Online Extra: Q&A With Deloitte's Tony Kern

Cable World, August 8, 2005

In this extended interview, Tony Kern talks about how cable networks can adapt to audience fragmentation.

By Shirley Brady

Change or die. That's what Deloitte warns TV networks in the report, "Television Networks in the 21st Century: Critical Mass in a Fragmenting World." The study outlines a new network business model that applies to the coming era of platform-agnostic video content. We asked Tony Kern, deputy managing principal of Deloitte's U.S. technology, media and telecommunications group, what cable networks should do.

CableWORLD: What prompted this report?

Tony Kern: We've done a couple of reports around fragmentation and this one zooms in on the more historic or traditional television networks. This is written from a global perspective, so it's getting a mixed reaction in the U.S. because a lot of our media and entertainment companies which own TV networks are working on the issue and they know about the issue. In other parts of the world, it's completely different because you don't have the big media conglomerates necessarily. So this is a global perspective, but it holds true for the historic operation of broadcast networks, for which the viewing audience has been declining over time, advertising is up and down and the revenue trend is down for the pure networks themselves.

CW: Nobody's saying "I must watch NBC or CBS or ABC tonight," although they will bookmark broadcast series like Desperate Housewives, CSI, etc. However, viewers will gravitate towards cable network brands--ESPN, HBO, CNN, MTV, etc.--more than the broadcast networks. Does that mean they're not as high on the extinction list?

Kern: That's the fragmentation that I'm talking about and that everyone's dealing with. You know what you're getting on MTV, ESPN, Lifetime, yet viewers aren't sure what they're going to get on the big broadcast networks, other than perhaps quality programming and news. They're not thinking about them specifically for a particular genre.

CW: Aren't cable networks challenged by fragmentation of devices and platforms, with television content migrating away from the TV set?

Kern: Yes, because the way you receive media, entertainment and any kind of content is changing. There are so many platforms today--even within the house with all these different devices, we've got tremendous fragmentation, and that creates a big fragmented audience. The mass audience is becoming masses of audiences. It's hard to capture them all for a single event with time shifting and everything else that's going on. That requires a fragmentation in content, and you have to be able to slice it and deliver it in a whole lot of traditional ways. But historic broadcast networks are not designed to do that, although they're owned by companies that are designed to do that.

CW: Do you also define fragmentation as cable networks that have spun off smaller networks tied to the core brand?

Kern: Look at Discovery, which has basically multicasted itself into a handful of different Discovery channels, like the Military Channel. So Discovery is moving down that path, and within that path it will fragment again over time. At some point it will probably stop breaking down, but the issue is, how do you reach everybody?

CW: How can networks figure out the answer?

Kern: What we're telling our clients is you need to look way into the future at devices, and we've been recommending tours of Silicon Valley just to get a future view of things that people are working on. I'll be 50 this year, my daughters are in their early 20s, but you have to look younger: There's a group of 7- to 14-year-olds that are consuming media content and games voraciously, the appetite is huge. They're dealing with all this in a completely different way than I deal with it, or my daughters deal with it. So you have to look forward to technology and back through the generations. You can't draw a straight line between the two, but there is a line between the two giving an indication of where you need to head if you're a media company.

CW: That younger generation also doesn't have the baggage that older viewers who grew up with these TV brands might. I'm sure most 13-year-olds today don't realize that MTV stands for Music Television and that it was once all videos all the time.

Kern: Right. You probably remember what MTV looked like when it first launched, and how unique a music video was.

CW: And now music videos are some of the hottest content on some of these other platforms, such as on demand, online and no doubt soon on your iPod. So content is still king, because that's what creates the stickiness, but a device or platform is only a dumb pipe that needs cool content and applications that will drive consumers there. With TV networks at this inflection point right now, the smart ones should already be redefining themselves as not just a linear network--even while they must keep investing in new programs and new content?

Kern: They have to think about at what point do they dial down the old network model. At some point--and I'm not sure when it is, but it's not now-- that linear model won't work at all in terms of whether it can deliver an audience and whether they'll be able to attract advertising. The smart companies in the U.S. are the big media companies, and they already know this, and they are working on a handful of different distribution models. But I couldn't agree with you more. I think content is king, queen, prince--it is everything. But it's sitting in a castle by itself if you can't deliver it in a whole handful of different ways on a whole lot of different platforms.