Heads or Tails

April 7, 2009

If you have been following the media industry over the last years, you’ll have surely realized that traditional media is struggling. Even before the crisis, advertisers have started switching from offline to online, and now with the crisis we see a consolidation in a few ad agencies and a few brokers.

Many magazines and newspapers are in such position that if their debt does not get re-financed they will have to file for bankruptcy. Many music labels find themselves in a very similar position, or have already gone belly up. Video houses are struggling with costs. It's not possible to compete with pirated content. TV channels are going bust.

But there is also a lot of smoke-n-mirrors going on.

I hear claims. Some argue that traditional media is dying. Some advocate social media has taken over. Some forget the economics of running a media business. That the article is dying. That head content is now irrelevant. That the democratization of content production will increase quality. That user-generated content is the future.

Others blame ISPs and the likes of Yahoo, Google, AOL for this. They talk about stealing content and taking away the advertiser money flows the so badly need right now to survive. Some go preaching about how policing the unregulated wild wild web with Digital Rights Management is the only way for them to remain profitable.

What is for sure is that the media industry is suffering. What is also certain is that consumers are generally rational, and make purchasing decisions based on utility. Many consumers are today rather pissed off with the traditional media. And I believe what we are seeing it's just a consequence of the media business own behavior, being extremely zealous to protect their content rights with solutions that make the consumer experience worse, rather than better.

Is it not annoying that you can't, legally, make a copy of a DVD for backup purposes? Is it not annoying that you can't buy DVDs while you travel to other continents? Is it not annoying that your DRM tracks only play with proprietary technology? Is is not insane that games are region locked?

Like Lola would say, I surely think it's extremely highly very annoying.

Long, long time ago, information traveled slowly, snail pace actually. Controlling where a film was being shown, or who had the tapes, or who was selling the newspapers was a relatively easy thing to do. Yet, already then, there was sharing. You'd share a magazine at the hairdresser's. You'd share a VHS tape. But, for most, things were controllable since the medium was perishable, and things were not flowing the pipes, yet.

The Internet has changed it. Information is available at speed of light, at whatever bandwidth you have contracted. Sharing is easy now. And because they can, and because that's how humans are, consumers want to share what they own. The same way they can share a book, or photos, or toys, ...

Revenue starts to go down on the rich media side of the business due to pirated copies flowing on the net. So DRM moves in. Badly in. Actually completely gone wrong. It alienates consumers. Napster, eMule, Kazaa, ... all appear because consumers want it. But truth is that DRM is protecting some of the revenue, and that's why content right owners keep lobbying for it. But it's still going down the hill. High-Definition media appears and somehow fixes partially the problem. But it won't last long. It's only working because of constraints in bandwidth.

Paper media businesses have trouble getting audience. You'll find many reasons for it, but the key underlying factor is that they've ignored speed of light. Information can flow immediately. And if it can, it will. Those media businesses that understood and embraced this, new incumbents mostly, but also some old faces, have been doing better. But they have made the industry more competitive as a consequence,aAnd those that did not understand it, find themselves struggling.

So what do you when you are losing? For starters, you find a scapegoat. Done that. Ironically, deep inside, you realize your business model is gone and you are just trying to hang onto it for as long as possible. In reality, you are just buying time. Precious time you don't have, to figure out the next business model.

Yet, one has to ask where did it all go wrong? Audiences are actually not spending that much time on tail content. High quality production "head" content is still where online minutes are spent. Although I put some value to UGC, I still believe good productions require good funding. Good talent needs to be compensated. Be it via ads, via subscriptions, via concerts, ...

To me the issue that traditional media needs to address is how to operate their businesses at a whole new level of revenue and cost. Since revenue levels per production unit are down by one order of magnitude, one must produce significantly more, and do it a much lower cost basis. I can think of three things the media industry can do to achieve this:

  • The tail, by definition, is long. Sorting out the tail is a mess. To start with, go manual, and use your editors to find the gems in the tail. Cream it out. Find the new head, at no production cost. But don't stop there.
  • In parallel, invest in algorithmic matching. Eventually you want to surface all the metadata in media to replace the editor. We can't today. But it should the goal.
  • Production costs are high and need to be shared among all players. By sharing production costs with your competitors (you hear me well) you are actually removing those cost components that should be commodities, so that you can move up the stack to solve the creative problem better. Likewise, if you can share the production costs with the long-tail of user-generated productions, all the better. You are basically getting that subsidy you need at production time. Since you have addressed costs, you can now play with content pricing. You can charge, or you can go free. You have gained that freedom back. You can design new business models. Consumers benefit. Producers benefit.

The first item is really a way to get going. The latter two are truly strategic, and are what I call the "open media infrastructure services". Think of it like the Amazon services for media production and distribution.

Much of that infrastructure already exists for distribution, as the channels of pirated content, and they are actually almost free. Production is not there yet, and will require investment. But without taking these steps, I am doubtful head content production will last. Or if it does, it will do only out of government subsidies, using taxpayers money. And that, really, would be a pity.

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