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Posted by James McQuivey on October 13, 2009
We've been flogging the media industries for years at Forrester. So much so that we sometimes assume that people remember all the ways we've warned, cajoled, and exhorted for more than a decade. But based on the things we're seeing the pundits finally say, it's clear that "the end is near" is a pressingly recent recognition on the part of many. For examples, see Malcolm Gladwell's review of Chris Anderson's book Free; Mark Bowden's lament over the loss of journalism ethics in The Atlantic; or programmer/essayist Paul Graham's thoughtful reflection on Post-medium Publishing.
Don't get me wrong: we welcome these and more voices to a conversation we've been trying to start for some years now. (If you think I'm just posturing, I direct your attention to former Forrester VP Mary Modahl's July 1994 piece entitled Publications Get Wired where she first blew up the "print isn't going away" myth.) But there are some very fundamental things that are getting lost in most of the discussions we are hearing. Namely, people are stuck on processes, historical reinterpretation, future prognostications, and personal feelings at the passing of an era.
In the end, however, none of that will matter as the fundamental economics of digital media assert themselves. Basically, it's now cheaper to make, distribute, and consume media. That changes everything.
Because the noise is overwhelming our clients, we decided to write a forceful summary of the core economic facts that are driving today's media businesses over an edge that we call The Media Meltdown. It's not all doom and gloom, though, because in the end, once we replace analog economics with digital efficiencies, we will be able to rebuild the media industries -- from newspapers (though they may need a new name since few of them will continue to use paper) to movies to books.
Ready for this? Hope so, because you don't really have a choice.
Our new report, titled How to Rebuild the Media Industries, is available to clients on our Forrester website.To tempt you, I'll share one of my favorite setups in the analysis:
Because the cost of the analog medium and its distribution are removed from the equation, increased competition among entrants old and new will drive revenues down until they reflect the cost of production. This is a maddeningly difficult lesson for media companies to learn when they have spent so many years believing that people valued their product at a certain price point, only to find that the value was actually an economic artifact — the result of the market's need to set a price that compensated producers for making and shipping physical media products.
Particularly painful for former media titans is the fact that they continue to hold assets and labor contracts associated with analog production and distribution methods. They can't rid themselves of those costs without also giving up the analog revenues associated with them — revenues they need in order to fund a digital rebuild. As a result, when faced with the digitization challenge, traditional media players pass through a dangerous depression we call the media meltdown. Our choice of the word meltdown has two purposes: It captures the challenges each industry faces as well as the maladaptive solutions these industries typically pursue.
The meat of the report is our focus on what we call Act 3 for the media industries: Time to Rebuild. It's a phase we encourage the industry to plunge into, creating a sustainable environment, where: 1) fans pay - with time and/or money - to indicate which content they value; 2) market forces drive the creation of content; and 3) consumer convenience is the ruling principle for all players -- CE makers, pay TV providers, content creators, and more. We lay out the different ways that money will be made, many of which we'll dedicate entire reports to in the coming months, whether direct payment, direct subsidy, indirect subsidy, or various types of bundling. We end with a call to improve how consumers can discover, consumer, and share media in order to drive consumption up.
There's good stuff in there, but we can only scratch the surface in a single document so with the problem and the end state properly defined, we will fill in the remaining details with follow-up reports over the next several months. Come give it a read and then join the conversation. Share your ideas with us: how will media companies make money in the future? How will content formats change? How will advertising survive? How quickly will smart media companies abandon analog economics? Can't wait to dive in with you.