I've been saying for a year now that all media organizations need to separate creation from distribution. Newpspaper are a good place to start because their distribution model is so broken, the industry is so troubled, the savings potential is huge, and the opportunity is vast.
Creation, especially of quality journalism, is a very small part of the total budget of the newspaper business. Once you take out presses, trucks, paper, rewriting wire copy, rewriting press releases, soft features, laying out pages, and overhead, the actual cost of gathering, writing and editing the news that matters to the continuing function of our democracy is a pretty small part of the total cost of journalism. And it's the part that is most worth preserving.
Modern national and international news organizations already are beginning to look more like wire services than newspapers. It may be time to move that model down to the regional and metropolitan level, as well as up from the ultralocal level to neighborhoods and communities.
By separating creation from distribution, we can create newsgathering organizations that are efficient, worth preserving, and very cheap compared to the cost of supporting them. Matt Yglesias gets this, although I'm not certain I'd endow all the organizations he's considering. I'd prefer to endow entirely new newsgathering operations whose primary purpose is informing the public.
The bigger news is that all media properties need to think harder about separating content from distribution, and not confusing the two.
<p><p><p>Digital Britain - The Interim Report</p></p></p>
The much
awaited UK government’s interim Digital Britain report was published today. You can download the report here. It covers
ambitiously broad ground which I’m sure my colleagues will address. See Nick Thomas’
take here. I’m going to focus on the digital content aspects and what they mean
for music companies.
The overriding impression is that this is a highly
nuanced document, with carefully chosen language. But hidden in cautious
verbiage are some incredibly significant statements that form a forceful
subtext, and not one that will have record labels singing in the aisles. Particularly as this comes hot on the heels
of The Intellectual Property Minister comparing file sharing to stealing soap
from hotel rooms.
The other key theme I see in this report is the push
for digital content to be subscription based and for that subscription to be
part of an access subscription, perhaps even including legitimized file
sharing. Though the report carefully
avoids making those recommendations directly, it builds the case in a
persistent and measured fashion as you’ll see below. Those caveats aside, there are also some encouraging,
forward looking and brave positions taken.
Here follow what I think are the key elements of the
text and what they mean (for sake of semi-brevity, this is not an exhaustive
list):
“Firstly, if digital distribution
and copying costs are lower so too are digital revenues from the product or the
advertising impact; often, in current business models, an order of magnitude
lower. The role for regulation or intervention is not to prevent the emergence
of new business models or to preserve old and
unsustainable ones.”
This is a double whammy for the music business. First it makes a clear statement of principle
that digital product should be cheaper because costs are lower. This ignores a) the fact that it still costs
the same to develop, record and market an artist b) other value chain members
impact margins. Yes, labels could charge
less for digital licenses, but the cost of being a music company is only
impacted so far by the distribution channel. The second blow is the clear statement that old business models should
not be supported (i.e. the CD). Unfortunately
CDs will still be the bedrock of music sales even 5 years from now, so that’s a
pretty worrying scenario for the labels: the government won’t be supporting
your core business anymore.
“Ad supported models
will intensify the sense that content is free”
The report argues that it is imperative that
consumers pay for content to avoid the perception that content should be
free. It also implies that ad supported models will only intensify this free perception. So just as the labels are licensing to
innovative ad supported solutions such as Qtrax, Last.FM and imeem, the
government appears to be saying telling them to cease and desist.
“…the UK needs to
consider whether there are other funding streams or mechanisms that would
substitute in whole or in part.”
Following on from discrediting ad supported
services and, by implication extant services, this narrows available options to building the case for a bundled subscription or levy. If a levy, who gets to be part of it? All media sectors? Or do some get excluded? And for those included how does the income
get split? By size of revenue, by how
much revenue has declined? By volume of
files shared?
“While some traditional
audio-visual content is under threat, new media content is in its relative
infancy as a possible new generator of economic wealth. “
i.e. the music label’s case is already a lost cause,
let’s move on.
“In the new digital
world, the ability to share content legally, becomes ever more important and
necessary.”
The case starts being built for legitimizing file
sharing.
“There is a clear and
unambiguous distinction between the legal and illegal sharing of content which
we must urgently address.”
Ironically this sentence is very ambiguous, but
interpreted in a strict grammatical sense, it suggests that the clear
distinction between what is legal and what is not needs to be softened. i.e. further case building for legitimization
of file sharing.
