March 21st, 2007

Is Content Still A Business?

by

Is it possible that the future of the content business is worse than being less profitable and worse even than not scaling anymore — is it possible that content creation will cease to be a business?

I was struck by this quote from a music business manager in the WSJ article about the complete collapse of CD sales:

Jeff Rabhan, who manages artists and music producers including Jermaine Dupri, Kelis and Elliott Yamin, says CDs have become little more than advertisements for more-lucrative goods like concert tickets and T-shirts. “Sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than as an income stream,” says Mr. Rabhan. “It’s the vehicle that drives the tour, the merchandise, building the brand, and that’s it. There’s no money.”

No money. The content that used to be at the center of the music industry has been reduced to a loss-leading marketing platform for the real business, which is live entertainment and related merchandise sales. Apple’s iTunes is not really a platform for selling music but rather for selling hardware.

It seems in recent years that as the music industry goes, so goes the rest of the media industry. Is there reason to believe that other forms of content will suffer the same fate as music? There’s one critical commonality to what the Internet and digitization has done to all content that would support this theory: disaggregation

All the focus on the digitization and online distribution of music — and now video — has been on piracy. But what if that’s just a red herring?

You could argue that the most striking consequence of digitizing media and distributing it online is that all content is now available in a discrete, granual form. Music file. Article page. Video clip. Podcast. Photo. There are very few places on the web that require you to buy a whole package in order to get one item.

This is a radical transformation of the content business. Think about it.

How many CDs have you bought for just one song? How many magazines have you bought just to read one article? How many cable channels do you subscribe to in order to watch just one channel? How many radio stations have you kept on in the car because you heard one song that you liked? How many newspapers have you bought just to read one section?

The media business has always been about selling you content that you don’t really want by stapling it (literally or figuratively) to the content that you do want. The digitization of media on the network has obliterated this model. What if music is just the canary in the coal mine?

There’s already one high-profile instance of this trend in the video content business. TV clips on YouTube. I’ve heard a thousand times the argument that media companies should embrace YouTube as a “free promotional channel.” Let users upload clips of your shows — don’t sue YouTube– it’s free promotion.

This argument has bothered me every time I’ve hear it, and now I know why — because it’s following the pattern of music sales in the quote I cited above. Can’t make money off the content in one channel? Use it to promote your other channel. BUT, that assumes that the other channel is not, in fact, being eaten alive by the channel you’ve written off as free promotion.

Henry Blodget posted a dialectic about whether Google is the “King of Media,” which was based on this assumption:

For the purposes of this debate, I’m going to assume that to be “King of All Media” one can’t just be a distributor.

I would assume just the opposite — that content distribution businesses, or more accurately in digital network terms, content platform and content aggregation businesses (think Google, YouTube, MySpace, Facebook, Digg) are the only real media businesses left.

Oh well. If Google has its way, maybe the content business can transform itself into a direct marketing business.

  • Tony - NY

    I for one am confident that content is not only a good business but a great business. The internet has yet to see that tremendous amout money that can be generated with content. The biggest problem the content ownwers have to face is piracy. I feel piracy is the reason for the lack of growth in the content delivery revenue model.

    Also the misunderstanding or lack knowledge of the customer's needs or atleast the "we don't care" attitude to understand what the customer wants are is the main reason piracy is here to stay.

    I have a relationship with a company in upstate NY that has what many feel will be the real world solution to on line piracy and when they release thier platform the content business will go through the roof. My thoughts for the entertainment industry, hold off on contracts with the wanna be solutions. Keep your eyes open for a company that will introduce themselves as mMedia. Then come back on and tell me that the content business is dead or dying.

