Harry called me today. He’s become a loyal viewer of Live Digital, my weekly television show, and he figured he’d email me and ask me if I could send him info about web marketing for his carpet and floor covering company. I wasn’t sure quite what to send him, so we set up a call.

After pleasantries were exchanged, Harry cut to the chase, “Can you get my website to the frontpage of Google?” Really, this is an exact quote. “… the frontpage of Google?” What Harry wanted was obvious, but his choice of words betrayed anything other than superficial knowledge of what he wanted from me.

To be polite, I suggested that before he did the SEO and SEM necessary to accomplish his goals on Google, he might want to think about what his business goals were. He told me that his website was created for him for free by a company that now wants to charge him money, but he thinks they are asking too much.

I told him I thought his website was worth exactly what he paid for it and suggested that he take it down and put up a nice splash page with some pictures of carpeting, the locations of his stores with links to Google maps and his phone number. Then he asked me, “Will that get me to the frontpage of Google?”

At this point I was fascinated with the conversation, so I went into my standard explanation about business goals like, selling more carpet and floor covering. I spoke about conversion metrics and how he might measure the success of his web marketing efforts. Driving foot traffic over the doors of his two retail locations, etc.

“How much will this cost?” asked Harry. I answered, “It won’t cost you anything, it will make you money.” Harry did not understand. We discussed the investment he would need to make in a comprehensive marketing plan for his business and spoke about workflow, execution and the differences between advertising, marketing, sales and public relations. After a ten-minute lesson in 21st century retail marketing, Harry asked me, “Will that get me to the frontpage of Google?”

Finally, I asked him how much he thought he should spend to create a website that would increase his business? “I don’t know,” he answered. “The one I have was free.”

When I reiterated that his free website was probably hurting his retail business rather than helping it, he asked me for some free suggestions that he could implement for free that would … yep, you guessed it … get him to the frontpage of Google.

This is a real conversation that actually took place, I’ve changed the owner’s name, but other than that, this is exactly how it went. Let’s review:

• A retailer with two doors, one in Manhattan and one in Brooklyn.
• A website that was created for him as a promotion by a template-using website company with the hopes that he would eventually pay.
• A business owner with absolutely no clue how advertising, marketing, sales and PR work in the 21st century for local retail businesses in his vertical.
• A business owner with zero aptitude and zero headcount to implement even the simplest technological solution.

This week, I have seen about 20 pitches from companies offering hyper-local and location-based solutions targeting local advertisers. Next week I will probably see 10 more. Hasn’t anyone spoken to Harry?

There is no incremental local retail advertising to be had. The money simply isn’t there. If a local company is big enough advertise, it is already doing it. If it is not big enough to advertise — there’s a reason. The myth of local advertising is that it exists at all. It simply does not.

There is no version of the world where Harry’s business is worth going after, or taking. He will require three times the amount of customer handholding that a customer three times his size would require. He will never spend enough to justify speaking to him. He will torture you for every dollar he is asked to spend, because of how hard he has to personally work to make the dollar in the first place. Harry is a real person with a real business … but he is not a growth opportunity for a technology-driven hyper-local advertising business. Harry is not a growth opportunity for anyone — not even for himself.

You can’t go door-to-door to find lots of Harrys. You can’t afford the customer service. You can’t expect him to use a dashboard without training. It will cost you so much money to acquire Harry as a customer, you could never get an ROI on the customer acquisition cost.

Next time someone brings you a new business model and talks about local advertising as the market, look up a local carpet and floor covering retailer with a couple of doors and $1.5 to $2 million in gross sales. Ask the proprietor about how you can help him, and don’t be surprised if he asks you if your technology can “get him on the frontpage of Google.”

Fox and Cablevision have been “negotiating” for the past few weeks about retransmission fees. Simply put, Fox wants Cablevision to pay them a small piece of your monthly cable bill for offering you the Fox Television Network. Just to be clear, both sides agree that Cablevision has to pay — the fight is about how much. And, not to put too fine a point on it, the stakes are huge because the money is huge.

If you’re a Cablevision customer, you may have noticed that Fox Television Network content is not currently available through your set-top box. Fox is using this as a negotiating tactic. They feel that if they deprive Cablevision customers of Fox content like the ALCS, football, Glee and other stuff, you will contact Cablevision and demand to have it back.

This is a very common tactic in the fight for retransmission fees and it rarely works. Customers do get mad, but they get mad at everybody, feel screwed by both parties and, in the end, it generally exacerbates the animus already felt by consumers towards big business. It also increases the anger associated with the “grudge payment” for television entertainment.

Television, a grudge payment? Of course it is. Just like gas, electric, telephone, rent, even milk. Any recurring payment you make for a good or service that you must have, that cannot be competitively differentiated and increases in cost without any increase in benefit, engenders a wide spectrum of negative emotions. Personally, I hate when my cable bill goes up for no reason — same programming, same horrible service, same sub-optimal set-top box, generally stupider programming, more ads, less interesting content … higher bill — the textbook definition of a grudge payment. But I digress.

