Nick Bilton recently wrote a piece in the NY Times about the HBO hit series, Game of Thrones. In summary, his friends advised him to watch the series and since he had “cut the cord” with his cable provider two years ago, he downloaded the first season from iTunes. He was quickly hooked and discovered, to his dismay, that the second season was only available on HBO GO and only if you are a cable subscriber. Apparently many people had a similar experience which prompted one enterprising web designer to build a website called, “Take My Money HBO”.

This story perfectly encapsulates what we at DEV have been saying for the last year about the state of the TV industry. Sure there is innovation within the cable and broadcast industry but much of it is centered on defending the existing business model. There is no better example of this than “authentication” which is the pay television industry’s way of trying to exclude content from non-subscribers. Here is a quick history.

Cable networks have traditionally worked through MSO’s (Multi System Operators) and satellite providers who aggregate their channels and distribute them to consumers. As high speed broadband penetration increased (also mostly provided by cable operators), cable networks such as the History Channel began offering consumers the ability to stream replays of their shows directly from their websites. This was great for the consumer because it meant they could watch their favorite shows at their convenience if they missed the original television airing. It was good for the network because it allowed them to touch the consumer directly, promote their shows and their network brand, and deliver incremental advertising impressions.

It was not so good for the MSO. It leapfrogged their role as intermediary between programmer and consumer. The cable operators have enormous leverage since they pay billions of dollars in programming fees to the networks every year and they decided to use it. They mandated in their contracts that programmers could only make a minimal amount of their shows available through on-demand streaming in a non-HD format for promotional purposes. To access and stream a comprehensive selection, the consumer would have to “authenticate” that they were a subscriber to the local cable system. As a consequence, the comprehensive selection of shows previously available to the general public on network websites quickly disappeared. It also created the odd situation where thousands of people like Nick Bilton want to give HBO money to watch Game of Thrones, but can’t.

HBO GO, like most of the original programming on its network, is an elegant well-executed product. It takes advantage of new technology to make viewing HBO shows more convenient. But fundamentally it is a defensive innovation. It is designed to reinforce and protect an old business model that relies on an intermediary to aggregate and sell large bundles of channels to television households. It is hard to see how this is sustainable in the long term but with so much revenue at stake, the logic of defensive innovation is undeniable.

That is why we have to look to the new ventures that are forming outside of traditional media companies to drive true innovation in television. They have nothing to protect and therefore, nothing to lose. They can build truly new business models, programming concepts and distribution methods without keeping an eye on the rearview mirror. DEV was specifically formed to nurture this kind of innovation in New York, which we believe will be the epicenter of transformation in the television industry.

In a future post - Sports Socialists: Why the Tea Party Should Hate ESPN - I will talk more about a key element of this transformation.

-   Alan McGlade is the Managing Director of DEV. He was formerly the CEO of a cable network and an MSO executive.