking the entire TV ecosystem.

Social media changes everything you’ve heard about it. Yes, it’s been a big story for the past two years. We’ve heard about all the spectacular growth in social networking services and by this point you may think it’s just something for the marketing department or something for audience development, or something that you vend out to an agency to deal with. But there is far more to it than that.

This is not just about friends networks. Social media changes EVERYTHING.


Social media is growing at a spectacular clip; today there are about two billion people on the planet earth who access the internet from a landline and a further billon who access it through their mobile device. Altogether that’s an audience of about three billion. There’s some duplication in there, of course, but let’s suppose that roughly one third of humanity accesses the Internet in some fashion. Of that global audience, 2.1 billion have established accounts in social networks. 850 million of those are on Facebook, and half of those are people are accessing Facebook via mobile phones. Twitter has more than 200 million members. Google+, which is a service that didn’t even exist when I came to visit with you last year, Google+ already has 90 million members and although there’s a lot of criticism about that service and what it might ultimately evolve into, its worth noting that it’s the fastest growing software application ever launched in history.

And even relatively small companies in the social space, companies like WordPress and Tumblr, have tens of millions of people using their software. These aren’t viewers or readers, either. These are people who are using the tool to publish content! 70 million in the case of WordPress, 40 million in the case of Tumblr.

Even a brand new service that probably many people haven’t heard Pinterest has 11 million members. This is a company that’s brand new. It’s only a few months old.

My point is that social media grows very, very swiftly, and that’s because it has no boundaries. Its reach is worldwide.

One of my projects right now is a collaboration with Mark Pesce called The Next Billion Seconds . We are considering what happens in the next 25 years when everyone on the planet earth has access to the internet, what happens when we’re all connected?

One thing I can predict with confidence is that we’ll all be using social tools. Now social media differs from broadcast media and traditional media in this way: social media can easily surmount the boundaries that gate traditional media. Most traditional media is bound to geography and it’s also bound to particular language and to business licensing rules which bind it in certain ways.

Social media transcends all of that with ease.

Social media can grow in linear step with the growth of the Internet to reach everybody who is connected. That’s not how our media businesses traditionally have worked: they are limited by geography and language to a certain place and a certain size audience.

The results are spectacular. This year we will probably see two companies reach a global audience of a billion: Google and Facebook. Its extraordinary. An audience of one billion.

There has never been a traditional media company with an audience of one billion.

Take every number that you know in the television industry and add a zero or a two at the end of it and you will start to get a sense of the scale and scope of these social media businesses.

You may be sitting in the audiences right now, having a reaction to this information. An emotional reaction. It might be positive or it might be negative. I wouldn’t be surprised if some people were reacting by saying, “How does this affect me?”

There may be some confusion about whether or not the explosion of social media is a good thing.

This question of positive or negative really is a matter of considering does this present an opportunity or a threat to your business? What happens if people choose to view it as a threat?

I view it as a boundless opportunity but it really is a matter of perspective. Last year I spoke to you about the architecture of collaboration, the open architecture of the web that enables people to freely share, freely build on open source platforms and that’s one of the reasons they the internet has been this incredible engine of change driving rapid growth.

Opposed to that architecture of collaboration is another architecture: the architecture of coercion which is all about keeping customers bound up with long term contracts and imposing penalties on customers who disconnect from a service and finding ways to extract the maximum amount of revenue out of each subscriber.

(To see the speech I am referring to above, please watch this version of my 2011 speech “Coercion and Cooperation in the Second Century of Electronic Media” by clicking here).

And I predicted last year that there would be a collision course between these two very different architectures. And, sure enough, this year we saw it happen. We saw it happen in this form: deeply flawed legislation with these names: SOPA, PIPA, ACTA. Those are the Stop Online Piracy Act, the Protect Intellectual Property Act and the Anti-Counterfeiting Trade Agreement, which is a multinational treaty.

The SOPA and PIPA bills were being considered in the US Congress recently. There was a great outcry about these bills when it was revealed that, behind closed doors without much public discussion and without any technology companies being consulted about them, new rules were being concocted. The rules were proposed by lobbyists for the media industry and they would foist a new set of obligations on the Internet business.

Effectively the SOPA and PIPA bills went like this: an old industry saying to a new industry “This is what we are going to do to stop you.” The implications for the future of the open & social web were quite grave.

I do not want to diminish the significance of the issue that’s driving this debate. Piracy is a giant issue for the media companies. So I’m not here to diminish the very real issue of piracy in digital media. Its really there and it’s a really big concern.