    T

  • Tom

    It's all about controlling the channel. It's not that the content has no value now, it's that there's no way to protect the content. The best example I can think of to illustrate this point is with Real Estate listings. I know this because I've been recently looking at buying a house. If you go onto MLS.com, MLS.ca or a private sale website and you see all that fantastic information on there, you think, 'Why do I need an agent? Everything I need is right here!' Not exactly, the good content - the listings that don't make it to the public site because they're sold behind the scenes - are restricted in access to Real Estate Agnts who send controlled links to their buyers that expire after a week or two. Only Real Estate Agents get access to that info. You might think, well, once you have the listing, you could post it - no because that info changes almost daily - so once the link expires, you don't know what's happening behind the scenes. Thus, the content is of value and ... it is protected. The same is true of music. It's not that music has suddenly become without value it's that there's no way to protect it at the moment. You might say 'Duh! Of course! Tell me something I don't know. If the only way that the music industry will recover is if tighter constraints on musical content, how could that be achieved?'

    It seems impossible at the moment, but as ways to restrict and control access and distribute information become more accepted, it will get harder and harder to openly trade music. A recent example of this for me was of a television show I watch. A commercial during the show said 'See all the old episodes on NBC.com' You could go there and download them. However, if you go there and you weren't using a US IP, you couldn't download it. Sure, I could go online and look it up on a sharing network where some unscrupulous US person had uploaded it and then download it there, but the point is, that constraint never used to exist. If something on a Web site was there, I could download it from ANYWHERE. Now, they check where you live, and block you. Imagine they also check outbound traffic, so if you tried to upload a file to a site like torrentspy, they block you. Those constraints will grow.

    The transfer of files and what people do online will become more trackable. Actually, it already is pretty trackable, but it will become more acceptable. Just like in the old days - there never used to be *69 or call display. In the movies, you used to have to keep someone on the phone long enough for them to run a trace, but now you know who it is before you pick up the phone. Making phony phone calls is a lot tougher to do. Same will be true of transfering data. Quotas will kick in for large data transfers - some ISP's already do charge for over a certain amount of data transfer per month. In future, you can imagine people will need to have to have licenses to move large volumes of data online and, if you don't have one, they will look into what it is you're moving and investigate.

    It's sort of like tracking Grow Ops for drugs. They run heat vision from helicopters to monitor houses emitting large quantities of heat and then investigate to see if they've tampered with electricity meters and then investigate to see if they're running hydroponic lamps to grow pot.

    Tracking volume by IP and things like DOI (digital object identifiers) and their distribution will be monitored and it will get tougher and tougher. There will always, of course, be a pirate networks, but the ability to track and administer control it will grow. As it does, the incentive to trade content illegally will diminish and the content will regain value. How do we know this? Simple economics! As long as something has value, which music does, somebody will find a way to make money on it. Count on it!

  • Overseer

    Scott, you have a point. I do see real journalists producing quality content online today. But they're not taking down presidents. And I also see "citizen journalists" falling for the the oldest PR tricks in the books and being gamed by politicos, flaks and marketers. Not to mention blogs owned by companies with financial interests in the outcomes their content can generate. Right now, newspapers investigate issues under a set of rules that at least try to guarantee that the story is true and free of bias. NPR hasn't done an investiative piece that I can recall. TV and radio just don't do it. I don't have the answer, but if the consensus is that content isn't worth paying for because it is all free on Google, then we are in trouble. Up to this point in our history, journalists have been our watchdogs. If we disintermediate them, we have no replacement.

  • Rob,

    That's a fantastic observation, which has significant ramifications for how this all plays out.

    There's a novel by the Itallian novelist Italo Calvino called If On A Winter's Night A Traveler. I contains the opening chapters to ten different novels, all of which make you believe that there is an entire novel behind them, even though the rest of each novel was never actually written. But's it clear that Calvino had to have thought through the entire plot and character for each of the ten novels to make the first chaper of each work.

    It's a work of heroic art. But an effort, as you point out, that we're not likely to see reproduced in Hollywood.

  • tree hugger

    Scott, I couldn't agree more with your reply: "Content filtering is a HUGE value creation opportunity — Google and search are only the tip of the iceberg." But isn't content filtering just a more sophisticated method of aggregation? Traditional print publishers figured out the right package that would sell--lots of money to be made by figuring out the online analogy.

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