“Copyright is vital
for our content and communications industries.”
and
“..consumers’ desire
to access content in the time and manner they want, allowing them to use it how
they want, and at a price they are willing to pay.”
Copyright must be upheld, but the business models
must be radically transformed, become consumer led rather than supplier
led. This is a worthy goal, but much
easier to mandate than implement. It is,
in essence, the shift from the distribution paradigm to the consumption era.
The report then further builds a case for file
sharing, with statements such as the needs to “acknowledge the issues consumers are raising”, calling file
sharing an “entirely legitimate
technology”. The latter is
particularly problematic. This is the
argument used by the networks themselves when being sued for copyright
infringement, and is normally used by file sharers themselves. Sure they can have legitimate uses, just as a
gun can have, but that’s not why they’re here or popular.
The report also refers to legal action being “perceived as disproportionate by consumers”
and file sharing becoming “commonplace”.
Does this mean that if enough people break a law that the law gets changed? And that if the law breakers get to chose a
more lenient punishment? Either way,
this is some distance from the record labels position and indeed, some of the
government’s stated position.
The report suggests the approach to tackling file
sharing needs revising but instead of specific tactical solutions instead makes
bland recommendations such as the “need to work smarter”.
The report also builds the case for Rights Agency
that would both promote legal services and help combat illegal ones. Though it appears to expect it do so with
modest powers. For examples “This
could involve working with authorities in other countries to act against
damaging sources of infringing material.” The experience of rights owners
as diverse as the record labels, movie studios and football leagues has been
that files are often served up from countries which show little or no interest
in cooperating.
It goes on to discuss the lack of agreement between
labels and ISPs in the Memorandum Of Understanding process and of the need to
legislate regarding file sharing, but backs away from a ‘3 strikes’ approach,
opting instead for formalizing what is currently being conducted as part of the
MOU trial.
All in all, a mixed bag of a report, with something
for all parties, but equally enough to aggravate them also. The next stages of this process will require
some markedly firmer positions being taken.
I've had an interesting day digesting the Digital Britain report from the UK's Minister for Communications, Technology and Broadcasting, Lord Carter. My colleague Mark Mulligan will be posting his response to some of the detail of the report, but for now I wanted to reflect on why this is a landmark document.
That job title, for a start, is something we haven't seen before. The UK government has never really given the impression that it cares about the web or digital technology, but perhaps as another benefit of the Obama presidency, Gordon Brown decided it was time to create a new role for a big hitter.
For hard core politicos the Department of Culture, Media and Sport has traditionally been seen as a lightweight gig, derided as the Ministry of Fun. Today we had the Prime Minister acknowledging the wider value of a digital infrastructure, describing it as a "backbone of the economy." As an analyst know that's true, I just didn't expect to hear it from Gordon Brown.
There will be criticisms of the document's contents - I have quite a few reservations about its analysis - but nobody can criticize it for lack of ambition or scope. I'm happy enough - for now - to see the UK government recognize that "the digital information and communications sector is one of the sectors in the economy, alongside energy and financial services, upon which the whole of the economy rests."
It's easy to forget as we watch penetration numbers rise for social services, what these numbers look like when they hit small communities of connected people. I was reminded of this last night.
Every year, my wife takes photos of the kids in the Half Moon Bay High School musical. The pictures are used in the play program, become headshots for the handful who act in other venues, and are shared with friends and family. She takes a lot of care to produce great-looking shots and it shows.
This year is the first time anyone asked her for a copy to put on Facebook, and everybody asked for her to email them a copy for Facebook.
I just read Mark Cuban's blog entry on "The Great Internet Video Lie". If you have time, be sure to check it out - but if you are pressed for time I'll quickly summarize a few of his points:
Standard Internet video platforms (YouTube, Hulu, etc) on their own can not support large simultaneous audiences
When you do a big event (eg. Obama's Inauguration), you must partner with one of a handful of CDNs
None of these CDNs could support multiple events. So your favorite platform is going to have trouble airing both the Obama Inauguration & the Spurs/Mavericks game at the same time.
Ergo. It is a big lie that any Over the Top Platform can replace pay TV providers (cable, satellite, telco)
I always think Mark makes interesting points, though I am not sure who exactly has been "lying" about this one. Even the word "lie" is probably a bit strong, guys like Madoff and Blagojevich have raised the bar on that word :-). Regardless, I wanted to point our readers to some of our research that talks about Internet video being a complimentary, rather than replacement, medium:
"The Internet Television Value Chain": We discuss how the Internet has opened a new release window for television and incremental revenue. I also talked about the framework with Andy Plesser last year on a interview on Beet.TV.
