Notes by Nero Okwa
Published in

Notes by Nero Okwa

#39. The Streaming Wars. Part 5: A Brief History of TV

Source: Collider.com

Announcement: Despite stiff competition, Netflix Q3 results show gains of over 2 million subscribers. Disney shares sank by 13.16% (lowest in over 2years) due to higher than expected losses. As a result, Disney’s CEO Bob Chapek has been replaced with his predecessor, the legendary Bob Iger.

Dear Readers,

I’ve been on a long hiatus researching for this and other pieces, and I am ready and eager to get stuck in.

Welcome to the 5th article in The Streaming Wars series. You can catch up with past articles: Part 1, Part 2, Part 3, Part 4.

This series is based on Netflix and its evolution from DVD mailing service to global streaming giant with over 212 million global subscribers, and the fierce competitions (with Blockbuster and other players) it had to overcome on the way to global success.

The goal of this series is to provide practical steps and lessons from Netflix and its battles, with which you too can apply and succeed.

Today, we would consider the history of the TV industry. This would set the scenes for the ongoing battles between Netflix and Hollywood. We would examine the Key Players, Enabling Technologies, and Regulations. Let’s jump right in.

Table of Content

Evolution of the TV Industry 1930s — 90s

Source

The 1930s — 1950s were regarded as the golden age of movies.

During the 1930s, iconic movies like Snow White and the Seven Dwarves, Gone with the Wind, and The Wizard of Oz were produced.

This era was dominated by “The Big Five” movie studios: Twentieth Century Fox Film Corporation, Warner Bros. Inc, RKO Pictures, Metro-Goldwyn-Mayer Studios Inc, and Paramount Pictures.

To strengthen their reach beyond creating movies, these studios acquired movie theatres where movies were seen, creating an oligopoly. Together they controlled 70 per cent of first-run movie theatres in 92 cities.

In the 1940s, the major studios had a questionable practice called Block booking. This was a system of selling multiple films (up to a 104) as a block to a theatre. They would bundle their A-class films with other B-rated films, and sell them to theatres they didn’t own. These theatres were forced to buy movies they hadn’t seen (blind bidding).

It was economical for the studios because they could spread their production and distribution cost. This monopolistic practice was eventually outlawed by the U.S. Supreme Court’s decision in United States v. Paramount Pictures, Inc. (1948), who also insisted the studios had to divest their Theatre chains. By 1948 Cable TV was introduced to the market (more on this later) as a subscription-based service.

As the 1950s drew to a close (or the end of the golden age of television), [1]90 percent of households owned a TV, with ad-supported programming provided by 3 major networks: National Broadcasting Company (NBC), American Broadcasting Company (ABC), and Columbia Broadcasting System (CBS). Programming was transmitted through terrestrial radio waves at no charge. The enabling technology was the invention of the magnetic tape which could store audio and video for real-time transmission.

By the 1960s, cable companies had expanded their reach to 3.6 million US households.

The 1970s saw several breakthroughs in the industry. Firstly, the videocassette recorder (VCR) was introduced (1975) which allowed households record and watch movies copied to Video Home System (VHS) tapes. This had an average price between $1,000 — $1,400.

Secondly, the first video rental store opened in Los Angeles (1977). Thirdly, Home Box Office (HBO) was founded in 1972 as the first satellite-delivered national cable premium channel pay television service provided to subscribers for an extra monthly fee. As a premium service, it did not show traditional advertising.

HBO provided a blueprint for other networks such as Viacom Inc’s Showtime (1978), and The Movie Channel (1979). Also, Entertainment and Sports Programming Network (ESPN) was founded in 1979 as a cable sports channel.

During the 1980s, the average price of a VCR dropped to below $400. There were over 70,000 movie rental stores in the US. These 2 factors drove the distribution, and consumption of more movies. Also, Cable News Network (CNN) was founded in 1980 as the first all-news cable channel.

Ted Turner, Founder of CNN. Source

By the 1990s, cable companies received significant competition in the pay-TV market from direct-broadcast satellite (DBS) providers, because satellite dishes were smaller in size.

This was enabled by the Federal Communication Commission (FCC) lifting its ban on the transmission of local broadcast channels. Digital versatile Disc (DVDs) began to go mainstream with movie distributors because they had higher audio and video quality than VHS tapes. Their smaller relative size also made them cheaper to ship.

By 1997, 37 percent of US homes owned a computer, and 18 percent had access to the internet. Then on April 1998, Netflix was born.

The Cable Entrepreneur, and The First Cable Network

Source

The story of the cable industry begins with one man, Robert J. Tarlton in 1932. He went from owning a radio repair shop, to building the first widely publicized commercial cable television system in the United States.

