The Data Show: #NBCFail, or What Happens When an Industry Faces Digital Disruption

A major criticism by the #NBCFail folks has centered on topics ranging from showing only American competitors, to endless and annoying human interest stories, from snarky banter with condescending hosts, to strangely jingoistic flag-waving commentary. I must say I agree that it’s generally been an unpleasant experience. But, beyond poor coverage itself, NBC has also been taking a ton of flack for its new media “strategy”—if you can call it that—that includes no live streaming content on the Web. They have an App with some live coverage, but it’s only available to those with an active paid cable subscription that includes NBC already.

Now of course many in the industry have rushed to NBC’s defense. In his recent article in Ad Age “The Truth About #NBCFail,” Simon Dumenco states quite correctly that “NBC is not a charity.” He then goes on to explain that NBC paid about $1.2 billion for the rights to broadcast the games. That’s a lot of greenbacks. Dumenco’s point is that because NBC is not listed as a 501c3 (non-profit) organization, it has every right to run in the Olympics in a manner it sees fit in order to recoup and hopefully make a profit on its hefty investment. Fair enough.

While on one hand I tend to agree with some of the points made by Dumenco and other critics of #NBCFail, on the other I really do feel that NBC has completely bungled its new media strategy. Like it or not, NBC must accept the fact that its monopoly on broadcast content has been disrupted by the emergence of new technologies, most notably the Internet and the DVR. Instead of creating a business model that leverages and monetizes on this new reality, they’ve instead tried to ram an old business model down the throats of consumers across the U.S., essentially missing the forest for the trees. As a result, they’ve pissed off millions of people, devaluing their brand in the process.

This is eerily reminiscent of what happened to the recording industry a little more than a decade ago. Remember Tower Records? Sam Goody? Virgin Megastores? All gone. And I could continue and list off dozens. Well, guess what happened? The world changed and the recording industry lost its monopoly on distribution of its primary product. What was their master plan? Suing Napster. And all that accomplished was putting off the inevitable by a couple years at most. Today, all the old players are gone and iTunes is the world’s largest retailer of music worldwide, and has been since 2009. The craziest part is that it was only launched by Apple in 2001. It happened so fast.

Well, why was Apple, a company with no experience selling music, able to swoop in and within a few years totally dominate a legacy industry, displacing existing firms? Two words: Disruption and Innovation. Disruption caused by the emergence of new technology—namely, the Internet as a means of Distribution—enabling firms with the best new ideas to unleash Innovation on an industry ripe for transformation.

NBC and the other legacy broadcast networks are now facing similar dilemma. With the emergence of the Internet as a viable distribution channel for broadcast media, their monopoly is over. Don’t like NBC’s coverage? Well, all you need to do is locate a proxy and you can watch awesome uninterrupted streaming coverage on BBC, or China’s national network CCTV, among many others. And as if this ignominy weren’t enough, Digital Video Recording (DVR) boxes in most homes mean that almost no one is watching commercials anymore. Sure, NBC can crow about its impressive ratings while it blacks out live coverage and force millions of people to watch their broadcast in primetime. But how many of these people are tape-delaying coverage by an hour and skipping the ads? Way more than they want the advertisers to think.

What this all means is that the landscape has radically changed for the networks, though they don’t seem to realize it. How long is it before most advertisers realize that the 30-second commercial is functionally obsolete? My guess is it can’t be too long. And when they do, guess what will happen? No more 30-second ads. That will mean a HUGE revenue stream dries up for the networks as the advertisers pull their campaigns en masse. In my estimation, because the networks seem completely unprepared, this shock will be even more devastating than the loss of classified ad revenues was for newspapers.

The only solution for networks, of course, is instead of fighting change and pissing off your customers with inane blackouts and insulting restrictions that don’t work, to be the harbinger of transformation and change instead of the victim. Can they do it? It’s certainly possible. Take, for example, this past year’s absolutely brilliant Final 4 strategy by CBS/NCAA. While the tournament was broadcast on regular TV by CBS without blackouts or restrictions, there was also an amazing App you could buy that offered uninterrupted access to all the games. Sure the App needed to be purchased—but the user experience was so awesome I sure didn’t mind ponying up a few bucks to install it on my iPad.

Experience after experience has shown in an effort to prevent cannibalization of their existing business model, legacy firms miss the forest for the trees and fail to innovate in time, allowing new competitors to swoop in and change the rules of the game for them. By that time, of course, it’s way too late and they’re toast. Ask Kodak about digital photography. Bet they now wish they had started the transformation to digital a few years earlier, don’t they? Or ask Borders about eBooks? I could go on and on …

So, do you think the networks will figure it out? Let me know in your comments.

—Rio