Streaming, streaming, streaming.  The traditional TV business model is dead.  The future is streaming.

If you work in media, frankly even if you don’t, it’s been impossible to avoid talk about how the pandemic finally put the final nail in traditional TV’s coffin.  The future belongs to Netflix and the “pluses” – Disney+, Paramount+, etc. 

And in many ways, it’s true.  Netflix reinvented how we watch TV by being the first company to build a direct-to-consumer global streaming business.  They’ve acquired a massive loyal consumer base through an impressive combination of amazing content, innovative technology, global distribution, affordable pricing and a customer centric approach. 

Netflix’s success is unquestionably the primary reason why media companies large and small have been racing to scale their own streaming strategies.  For many Discovery’s announcement of the purchase of Warner Media from AT&T is seen as further validation of this conventional wisdom.  Much of the analysis of the deal has centered on how it arms the new Discovery/Warner Media to compete in the SVOD space and move beyond the decaying traditional model.

But I see it differently.  Last week was the week that traditional TV struck back.  For years traditional TV was seen as miles behind Neflix and the other pure play SVOD services.  No more, there’s been a lead change in this race.  

To me, the Discovery/Warner Media deal validated a fundamental truth about the business that dates to the last century.  It is a simple truth that the “Netflix killed traditional TV” crowd seem to have forgotten:  getting paid twice, or more, for the same product is better than getting paid once. 

Almost all of Netflix’s revenue comes from subscription fees from their enviable 200+ million customer base.  They don’t accept advertising, outside of a few product placement deals.  Nor do they license their content to other platforms, again with a few exceptions.

On the other hand, Discovery/Warner Media gets paid multiple times for their content: by traditional television distributors, advertisers, consumers and other platforms that buy content from its studio.  Same with Disney and Viacom. (Although much of Disney’s traditional business centers around sports, which is a topic for another time.)

I realize traditional TV is eroding quickly as people cut the cord.  Viewership is unquestionably moving to other platforms, a trend that shows no signs of changing.  But there is a bottom to this decline, and it’s far from zero, as I’ve written previously.  For at least the next decade, if not longer, traditional TV will have a sizable customer base.  Granted it will be older, but it’s massive spending power and susceptibility to advertising will make this audience impossible to ignore.

Discovery/Warner Media, Disney and the other networks will continue to generate billions in revenue through distribution fees and advertisers from the traditional TV model for years to come.  It may not be the sexy part of the business nor be the most consumer friendly, but if I’m an investor that kind of revenue sounds pretty good to me.

Fifteen years ago traditional broadcasters realized the superiority of getting paid twice.  CBS, NBC and the others resurrected their businesses through aggressively negotiating higher retransmission fees from distributors.

I think last week’s news puts Netflix at a similar crossroads.  Will they eventually take advertising?  Will they attempt to monetize their viewing data?  Will they more aggressively to license their original productions to other platforms?  Will they, God forbid, expand into linear distribution and become a channel on other platforms?  The fate of the company and the much of the future direction of the industry hinges on how Netflix addresses these questions.

Netflix remains an amazing success story and formidable competitor. But the narrative that their business model, even with their global scale, is superior to those of the more traditional players rings hollow.  Especially as the networks and studios consolidate to compete.  Eventually investors will punish Netflix if they don’t adopt a more traditional model, which means finding ways to get paid more than once for the same product. 

Of course, all of this is open to debate.  But one thing is for certain:  TV isn’t going anywhere.