Media 2.0 Economics ian c rogers Presented at BarCamp LA March, 2006 Media 2.0 Physics.
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Transcript of Media 2.0 Economics ian c rogers Presented at BarCamp LA March, 2006 Media 2.0 Physics.
Media 2.0 Economics
ian c rogers
Presented at BarCamp LA
March, 2006
Media 2.0 Physics
orThe Blockbuster vs. The Snowball
or Why Running A Hit-Driven
Business Becomes Very Hard For Big Companies
orWhy Yahoo! Isn't In The
Content (Making) Business
orWhy Apple Isn't (Really) In
The Music Business
and Why DRM Sucks
andThe Next Five Years
(Or More) Are PURE CONSUMER
CONFUSION
Disclaimer
The following are my personal views, not necessarily the views of my employer (Yahoo!).
Also, I have no PowerPoint skills and even less free time so this is about content not presentation. Sorry it's so
ugly.
The physics of the Media world are changing
From a world where attention is abundant and distribution channels are scarce
To a world where distribution is unlimited and attention is scarce
Media 1.0 vs. Media 2.0
• 1.0 is Blockbusters Larger and larger marketing dollars deliver the audience, spending more on quality delivers diminishing returns
• 2.0 is Snowballs Quality is hyperefficient, spending more on marketing delivers diminishing returns
Large Movie Studios and Major Record Labels are based on Media 1.0
Large up-front cash investmentson many different products for a diverse customer
base
leveraging centralized marketingand a stranglehold on distribution channels.
And Therefore Are Inefficient in a Media 2.0 World
Where distribution is trivial, unlimited, and available to all comers,
marketing to a captive audience is impossible,
returning to the same audience for each product is a requirement,
and creating "quality" content is paramount.
Digression: "Quality" is a Misnomer
Not "quality" in the Mozart ("intellectual") or Yngwie Malmsteen ("useless talent") way
"Quality" is really "Relevance" and is individual not absolute (“Tier 1 to me”)
In the future you will consume what entertains you most, not what is marketed to you most heavily.
Do the Record Labels Disappear?
Nope.
They become more important.
They just change their core competency.
Real A&R, Again.
As musician and producer Alan Elliot says,"A record label used to be able to look at a tree and
say, 'That would make a great table.'Now all they can do is take a finished table and sell it
at Wal-Mart.“
The record labels have to get back to taking raw materials and adding value to them. Real, old-
fashioned A&R.
Focus! Focus!
Also, focus on a core audience will be a huge advantage.
Successful labels have focus and return to a core, trusting, loyal, and ever-growing audience to sell
each new release.
When attention is scarce and distribution is unlimited it just isn't efficient to sell Josh Groban one day and Green Day the next. You don't get any scale out of
the network that is at your disposal this way.
Catalog Is Key
Jeff Ayeroff: "A record label without a catalog is like a speedboat with a hole in the bottom of it."
Antony and The Johnsons is catalog -- low risk initial investment, slow burn, great ROI over the long haul
Pussycat Dolls are not, 10 years from now their albums won't sell more than Spice Girls albums do
today -- high risk initial capital investment, fast burn, bad ROI over the long haul
The 10 failures you've never heard of that were meant to be this month's Pussycat Dolls -- large, high risk initial investment, no burn, no ROI (Pussycat Dolls'
success foots the bill)
Small Labels and Catalog Are Already Showing Growth
Independent music currently 27.5% of US market and is the only market segment that's
growing
Catalog 39% of CDs sold and growing
But What About Movies?
I know less about the movie business, but I am assuming the physics apply similarly.
Anecdote: Spielberg recently noted that for what it cost him to make Munich ($80M), he
could have made ALL FOUR of the other Oscar nominees for best picture. Quality appears to be becoming more efficient.
So, Is Content King?
No.
But great content is good business, and the ecosystems for creating these new,
smaller, more efficient content businesses are starting to gestate.
So Should Yahoo! be in the (Original) Content Business?
Like HBO before us, Yahoo! should only create content in two cases:
a) When it's maximized all the opportunity around distributing the content of others. Which, in a Media 2.0-leveraging-edge-competencies sort of way, is a LONG ways off.
b) Opportunistically: The way Music pursues original content -- sponsors drive original content, not vice versa), but...
The Real Value Yahoo! Provides
…is in providing great experiences around content (Personalization,
Community, Search) (to steal from Jeff Weiner of Yahoo! Search) helping
users Find, Use, Share, and Expand (on) whatever media is most relevant
to them
(shifting gears)Why Is Apple Winning?
For so many reasons (the charisma to align the record labels around a single model, great marketing), but
from a technology industry physics standpoint because, "When the technology is not yet good
enough, the integrated solution always wins." This from The Innovator's Solution, which goes on to
point out that eventually the technology overshoots what the consumer needs, allowing disintegrated
solutions to gain ground, and forcing the integrated solution up market.
Apple is Not (and will never be) A Music Company
It means that Music is just one stop on Apple's train. Apple is in the hardware business, not the Music business. As
they move up market, they move away from Music over time.
Yet We're Stuck With Their Legacy(oh the irony!)
Customers trained on a low-margin a la carte download model meant to drive
hardware sales
A lot of files purchased that only play on one company's device (the 8-track
tape of the 21st century) Wrapped in a proprietary DRM
Proprietary DRM Is Like Bad Airport Security
It punishes the honest and is merely a speed bump for the potential pirate.
It also creates a convenient technology platform lock-in for Apple and Microsoft, who have
capitalized on the Media companies' fear of their business models changing to further
their own interests.
And the problem is getting worse, not better
As poorly conceived DRMs are moving to our cell phones and living room
devices what we're really locked into is Five more years of PURE
CONSUMER CONFUSION.
And I've been saying that for five years.
Doh!
The music industry has handed the keys to their business over to two
companies that DON'T CARE ABOUT MUSIC. I think Jobs really does love Bob Dylan, but he is not in the music business (in fact he promised Apple records he never would be, and I'd
argue he's kept his promise).
What is the Path Out?
Please appreciate: it was not great technology that drove the Internet boom, but great
standards.
Great technology gave us AOL, Compuserve, and Prodigy.
Great standards (TCP/IP, HTML, and HTTP) gave us unprecedented opportunity (the
Web).
We’re Still Lacking Standards in Digital Media
Similarly in digital media Great technology has brought us iTunes, iPod, and Windows Media Player.
Great standards (XSPF, XIPF, Web services loosely coupling together services like eMusic with
applications like Songbird) can give us unprecedented opportunity.
But relatively few standards exist to serve the digital media ecosystem.
GO CREATE AND USE STANDARDS
If we have one collective mission, fellow campers, one place to focus all our energy, it's to create standards
that decentralize and create platforms of opportunity.
“What if Internet Explorer only went to Microsoft’s site?” (Rob Lord) This is where we are in Digital Media
today. The amount of unlocked opportunity due to lack of standards is enormous.