"The US TV Market in Transition: Succeeding in a Multiplatform World": We surveyed consumers on their top criteria in watching video (quality, content library, interface, etc) and rank all of the emerging platforms (Internet Video, Mobile, VOD). We lay out our view - how these platforms will work together and how customers will choose many, not just one, to watch TV content.
Hope to continue the discussion - feel free to reach out or comment if you have any thoughts on these two mediums do or do not compliment each other.
Shortly after ranting that media properties to start thinking bigger and stranger if they're going to succeed, I came across Jeff Jarvis's spot-on analysis of why print advertising was never the right model for online success and the variety of opportunities that exist for media properties to improve their top and bottom lines.
Jeff says that print advertising worked as a business because there was a limited supply of space. But it also worked as a business because it was staggeringly inefficient. A Realtor had to buy access to a million readers to reach to two dozen who were looking for a neighborhood open house. That model has been broken for at least five years.
He has some great suggestions for new kinds of businesses for media companies. You should read his whole list, but here are my takes on some of them:
Empowering new advertisers and partners: Google and eBay have empowered genuinely new businesses. Look beyond your traditional customers for new business opportunities. One reason that Google and eBay have succeeded at this is that they've made it possible for their customers to serve themselves, and consquently they've driven the price lower by orders of magnitude.
Offering new services to marketers: The Houston Chronicle is doing this today. Their goal is to be the digital agency for their community.
Creating content and advertising networks to reduce costs and increase revenues: I've been writing about this for more than a year and I don't believe we've scratched surface of the opportunities and threats created by networked media.
Getting into new lines of business: Should local media get into the real estate business? Now is exactly the right time to get into a business that has been dominated by a cartel. Even if newspapers survive the coming storm, do they really think that their real estate advertisers will return? Really?
The bad news is that nearly all initiatives will fail and only a few will prosper. And you can't wait around until it becomes obvious what's going to work. Once you notice someone having success, he's going to be difficult to unseat in the market he created. To succeed in the current chaosm, you must experiment, keep costs low, watch what others are doing, and take a portfolio approach to innovation management.
This is my first blog post for Forrester, so let me introduce myself. I'm Nick Thomas and I'm an analyst covering media issues for Consumer Product Strategy Professionals.
The hot topic in the UK media sector at the moment is the future of Public Service Broadcasting, and more specifically what funding model the broadcaster Channel 4 will have in the future. I won't go into the detail of the debate here, fascinating though it is. Instead, let me reflect on the bigger issues arising from it which have struck me in this historic week. We are indeed entering a new era.
Speaking at the Oxford Media Convention this morning, the Secretary of State for Culture, Media and Sport, Andy Burnham, offered a sobering view of the media landscape which may have been obvious for the assembled audience of media types, but which from a UK government minister is nevertheless still fairly radical.
"Old certainties have broken down," he argued. "That much is clear in global finance, but it is equally true in media. And this change is happening on many fronts.
"The change that was coming in the multi-channel, online age – the structural threat to the advertising revenue funded model – has accelerated with the change in the world economy.
"The old media world has ended – and the sooner we say so the better. With it must go old thinking," he said. "But the difficulty we all have is this: it doesn’t yet feel like an era of new possibility, and change we can all believe in, but one of threat and decline."
So where are the new possibilities? How can companies negotiate these new realities when old certainties are eroding? These are the themes we are exploring in our research in the year ahead, understanding how users' media consumption is changing and focusing on new ways for companies to respond to these changes, to create sustainable business models. We'll be addressing these through our syndicated research, our blogs, and our consulting work with our clients. Watch this space.
Apple yesterday announced it’s Q4 sales results and have
proven that they can thrive even in tough economic climates. I’ll leave discussion of the broader results
to my colleagues though, focusing here on the iPod sales figures and what they
mean to the music market.
Q4 '08 was actually another record quarter for iPod sales,
just (see chart below for long term trend). This is no mean feat for a premium end product. Though the broad product and price point portfolio,
combined with pricing initiatives no doubt helped them pull in more value
focused customers during this period also.
So iPod sales continue to grow at record rates as do iTunes
Music Store sales (record Christmas day and week sales also). That’s good news for the music industry
right? Well, yes and no. Undoubtedly this is important revenue and an
important part of the digital transition. But iPod sales just aren’t growing strongly
enough to be driving the sort of growth in digital music buyers that the
industry needs.