This time, Fox did something truly remarkable. A unique bargaining tactic that I have not seen before … they blocked Cablevision customers from accessing Fox content online. They only did it for a few hours, because they did not have the technology to surgically apply the tactic. It failed because, while cutting off Cablevision television customers, they also cut off Cablevision Internet-only subscribers. And, in the final analysis, they also could not really cut off the exact people they were targeting.

Don’t let this tactical failure cloud the issue. Technology certainly exists to get this right. What I want to focus on is the strategic capability this failed negotiating tactic brings to light.

Attend the tale of two streams. One stream is free over-the-air television, repackaged and retransmitted over a closed system, for which you pay. The other is a completely free online stream which is geographically and temporally unrestricted in every way … or at least it was.

I have always thought that the TV industry was bipolar, and too strategically confused to be taken seriously. After all, they are a single revenue stream business (advertising supported), that benefits only by attracting as big an audience as possible, accurately measuring it and packaging it for sale to an advertiser. On the other hand (across the hall in most organizations), they are realizing that a single revenue stream business is not sustainable in the 21^st century and they are fighting for a dual revenue stream (advertising plus subscription fees) — all this while making a ton of its most valuable content available for free online with very little advertising support. Confused, strategically misguided and, on the border of insane.

Cable, by comparison, is a solid dual revenue stream business and they are feverishly working to deploy an authenticated streaming system that will virtually guarantee that if you don’t pay, you don’t watch.

Hummm ….

Here are some of the questions: If Fox can cut off online customers at will, who is in control? What is free content? What is net neutrality? What is Hulu? (Part owned by Fox) What is the difference between the coax cable that carries digital television signals to your home and the coax cable that carries Internet access to your home? (BTW: It’s the same cable.) What are consumers actually paying for? Who decides? Will consumers be made to pay twice? Will Fox charge ISP’s (Internet Service Providers, the companies that sell broadband access but do not sell content) for access to its shows and sporting events? What is a network?

As you can imagine everyone from “Joe Cablecustomer” to Representative Edward J. Markey, D. Mass to Gigi B. Sohn, president and co-founder of the public interest group Public Knowledge is weighing in on this. The Interweb is in Overtweet and people are angry, scared and confused.

I am reminded of a conversation between Commander Tagge and Admiral Motti which took place in the conference room on the Death Star during a debrief with Lord Vader and Governor Tarkin: The Commander said, “Until this battle station is fully operational, we are vulnerable. The Rebel Alliance is too well equipped, they’re more dangerous than you realize.” And Admiral Motti replied, “Dangerous to your Starfleet, Commander; not to this battle station.” Ahh … in Star Wars as in life. Where’s Julius Skywalker, Han Copps and 3-FCC-PO … and who are we going to get to play Yoda? We need the Jedi master because he will say, “No. Try not. Do … or do not. There is no try.” And, all kidding aside, we really have to get this one right.

I was moderating a Socratic discussion entitled, Digital 101: The Evolving Living Room at the recent Digital Sports Summit and I wanted to stir things up a bit, so I decided to ask my panel the wrong question, “Considering the amount of personal devices people are using to consume media, is there really a living room left to fight for?” Even though I asked the wrong question, Eric Anderson, VP of Content and Product Solutions, Samsung had the right answer, “We’re not fighting for the living room, we’re fighting for the account.”

Fasten your seatbelts; this is going to get rough.

According to Mr. Anderson, Samsung, makers of exceptional consumer electronics, will sell over 8.5 million Internet connectible flat screen television sets this year. And, approximately 5.5 million of them will be broadband connected and registered online within a week or so of being purchased. This stopped me in my tracks. Peter Schwartz, Vizio, Senior Director Product Management was also on the panel, and when asked, he told us that Vizio would sell approximately 7 million Internet connectible televisions this year and they expected about 4.5 million of them to be broadband connected and registered within a week or so of purchase.

I asked if these numbers were published and publicly available, both gentlemen said they were. So let’s do some back of the envelope math. Take the biggest players in flat screens: Sony, Samsung, LG, Vizio, Sharp, Panasonic, Toshiba, Sanyo, Mitsubishi, etc, and add up all the connected TV set sales expected for this year. Let’s say 25 million sets that will actually be broadband connected this year. Multiply by three and up the estimate each year to account for a drop in price and increase in popularity of the services and it looks like the United States will have over 75 million broadband connected television sets fully installed by 2013.

The CEA has a different estimate as do some other research firms, but they are all higher than my little back of the envelope calculation.

Now, let this number sink in for a moment. To help you intellectualize this number, please take into account that there are about 115 million television households in the US. Approximately 100 million of them are currently cable, satellite or IPTV subscribers the remaining 15 million or so households use antennas to tune in television. More than 50% of US households are broadband connected, but that number is suspect because the FCC definition of broadband is meaningless. For this calculation you are only concerned with US households with broadband connectivity suitable for video consumption.

To help you emotionalize this statistic, remember that almost every household in America has more than one television set and the deployment of new flat screens will not be one per household. These new connected televisions will be purchased by people who have excellent broadband connectivity to their homes and can afford to purchase new flat screens — in short, the most affluent, most desirable demographic for almost every advertiser and marketer.

