What Business Is This Anyway? Not One Size Fits All — HDTV Market Segmentation Editorial

by Dale Cripps
Thursday, May 7, 1998

Television, like the hotel business, is forever segmented from this point forward with quality, features, and corresponding price points being the dividers. Motel 6 is not competition to a five star hotel business nor is the five star stealing away business from Motel 6. Neither goes bust since they respect their niche with a service corresponding to demand and expectation.

The efficiencies taken into account by the five star hotel are a far different lot than those from Motel 6. There is simply no way out of this stratification of television markets in the future. There are those who continue to campaign for a lower-cost commonality that has many personalization features, i.e., two way information commanded by the individual consumer. They see this as an affordable entry point for higher things to come.

This consumer everyone is talking about is not one person having one taste in interactibity, program content, and visual and aurial quality, but rather groupings of customers catagorized upward and downward from the 5.4 billion people making up the world's population. Regardless of what percentage is grouped into each market category or segment, that segment IS a segment because it pays willingly for all costs and profit incentives for the catagory of service which fits its appetite.

I have always thought and repeatedly said that stuffing HDTV into the consumer business, as practiced by the networks, the stations, and the cable business today, is a like selling NEW champaign in OLD beer bottles. To think that there is not a profitable business to be built from serving a specific demand at a grade of picture quality is to not know other businesses. Certainly, the audio business is a kindred example. While there is some commonality, like the CD, you can buy a speaker for $10 or $10,000 that range from 8000 KHz to 21,000 KHz.

Has that fact, with its corresponding difference in performance (aurial pixels, if you like) destroyed the audio business? Hardly. The stratification has strengthened it. Other than commodities like water, electricity and, perhaps, gasoline there are not many businesses which depend on having one basic product category to serve all of the entire market. One correspondent talked earlier about Cadillacs being little more than bait to sell Chevys. This correspondent wants the opening market for DTV to serve the widest possible tastes at the lowest possible price. That immediately compromises quality. That's fine for the Chevy demand. But where does that leave the Cadillac buyer?

All this talk for one size and format fits all comes most from those who typically wave their arms about new paradigms but they are locked themselves securely in the old paradigms, i.e., that television and broadcasting is a one-size-fits-all egalitarian business. Make it conform to my view! they say. The whole idea of mastering film to the higest achievable quality shows that there is some inherent recognition of this inevitable stratification, at least in some quarters. The idea of mastering digital audio to the heighest is another example.

So, why this huge fight over which delivery format should prevail? Is it because "you" want to be in what more accuratly is somebody else's business (which could be "your" new business if only you would look for the opportunity)? Aren't we talking about distribution quality options that are, indeed, market segmentors? Why must we argue over interlace or progressive or 480I & P, 720P and 1080i when they each have their own market followers?

It can't be that there is some economies of scale at stake? Each can have their respective markets with whatever they want at their price points without penalizing anyone else. Once past a certain point there is little to gain by adding still more quantity, especially if that quanity is the result of eleminating another product catagory. Talk to manufacturers and you come to realize that there is a time when economies of scale has reached its inherent limit for saving money just from quantity alone. What is most important in manufacturing efficiency is good tooling (part of the economies of scale, for sure), competitive labor, and the matching of manufacturing capacity to that of the demand. You cannot build one huge plant for all demand anyway, but rather numerous ones, each having a production sweet spot, or factory harmonic where efficiency is highest. Everyone knows that so-called "full capacity" is a pain. You want each plant to operate at the sweet spot. In some cases volume can drive prices up because you are forced out of that sweet spot to keep the pipe full. You wind up needing to build more buildings, tooling, and suffer from inefficient hiring and training for just modest quantity gains.

I have heard so much about the marketplace being given the chance to decide on formats by those same people trying to make that decision for the market. John Malone is just the last in this long list of free marketers not being free marketers. But he is a rank amateur in contrast to the Feds, who have fully mandated the change to digital broadcasting as quid-pro-quo for granting spectrum that was liberated by the DTV development in the first place. So, the "market deciding" is now a combination of a mandates from the Feds and manipulations from distributors, mixed with empirical decisions from old broadcast networks who still have not a clue as to how they will profit from a change they never wanted in the first place. What the hell happened to entrepreneurial vigor that takes up a new product and finds the most efficient means of its distribution, and gives a big hug to their totally new market that is drawn to the brand new product? Bill Schreiber (MIT, Retired) said to me in an Email not long ago, perhaps with other reasons in mind, that the roll out of HDTV is going to be a disaster. It already is.

Wake up entrprenuers. Your time has come, and it too can pass.

Dale Cripps
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