Well Apple’s dominant share of the digital download market
effectively make Apple’s iPod and iTMS sales numbers synonymous with digital
music sales trends. If iPod sales
sneeze, the digital music market gets a cold.
Looking at the chart you can see that the first big surge
happened Q4 ‘05, and another in Q4 ‘06. These were the ‘step change’ quarters. These were a direct stimulus to digital music
sales, augmenting the installed base of buyers. We can look at the lion’s share of these sales
as being new customers and therefore new Net adds to the installed base of digital
music buyers. But by Q4 ‘07 and ‘08,
even though there are record sales, we have to factor in a significant portion
of those ‘Class of ‘05 and ‘06’ buyers, replacing their original iPods and/or
getting additional devices. Thus the
rate of growth of new digital music buyers slows.
iTMS sales are certainly booming, and the rate of downloads
per iPod sold is growing solidly. So
iPod owners are becoming more valuable digital music buyers. But the new buyer growth isn’t as strong as it
was in ‘05 and ’06. Yes, this is to be
expected as a technology matures, but digital music buyer penetration is in
single digit percentage points in most markets, so its not broken out of niche
yet. This is the stage where growth
should be accelerating, not slowing. All
of which is part of why the music industry is now spreading its digital net
wider than sales alone. To find out more
about this:
So Apple’s iPod and iTMS sales are very welcome in these
challenging times. But they also
highlight that the industry cannot rely upon Apple alone to save it. Indeed, that’s not a burden Apple ever asked
to carry.
The Times cannot gather anywhere near the number of online subscribers that the Wall Street Journal enjoys. Journal readers often expense their subscriptions and the Journal's reporting is far more valuable to its readers than the Times's reporting is to its readers.
The Journal should have gone free more than a year ago. As the Journal goes through its own inevitable cost-cutting, it's going to be less competitive with free products, such as Bloomberg, Reuters, its own Marketwatch site, Henry Blodget, and the rest of the Internet. They will have to deal with this eventually and it's going to be more difficult the longer they wait. Finally, the Journal's readers will always be more valuable to advertisers than those of the Times and the Journal would have a lot less difficulty selling its free inventory than the Times is having.
The Times's problem is not that it has too much inventory. The problem there is not enough demand among advertisers for its readers' attention. Cutting their numbers will not make them any more desirable. This is where Blodget makes his most questionable assertion: "NYTimes.com would be able to charge more for ads served against known, paying subscribers (the company would have some demographic info)." That reasoning passed its expire date ten years ago.
If NYTimes.com's problem is that it has too much advertising inventory, nothing can save it.
Traditionally, subscribers barely covered the cost of printing and distributing newspapers and magazines. Michael Kinsley did a great job of laying this out way back in 2001. The genius of William Randolph Hearst, among others, was to pretty much give away the product to sell the ads.
The solution to this problem is not as simple as putting a price on your Web site and treating it like a streetcorner vending machine. The eventual winners in Twenty-First Century "paper" wars will succeed by thinking a lot bigger, and lot stranger. No one knows the answer to this problem, but many folks now see the direction in which it lies.
I have a report coming out soon that will address media strategy in the networked era, but my Best Practices in Networked Media report is a good place to start. Bloomberg and Reuters are on their way to becoming networked media giants, and trying to charge for access will only slow the Times's progress to its own transformation.
UnfortunateIy winners' names will only be announced at the Mobile World Congress Gala Dinner Awards night on Tuesday 17th February 2009, at the National Palace in Barcelona, Spain.
This year again I was honoured to be a judge in the Global Mobile Awards in the Mobile Entertainment Category. The 5 finalists/nominees in each category have just been officially announced today by the GSMA:
Best Mobile Music or Video Service:
Bharti Airtel On-Demand Service Shazam on iPhone BBC iPlayer on mobile M-Blox MyMixer Music Tool kit Sony Ericsson PlayNow
Best Mobile TV service:
MediaFlo FloTV MobiTV Vodafone Libertel TV (Netherlands) Telstra Mobile TV Mobile Foxtel and Big Pond TV (Australia) Yota TV Service
Best Mobile Advertising Service:
Cellcity:DC2Go (digital city-guide in Singapore) Turkcell:Tonla Kazan (ad-funded RBT service)
Vodafone Spain: Mobile Music Discovery Programme Telstra: Mobile Codes (2D bar codes in Australia) Microsoft: Ad-funded Windows Live Messenger Mobile Client
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