Will Internet-Television be American?

Eli Noam

As broadband–Internet spreads around the world, television distribution over the new medium moves from of experimentation to a commercial possibility. The question then arises whether this medium, too, will be dominated by American firms, as film and TV content have been. Will TV over the Internet be American?

For several centuries, culture had flowed largely in one direction: out of Europe, and to the colonies and the rest of the world. Then, after World War I, the flow reversed direction for the young medium of film. Around the world, audiences flocked to Hollywood movies. European cultural elites, shocked at the loss of control over their publics advocated protection. But despite seven decades of efforts, this challenge remained. For 2002, of the 50 highest grossing films worldwide, none were non-American.

The new medium of broadcast television helped for a while to maintain national cultural policies, because television, in contrast to film, could be controlled through monopoly public broadcast institutions. But this system broke down in the ‘80s, and the newly private airwaves and cableways soon filled with even more of Hollywood. Of course, there was also more domestic production of TV programs in each country, when domestic themes and actors attract viewers. Some program ideas were also copied in the opposite direction. But on the whole, commercial TV has been much more American-style in content than public TV.

And now, television over the Internet is knocking, and the question is what will enter when the door is opened.

The knee jerk response to this question has been to invoke defensiveness and denial. The Internet community, staunchly internationalist and multi-cultural by outlook and background, does not want to face the very question whether it contributes to the further ascendancy of American mass culture.

But what is the answer to that question? It is really the question of what type of TV will run over the Internet. For electronic media, transmission technology is destiny: it defines cost, content, and business models. What are the cost characteristics of content and distribution of Internet TV?

The costs of TV distribution over the Internet are more than 40 times as high than the distribution cost of a cable TV channel. The reason is that the individualization of the Internet requires significantly larger transmission resources than simultaneous broadcast-style transmission. A similar disadvantage exists relative to broadcast TV. Hence Internet-TV can function economically only as a premium medium. Several types of applications seem most likely.

1. Video on demand (VOD) delivery of films, at the very top of the distribution chain, right after movie theater distribution and maybe even ahead.
2. Interactivity and multimedia applications, i.e. using the medium in ways that cannot be done over regular, one-way TV.
3. Thin and specialized audiences that would not be served by synchronous TV
4. Office viewing

From the numbers it is quite clear that one would not want to use Internet TV for regular video content distribution. For that purpose, cable TV and its digital fiber variants will be much cheaper. Internet TV’s market is for applications that go beyond regular TV: interactivity, asynchronicity, linkages, multimedia, or driving access and spectrum.

To produce such content is expensive. The interactivity and multimedia aspect of the medium require additional features beyond straight video. It might be a bit like the video game Super Mario Brothers combined with the sitcom Friends and the reality show Survivor.

Hence, program cost of content that is not merely the replay of traditional video will not be lower than that of cable TV, and more likely higher. At the same time, it requires creativity, lots of programmers, and significant alpha and beta testing, and many new versions. Such expensive content exhibits strong economies of scale in content production and network distribution. Both favor providers that can come up with big budgets, can diversify risk, distribute also over other platforms, create tie-ins, and establish user communities.

This gives advantages to US firms. The U.S. has a large Internet community with entrepreneurial energy; big content producing companies with worldwide distribution and experience in reaching popular audiences; creative and technological talent from all over the world; efficient production clusters; strong computer and software industries. It also benefits from the advantages of the English language, the cultural prowess of being the world’s super-power, pro-competition policies, and a financial system that provides risk capital. Some of these factors are also available elsewhere, but nowhere in such combination.

Furthermore, the emerging insensitivity of transmission cost to distance mean that such content can be distributed worldwide; distance ceases to be a protection. Add to that economies of scale, and there is nothing on the horizon that can match it. And therefore, Internet TV will be strongly American. Participants from other countries will also be players, but most likely either domestically without much reach, or global players who will offer basically American-style content to the world.

Thus, there will be cultural and content losers. These losers will not sit still but invoke various public policy concerns, and this will inevitably lead to protectionist regulation. We should therefore be ready for cultural and trade wars over the TV of the future, Internet-TV.