The Entrenched Player Dilemma/Opportunity

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I’ve been paying a lot of attention to the signals NBC is giving to the market around their IPTV and social networking plans. Most of the other players have fallen into place – Fox with MySpace, CBS is in bed with YouTube, Viacom looks to be partnering with Tagworld, etc. Everyone except NBC is at least experimenting with online TV in other ways, too.

NBC seems to be choking, frozen like a deer in headlights. They were close to acquiring Tribe but backed out. A VP wrote a blog post about their strategy, admitting they were late to the game, and then deleted it. I imagine execs at NBC meeting regularly and screaming a lot for someone to just figure this out and do something.

So I was surprised yesterday to see NBC working closely with Netflix on their new streaming television and movie product. At least they are experimenting. But their mindset was displayed perfectly in a quote in the NYT article on Netflix, where a (different) NBC VP was quoted:

Frances Manfredi, senior vice president for cable distribution at NBC Universal, said her company wanted to provide video content “where consumers want it, when they want it, how they want it.” But, she added, “we really recognize that the traditional distribution businesses of cable and syndication are our primary businesses, certainly with respect to revenue generation.”

And that, frankly, is what it comes down to. “Feel free to experiment with this Internet stuff, Manfredi, but don’t do anything to hurt our bread and butter revenue streams.”

It’s what paralyzes entrenched companies with familiar revenue streams from changing, afraid to lose their “primary business”. Meanwhile, nimble startups come by, eat their lunch, and sell for $1.65 billion. If NBC was thinking straight, they’d be doing a lot more than experimenting with online TV. They’d be doing something as broad and ambitious as what Netflix is doing in the face of the ultimate demise of their DVD mailing business – spending most of their operating profit placing a very big and very smart bet on tomorrow’s world.

I don’t want to pick on just NBC, either. Another example – This is what’s holding Yahoo and Microsoft back from offering an email product that is as good as Gmail. They both have lots of customers that pay for extra storage and things like POP access. Offering a product as good as Gmail means walking away from that revenue. And it would take a bold executive to recommend to his or her superiors to kill a nice existing revenue stream and replace it with a free product just to gain market share.

For startups, this is a terrific and ongoing opportunity. It’s why Jingle can eat away at the entrenched 411 market, for example. And there are countless other opportunities as well. Just find an entrenched business. Then eat their lunch as they watch, paralyzed.

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