One of the things that drives the media companies crazy about the current system of managing copyrighted content on the Internet is the fact that the content owners must police the Web constantly for infringement. Media companies are constantly issuing so-called “takedown notifications” to social media sites. The social sites duly comply with the takedown notice but the next day the exact same content pops up somewhere else where it has been shared or posted by an end consumer. It’s like a giant version of the whack-a-mole game: no matter where you whack the mole it’s going to pop up some place else a moment later. The media companies have been frustrated by this chore. They want to push the burden of policing this copyright enforcement activity over to the social media sites. But in so doing they propose rules and regulations that might actually disable the Internet and this is where the issue arose.


The level of invective didn’t help the matter. The discourse on this subject was very confusing because it was so inflammatory. Here in this example you can see Rupert Murdoch, the CEO of News Corp, using Twitter to assert that

“the piracy leader is Google who streams movies for free and then sells adverts around them… so no wonder they’re pouring millions into lobbying.”

Now this statement strikes me as ironic on several levels. First of all, it’s a bit rich for Mr Murdoch to accuse anyone else of doing something criminal when his own company is currently under investigation for a massive scandal involving bribery and corruption of public officials and police departments and illegal wire tapping.

It’s also a bit like a pot calling the kettle black when Rupert Murdoch complains about Google’s lobbying efforts.

The media companies poured $2 million in the coffers of elected officials to garner their support or these bills. So there were plenty of millions poured into this equation by the media companies: in fact they outspent the technology companies by 4:1.

There are a lot of critics of this draft legislation from across the political spectrum. There were some grave concerns that it would disrupt the Internet, that it might hurt the domain name system which is really like the address book of the Internet. Some argued that the cure that was proposed would actually end up driving most of this illegal activity into some alternative domain name system which would be much more difficult to police, so that actually the regulation might backfire by breeding even better file sharing systems.

There were also complaints about the mechanical aspect of implementing this draft legislation, but perhaps the most important complain was that from libertarian groups and conservative groups who said actually this is bad news because it presents an architecture for censorship. Here’s their concern. Once we start to create a blacklist of websites that need to be taken down and once we establish an automated system for content removal, its going to be too tempting for politicians of every stripe to start to add more and more names to that list no matter what the moral outrage of the day is.

You can imagine politicians saying, “Well today the issue is piracy and intellectual property theft… but you know we have some new targets so we would like to add a few more things to the list of deleted sites.” Let suppose that now our elected officials decide that we want to go after the web sites of companies who violate patents. Next they may want to remove other sites because they’re involved in pornography. Soon you might imagine that politicians might target groups who have unwelcome views about political speech or religious speech. And from that point it could easily spiral out of control. All because we would have installed an architecture for automated censorship.

And this runs antithetical to the principles of the Internet: the free flow of information that has made the internet such a incredible innovation engine. It also runs counter to the principles enshrined in the US Constitution. And that’s why so many people spoke out against it.

So on January 18th the Internet responded to the draft legislation SOPA and PIPA. The Internet went on strike! Across the Internet, dozens and dozens of websites went black and posted notices that said, “This is what you’ll experience if we have to live with this legislation we wont be able to serve you, we wont be able to offer you social media or the kinds of information services, we wont even be able to link to other sites because that linking was at the core of that preposition.”
On January 18, Wikipedia went black, as did many other sites. Google blacked out its logo and at the bottom of the screen, you will see they asked people to sign their petition to tell Congress “don’t censor the web”.

The results after 24 hours were quite surprising. 162 million people saw the Wikipedia page. Seven million signatures on the anti-SOPA petition, 2 ½ million people tweeted it, and perhaps most important of all, eight million people used Wikipedia’s tool to find the contact info for their Congressman or their Senator and as a result 40 elected representatives in the congress decided to switch their position and came out in opposition to this bill. Others that were sponsors of the bill withdrew their support within 24 hours. Effectively, PIPA and SOPA were dead on arrival. At least this round.

And so we can see here the immense power of social media. The only thing that can stop the growth of this rapidly evolving medium is government regulation. And the only thing that can stop the regulation is social media. It’s a perfect standoff between the power of government and the consent of the governed.

What’s next for social media? I believe that all media will be social. I have believed this for many years and I have articulated my views in many previous talks. Take a look at a business that couldn’t possibly be less digital: books. Believe it or not, books are becoming social through companies like Copia, Subtext and Good Reads. Magazines, too, are becoming social with software like Pulse, Flipboard, Instapaper and Zite. Music is the place of great innovation with all kinds of great new social music streaming services such as Pandora, Spotify, Turntable.FM and MOG, many of them available through Facebook that allow people to share and discover and talk about the music that they’re fond of. Of course television is not immune to this trend: there are a number of companies popping up that have enabled social activity around TV shows such as GetGlue, Miso, Shazam and

One thing you will notice about this list of companies is that you don’t recognize many of those logos: these are startup social media companies, not the familiar traditional media companies. They are at the forefront of this experimentation.
And that causes me to wonder about the value of content. You know, historically, the greatest tool for advertising has been to gather an audience around great content. I am referring to the kind of content that people in this room produce.
But if it’s so easy today to build an audience using social tools to create conversations around that precious content then that raises a difficult question: is content still king? What is the value of content when a social software developer can build a social tool around a show or other content and garner the show’s fan base and start to sell advertising? These startup ventures may eventually siphon away the core fan base from a show. That’s a grave risk for media companies. For broadcasters in particular: you need to get into creating and managing social media apps that engage audiences because your future is as a content retailer. Don’t let those eyeballs be siphoned away by a startup venture.

