It may be an entertainment company CEO's worst nightmare: waking up, looking in the mirror and seeing a music-company CEO.
That day may be here sooner than anyone in Hollywood would want to believe. Straws in the wind in recent weeks suggest that the recession may be accelerating a structural change toward free or low-cost Web video
-- either television or movies -- and away from traditional delivery methods, such as cable TV or DVDs.
Time Warner Cable CEO Glenn Britt on Wednesday warned that with more TV content being put on the Web, "we are starting to see the beginnings of cord cutting where people, particularly young people, are saying, 'All I need is broadband. I don't need video.'" Such a shift would endanger cable-network revenue, he said. But it would also eventually hurt the studios that supply the programming.
Meanwhile, Walt Disney CEO Robert Iger on Tuesday night had to explain a 64% drop in studio operating income in the December quarter caused by lower DVD sales. He said the DVD business may be suffering more than just a cyclical downturn. Increasing consumer choices, including videos available in many different outlets
, may have a long-term impact on the DVD business, he said.
last week said its "instant-watch" online service, which lets mail-order subscribers stream TV shows or movies, is being used in "ever greater numbers."
Major studios generate about 75% of their nearly $19 billion in annual U.S. feature-film revenue, post-theater, from sources like DVDs and TV sales, estimates Adams Media Research. Cable networks often generate more than half of their revenue from fees paid by cable and satellite operators. Both these pots of money are at risk.
Admittedly, the media companies control the content and can choose to pull it back from the Web or to raise the price they charge online services for their content. But they also need to respond to consumers' demands, by putting more content online. After all, the music industry tried to hold back the online flood and was almost drowned in the process.
So how should the industry respond? By continuing to embrace the Web, rather than retreating. Some executives at Time Warner Cable have floated the idea of limiting access to online TV-network video only to those who subscribe to cable-TV video packages. So far, the idea hasn't gained momentum, which is fortunate. Given the amount of content already on the Web, it isn't likely to work.
Instead, the media companies need to rethink how they operate. Mr. Iger seems to have the right idea. He outlined plans to cut costs in Disney's home-video business and to be choosier about movies that get made.
What they can't do is ignore reality. To misquote Stephen Stills, there's something happening here and what it is, is increasingly clear.