Find an Inefficiency and Make It More Efficient

Hmm, I never posted part 3 from the Venetian. Oh well. Suffice it to say, Hero goes on a sick run and wins a rack in an hour after dinner, the end.

Lately I've been thinking about inefficiencies. (Long story.) One that really irks me -- and here is where I give a nod of the head to the legendary "real" Dawn Summers, not because she clued me in to it but because she mirrors my feelings on this issue -- is how the NFL broadcasts games.

Dawn is an unabashed bandwagon New England Patriots fan, the most vile kind of football fan there is. Yesterday she wanted to watch her team beat up on the Baltimore Ravens from the comforts of her high-rise apartment in Brooklyn on her 50" flat-panel television. But because she lives in NYC Dawn couldn't do that. Dawn was stuck watching whichever games the local CBS and FOX affiliates chose to broadcast (presumably the Giants-Kansas City game, the Jets-New Orleans games, and perhaps one other). She posted on twitter: "Dear NFL, that you haven't figured out a way to charge me some dollar amt so I could see Pats games from my NYC apt is #MAJORCAPITALISMFAIL"

Of course Dawn's not entirely accurate. If she really wanted to she could spend $300 to purchase the NFL Sunday Ticket -- assuming she first agrees to become a DirecTV subscriber -- which would give Dawn access to all the NFL games she wants. Including those of her beloved "Riots". But that's not efficient in any sense of the word. Dawn's not interested in watching Buffalo Bills games unless they're getting blown out by the Patriots. She wants to watch Patriots games and only Patriots games.

The problem is that the NFL is using a business model from 40 years ago, when the US population was not nearly as mobile as it is today. Back then, if you were born in New Jersey you probably died in New Jersey or somewhere close by. Thus the NFL didn't have to worry about catering to out-of-market fans -- they were a very small segment of NFL fans that could effectively be ignored. Instead the NFL and its teams could set up agreements with major networks and their local television affiliates to broadcast the games in local areas only with the provision in some markets that the games could be blacked-out if the game wasn't sold out.

Fast forward 40 years. How many people do you know that have spent all of their lives in one location? I grew up in New Jersey, but: my parents moved to South Carolina; one brother is in South Carolina; another is in Colorado; I'm in Las Vegas and my sister is in Connecticut. People don't stay in their "home" regions anymore, but fans are made when people are young. Why should anyone be forced to change their allegiance to a local team just because they move?

You can also add fantasy football to this mix. The explosion in the ranks of fantasy football players in the last five years (thanks, internet!) has made football fans much more interested in watching out-of-market games so that they can see how their fantasy players are performing. Except those fans are limited to whatever games their local affiliates have chosen to broadcast that week.

Enter the internet to fill the out-of-market game void. Every Sunday enterprising individuals set up streams of football games on the internet, supported by ads, so that out-of-market fans can watch the games they want to watch. And every Sunday many of those streams are shut down -- either by site operators, internet access providers, local television affiliates or the NFL itself -- for copyright violation. The NFL and the networks have to spend their time damming these streams because they're locked into contracts and business models that are no longer relevant in a mobile, digital world.

Inefficiency No. 2 for the day -- television again. Today's L.A. Times features a story entitled "Will Hulu make you pay to watch?". The authors of the article buried the lede a bit so let me quote the relevant portion for this discussion:

Comcast is in talks with NBC Universal about pooling their entertainment assets into a new company that would own 30% of Hulu in addition to the NBC network and cable channels such as Bravo, E! and Syfy. Comcast would control the new entity and possibly have the clout to push Hulu to begin charging for access to some of its most popular shows

It's another flavor of the NFL problem. Comcast is upset because the inefficiency of their business model -- charging a subscriber a monthly fee for access to a package of channels and the shows thereon -- is being challenged by Hulu's model of letting viewers watch only what they want to watch, ad-supported.

You can have ALL of the shows (games) if you pay $100 / month. But you can't pick and choose which shows (games) you want. So along comes someone who figures out how to give people what they really want -- the freedom of choice to watch only what they want to watch, supported by ads -- and the reaction of the establishment is predictable: buy out (shut down) the offender and ram the inefficient business model down people's throats.

My first day in my Real Property class in law school, my professor described property rights as a bundle of sticks. Individual sticks could be distributed out to different people on different terms. Television, it seems, wants viewers to buy the whole bundle of sticks even if those viewers are only interested in one or two sticks. Television learned nothing from the travails of the music industry over the last ten years. But if history and the success of the iTunes store are any guide, television won't be able to hold back the tide for long. Its business models are about to undergo radical change, like it or not.