Distribution control is always the first thing to erode in the digital media. We saw an amazing breakthrough just a week ago: Bram Cohen who created the BitTorrent peer to peer file sharing software came out with a new thing called BitTorrent Live. And this new product allows companies to use peer-to-peer technology for live video streaming and I might point out that this is not the peer to peer file sharing that we consider kind of evil. That’s downloading. This new development is about streaming live video.


BitTorrent is using peer-to-peer which is by far the most efficient architecture for distributing big files and they now are using it for streaming live video. I know a good deal about this problem because I supervised the buildout of a giant platform for streaming live video programming to audiences in the hundreds of thousands: it’s an incredibly expensive undertaking and you have to buy huge amounts of bandwidth. This BitTorrent Live Streaming is actually a great breakthrough that will serve media companies as well as startup companies that wish to stream live programs to a huge audience. It will knock out more than half of the cost of getting content distributed. So this is actually quite powerful, but by its very nature it is democratizing because it does weaken the grip of distributors on content by making this type of distribution accessible to anyone.

Social discovery is a theme that I’ve mentioned a few times already, so let me get a little more deep into that topic because I think it’s very important this is how people are going to be talking about content and finding in the future. Social discovery is about how people find content in a world of overchoice.

We all know about the social graph. You’ve probably heard a lot about the social graph. It turns out that we have a lot of friends in common, far more than we might imagine because every friend is connected to another circle of friends. And through our friends’ network you’re connected to more and more people, sometimes people that you might not even know personally. Friends of friends of friends and so forth. And through that chain of friendship we start to discover new types of content that might be appealing to us. And so we talk about a social graph but there’s also a related interest graph. The social graph you’re probably familiar with from Facebook. That’s your friend network.

But the interest graph might be better characterized as the kind of chatter you’d see on Twitter. The interest graph refers not to people but to the topics and themes you are interested in. When you use a hash tag on Twitter you’re telling the network a little bit about what you’re interested in. At giant scale, this is a pretty powerful signal. So, in this diagram, the interest graph represents the full spectrum of content topics and themes and subjects that we each like to talk about.

Now these two things aren’t split apart. They are two parts of the same whole, they comprise two halves of your digital identity and they are connected by a continuum of communications and connections tools that allow us to influence one another and thereby drive consumption. It’s essential for any media company today to be aware of the dynamics of the social graph and the interest graph. You need to be aware of it because this is how your audience is finding your content and referring it and talking about it to their friends.

What happens when we bring this to advertisers is it allows us to do something radically different than we’ve done before. We can target individuals based on exactly what they are interested in, exactly while they are talking about it and thinking about it.

That’s new and different. You see, in most mass media that depend on advertising sales, content has traditionally been sold as a proxy for audience.

Let’s suppose that an advertiser wants to reach a man in his mid thirties. In the past, if an advertiser wanted to reach men of this age group, then they would typically turn to a big media company like a newspaper publisher who would say, “Well, great, we’ve got a sports section, a finance section, an auto section, and a section on digital gear. And if you buy advertising in those sections, you will reach men, because that’s where men are.” So that’s how content has been packaged and sold in the past: as a proxy or a stand-in for the actual audience that an advertiser wants to reach. It’s approximate, it’s rough, it’s not verified and it’s hard to tell whom the ad is actually reaching.

What happens today in digital two-way networks is that you can target with much greater precision. So, today, if an advertiser wants to reach males we can get much more granular. Let’s say that the advertiser really wants to connect with a 36 year old male who happens to be interested in kayaking, hiking, biking, yoga and is currently considering travel to Nepal. In a two-way network, you can reach customers who fit that profile in real time no matter what content they’re looking at. And you can now dynamically insert an ad that’s targeted for that precise audience and reach them in a verifiable way. It’s a much more precise ad spend, and it yields much more effective click through rates. The influence of such messages is much greater when you’re able to target a message with precision to an audience that really wants it.

Until this point such precise targeting and dynamic ad insertion hasn’t been available in television, but I believe its coming soon.

WordPress doesn’t support long texts, so I’ve broken the transcript into two halves. To read the second half, click here.

You can also watch my previous speech at PrimeTime 2011, “Coercion and Cooperation in the Second Century of Electronic Media“. This version of the speech was recorded in Sydney, Australia at the Digital Directions summit in 2011.