How will the television/cable/satellite/IPTV/Internet/Web/Video/Blu-Ray/DVD business change if the very first thing you see when you turn on your TV is a bunch of entertainment, sports, communications and news apps placed there by the Consumer Electronics (CE) manufacturer? How will they control the screen real estate? Advertising? Subscriptions to services?

Can we expect people to start asking the question, “Can I get that on Samsung?” I can’t think of anything more disruptive to the business of television as it now exists.

The idea of over-the-top video (using your cable modem to watch video from the Internet instead of watching video through your cable set-top box) is not new. There are dozens of boxes such as TiVo, Roku, Vudu, Boxee and AppleTV which allow you to connect your TV to the Internet. And, as you probably know, at least one GoogleTV box is on the way. But, and it’s a big but … you have to buy the box, hook it up and program it — easy for some, too inconvenient for most.

The convenience of simply plugging your TV set into your cable box and your broadband connection is unbeatable. The CE manufacturer is going to win this one and it is going to change the nature of the television business forever.

But there’s more.

In my book Television Disrupted: The Transition from Network to Networked TV, I ask the question, “Who has ‘the’ relationship with the viewer?” The actor will say they do because they have a relationship with their fans. The show runner will say the same thing. So will the network. The advertiser will say that they have a relationship with the viewer because the viewers are buying their products — all of these answers are patently wrong. The only entity with a true relationship with the viewer is the Operator (Cable/Satellite/IPTV company) that sends the customer a bill. About 100 million households in the US have a direct billing relationship with the incumbent Operators.

Today, where there is competition for the billing relationship it is usually between Cable and Satellite companies, or between Cable, Satellite and IPTV providers (like Verizon and AT&T). These organizations fight for your account — and they fight hard. How will they fare against the new breed of competitors? A wealth of free and specialized Internet video, plus every pirated video you ever wanted with a single remote control click.

We will live in a very interesting connected world in 36 months, but nowhere near as interesting as the world imagined by one audience member. He asked … “If Samsung is fighting for the account, why doesn’t it just give away HDTV’s and sign everyone up? After all, you do it with phones.”

This past week the first of America’s major metropolitan newspapers has made the decision to cease print operations and transform itself into an online only news organization. The Seattle Post-Intelligencer RIP, long live www.seattlepi.com — if only it could be true.

If you’re interested in the details, you can read a very thorough article in the WSJ by Shria Ovide. Essentially, advertising revenue is down, the paper is losing over $14 million annually and Hearst is pulling the plug.

Except they’re not pulling the plug — they’re firing most of the staff and making it a web-only enterprise. This, apparently, is in the name of science.

They are going to experiment a little bit and see if there’s some stripped-down business model that they can cookie-cut and apply to all of their ailing newspaper properties.

Wow! What a bad idea. It would be much smarter to close up shop and send everyone home. Why?

Let’s review: first and foremost, newspaper companies are not in the content business, they are in the advertising business. And, as I have often said in this column, they are really in the business of killing trees, mashing them up, putting ink on them and delivering them to your door in gas-guzzling trucks.

That being said, there is a small amount of content that is original and there is certainly a gigantic amount of value added by the editing and filtering of information that each major newspaper is famous for.

So why would the very smart people at Hearst do something as dumb as setting up the seattlepi.com to fail? The mind verily boggles. Here you have editors and editorial staff that can add value to information and turn it into knowledge. You have an electronic news-gathering organization that is designed and built to fill up a newspaper that can keep the daily attention of 118,000 people. You have a real opportunity to create a “real” model for the future of branded, filtered, news distributed not WiwWiwWiw (What I want, When I want, Where I want) but “right person, right place, right time.” And, instead, you decide to cut the staff to nothing and sunset the organization by letting it die a slow, agonizing death.

This is horrible on a number of levels. As other newspapers watch seattlepi.com gasp its last breaths, they will assume that Hearst has done everything it can to make it work. They will indict the model and draw the bold (and in this case not completely wrong) conclusion that it is not possible to make money with online content. If you are in the business of distributing digital media, this should make your blood boil.

I hate everything about this. Here we have a major media company that is privately held and does not have to answer to fickle Wall Street investors, the SEC, public shareholders or even public opinion. Here we have an opportunity to completely rebuild the Seattle Post-Intelligencer into a modern, dual-revenue stream digital distribution engine. But no, Hearst has decided to sunset it in the most unceremonious way — they will kill it, just to watch it die.

I am truly crestfallen.

It is easy to understand why Hearst has decided to do this. It’s the easy way out. So many things have gone extinct in the name of cost-cutting. But here’s the thing. What if you make a serious investment in the tools and technology required to be a super-efficient purveyor of electronic information? What if you built the underlying technology to deal with self-serve advertising, measurable syndicated content, leveraged social media and added enough value to maintain certain aspects of the dual-revenue model. What if you created a new, emotionally satisfying user interface (iTunes for information) that people actually enjoyed using? What if you created an alternative to web-surfing that was so easy and so organized that getting your news from seattlepi.com was a new preferred behavior? What if? What if? What if?

Sadly, we will never know. Seattle Post-Intelligencer, RIP. www.seattlepi.com, so sorry to hear of your untimely demise.