Winners and Losers in TV's New App Economy (Guest Column)

As Apple leads the way, cable networks fade and geographic boundaries disappear, only shows with strong brands and social appeal (congrats, Jimmy Fallon and John Oliver!) will thrive.

This story first appeared in the Oct. 2 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

As novelist William Gibson once said, the future is already here; it's just not evenly distributed. Consider that in the U.S., revenue from the top 10 video streaming apps more than tripled during the year ending in July, driven by HBO Now, Netflix and Hulu. And in early September, Apple CEO Tim Cook made it official, proclaiming in support of the new (more app-friendly) Apple TV device that, "The future of TV is apps."

If the future of TV is indeed an app, who wins and who loses?

The Winners

From its inception, TV has been tied to geography. Broadcasters and channels emerged in specific cities and countries, each offering viewers different content (and paying for the right to deliver that content to a geographically defined audience). Today, cross-border availability of TV content remains the exception rather than the rule. But the presence of global app stores changes this equation, opening up competition to TV providers of all stripes from every corner of the globe. The result will be a winner-take-all TV economy in which the strongest brands become global superpowers while the mediocre die on the vine.

Today the winners would include HBO, Netflix and Disney, all of which have the scale to create their own flavors of big-budget blockbuster TV shows and market them in 100-plus countries. In addition, the best global sports leagues — including the English Premier League, the NBA and others — are entering a new golden age of broadband. ESPN and Discovery (following its acquisition of Eurosport) are forces as well. You can find kids and teens in every city on Earth wearing LeBron James and Lionel Messi jerseys — and for good reason. Why watch a second-tier domestic team when you can watch the best athletes in the world wherever you might be?

In terms of content discovery and dis­tribution, the big winners of an app-driven TV industry will be search (Google), social (Facebook, Twitter and Instagram) and the app stores (the "Big Four": Apple, Google, Microsoft and Amazon). Online advertising platforms like BrightRoll, LiveRail and AOL that can monetize all this new viewing should also do well. Shows with significant social reach like NBC's The Tonight Show Starring Jimmy Fallon and HBO's Last Week Tonight With John Oliver are well positioned to thrive as well.

Finally, TV-as-an-app benefits humans-as-brands. As Amazon's $250 million deal with ex-Top Gear host Jeremy Clarkson indicates, the future of TV will be defined by a barbell economy in which value accrues at the extremes. On one end are the search engines, app stores and social networks that drive discovery and distribution. At the other end are celebrities. Anyone famous, talented and attractive enough to sustain his or her own TV app is poised to do well in this new ecosystem. From Oprah to Beyonce, Donald Trump to Dr. Phil, celebrity increasingly will be untethered from the strictures of traditional media.

The Losers

The flip side of this coin is painful but equally apparent. In a world where the best brands and content are rewarded on a global scale, mediocrity becomes more difficult to sell. Legacy pay TV was designed as much for quantity (how do you fill 150 channels every day?) as for quality. Many cable shows (and their networks) simply are not compelling enough to compete in an economy where consumers must affirmatively download and use an app. This past year's double-digit declines in legacy linear ratings are proof that this is already happening.

Moreover, incumbent pay TV providers have benefited handsomely from their role as gatekeepers of video. Apps, by contrast, need only the app stores for distribution. Those are far more open and provide a much more favorable revenue share to the content provider than traditional distributors.

Apps and app stores also change the hardware business. Apps already have fundamentally altered the economics of the mobile phone industry, shifting the lion's share of profits to Apple (and, to a lesser extent, Google). As app-enabled devices take over the living room, legacy set-top-box manufacturers face the same bleak future that once-proud manufacturers of feature phones (e.g., Nokia) have had to confront over the past decade.

The future of TV is an app. The industry needs to come to terms with the changes this future portends. Some need to buckle their seat belts, as they are in for a rough ride.

Joel Espelien is a senior media analyst at The Diffusion Group.