In 1938, Robert started his radio shop after high school with his dad, repairing and selling radios. He then volunteered to fight in World War II, and was assigned as a radio repairman, repairing radios all across Europe. This was fortuitous because he was able to learned not only about radio reception but also transmission.

After the war, he returned to his shop which was then managed by his father. As a (sales and service) dealer for Motorola which made car radios at the time, Robert’s big break came when Motorola decided to get into televisions. Also, an experimental TV station, The Philadelphia broadcast station began with 1 channel.

He realised installing more antennas in homes in Lansford to pick up signals from Philadelphia broadcast stations, would lead to more TV sales. To drive this, in 1950 he organized a group of fellow television set and electronic retailers to build the first commercial cable system, which was offered to home for a fee.

This sparked cable system construction throughout the United States, and people were hungry for televisions. In 1952, Robert would work for a company called Jerrold Electronics, which was focused on creating the equipment for cities to replicate Robert’s cable network at Lansford. Robert would lead several of these installations across the United States.

Around this time satellite technology was developed, which meant cable systems could receive signals reliably, and from further away. This same satellite technology would lead to the creation of the national TV stations like HBO (as mentioned earlier), WTCG, and CNN.

Ben Thompson, the Tech analyst, writer, and strategist at Stratechery, excellently summaries why the cable business is so valuable in this article:

With the replication of community cable networks across the United States would come consolidation. One of the networks that was built by Jerrold Electronics and sold to an entrepreneur named Ralph Roberts, would be expanded by him and consolidated with other networks to form Comcast Corporation.

Consolidation in cable networks occurred at the same time of consolidation of the production of TV content(studios) providing a potential symbiotic relationship:

As consolidation occurred in both groups, the few players left (across the cable companies and studios) had significant negotiating power to deal and transact with the other group.

At the end, there were few dominant content companies (Viacom, Disney, Time Warner, NBC Universal, Fox) and few dominant cable companies (Comcast, Cox, Charter, Altice, Mediacom).

This was the state of the industry before the appearance of Netflix, and terms like ‘cord cutting’ (when a person switches from cable TV to an internet streaming service like Netflix).

Source: wbur.org

Luckily cable companies had one last trump card: the same cables that were used to provide cable TV could also be used to provide home internet, and telephone services to customers. This not only provided another source of revenue for cable companies, but also enabled them compete with streaming companies in the interim, by bundling their pay TV, telephone, and internet services together in a package for customers.

Summary and Business Model: 1930s — 1990s

We’ve seen how the movie industry evolved from the 5 big Hollywood studios who owned both the production and distribution of movies, to ad-supported cable networks enabled by cable companies, to the invention and proliferation of VHS tapes and movie rental stores, to the first satellite delivered subscription channel: HBO, and finally DVDs which provided better quality and were cheaper to transport.

We have also seen how cable companies evolved from community networks, to national satellite TV stations, to consolidated groups and internet service providers.

Business Models

These 2 sets of companies (content producers and cable network) were responsible for content creation, production, packaging (as TV channels), marketing and distribution to customers.

This has led to 2 different business models based on rent on content delivered, and charging advertisers.

Conclusion

Today we have considered the history of the television industry from the perspective of content creators (the studios) and the cable companies.

This industry was enabled by new technologies (the magnetic tape, cable, satellite, VHS, and CD), govt. policies, and the right business models, which fostered competition and led to a few consolidated key players in each group.

This all sets the scene for internet distribution, the emergence of Netflix, and hence the Streaming Wars.

Does Netflix have what it takes to overcome the incumbents?We shall see.

If you think this is the end of the Streaming Wars, think again.

Bye for now.

Thanks for reading.

Share

You can catch up with the past articles in this series: Part 1, Part 2, Part 3, and Part 4. I previously did a strategic analysis on Netflix, you can also use this framework to analyse other companies.

If you are finding this newsletter valuable, consider sharing it with friends, or subscribing if you haven’t already.

Subscribe now

For any questions you can reach me at notesbynero@gmail.com or on LinkedIn, and Instagram.

Nero

Racing Towards Excellence.

References

  1. 1. [1] Kelly, M., & Swann, C. (2020). Netflix: Will Content be Enough? Ivey Publishing

2. https://stratechery.com/2022/cables-last-laugh/

3. The Cable Center: The Hauser Oral and Video History Collection with Robert Tarlton

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Nero Okwa

Entrepreneur, Product Manager and StoryTeller. In love with Business, Technology, Travel and Africa.