Where is the Money in Media

Gave a talk last night at the Online News Association session "Who cares about the page views, show me the money!", along with William Higham, writer and trend forecaster, Next Big Thing (@williamhigham) and Katie King, Creative and Development Editor, MSN UK (@ktking).

This post details shows the slides (above) and the commentary (below).

The Communication Value Chains of Yesteryear

Castles on the Rhine and Fleet Street office blocks are frequented by tourists today, but in days gone by were the headquarters of powerful barons of communications businesses, made powerful by their control of a par of the distribution system. They remain as witness that in communications and media value chains, things do change.

The Value Chains of Yesterday

TV, Print Media, Radio, Music and Film empires all existed as aggregators because they had control of their supply chains - either licence granted, or owned a very expensive to reproduce distribution network. That these would end was predicted at least in the mid 90's - in excruciating detail, to my personal knowledge - so the only real surprise is that these behemoths have sat on their a*ses for so long.

The Value Chains of Today

Cometh the 'Net, cometh the disintermediation of the distribution networks, and new aggregators interposed themselves on the new distribution channels. The first generation of these were the "Portals" - Yahoo etc - but the winning game at present is Google, a search function serving low rent classified Ads (but maximising their value via auction) at very low cost.

Bear in mind that Yahoo et al ruled the roost for about 7 years, Google is in its year 6, so its quite likely that by 2015 it will be something other than Google in this space - we are already seeing attacks on their aggregation model by competing search engines and new aggregators suc as social networks.

Media Value Chains - Future Scenarios

In our work for the Telco 2.0 Initiative, we identified 3 sets of players going forward:

- Old Media - they will suffer a collapse in their existing revenues, mainly because....

- ...Pirate World is giving away things for free today, by playing fast and loose with other people's IP and being funded by VC's and Other People's capital, and...

- ...some New Media Players (eg Google, Apple) are making money at one point in the value chain and using it to subsidise and disrupt others (eg Google funding YouTube)

The issue the New Media Playesr face is that in the early days they don't make a lot of money, event though they disrupt the Old Media (especially if they indulge in pirate tactics). The risk they face is that after the "Freeconomic giveaway" stage, if there is not a viable cashflow positive business there then they die when VC etc funding stops (or in the case of something like a YouTube, if they grow too large to subsidise).

Media Value Chains - Predicted Actions

The Old Order will use its muscle to maintain control of its stream of value:

- Re-establish content rights
- Maintain control on sources of funding (Ads, Subscription)

The Pirate World will attempt to push its advantages to teh Max

- Argue for No control of rights, Free wins
- Obtain as much Offset-based funding as possible

The New Order will try and reset the game in its favour by lobbtying hard for things like:

- New copyright model allows pricing control by new aggregators / creators
- Migrating control on sources of funding (Ads, Subscription)

FreeConomics must #Fail

"Free" is a great way to grab market share and disrupt incumbents, but its a lousy way to keep a sustainable business going. Those that rely on FreeConomics but are then unable to wean themselves off it must fail when they get too large to support, as noted above

The Apple Play....

Apple, with the iPod and now iPhone, uses control of the customer distribution device to control the upstream players and dictate its terms. Planet Mobile did this but was cr*p at giving its customers what they wanted, allowing Apple to enter. Planet Internet cannot do this as the CPE devices are relatively open by comparison. Not only that, but people are used to paying for Planet Mobile content but not for Planet Internet content.

....and the Bandwagon

Of course, every media and technology company on the planet saw this and now we have devices in profusion, from Kindles to iPads, all praying that they can be the next iPhone and persuade the punter that they are really mobiles and that said punter should pay again for the content and services.

The problem with this is it dilutes value to the customer - if I have to have a Netbook, Kindle, iPhone, iPod, Whatever to get bits of content then that is a lousy value proposition. That is the flaw in teh Planet Mobile argument for example - because there are so many incompatible platforms, content production is costly, ergo there is little delightful content.

Winners will thus be the ones who can aggregate and integrate across a number of these channels (did someone say Apple?)

Endgame, This Game

The Print Media is now attempting to re-establishing control by erecting gateways to its content. Some will success, some will not, depending on the content and what value can be added

So what about Print Media?

This is the standard 2x2 of our view on media future - essentially value is created in media in 2 ways - either content is inherently valuable (read: unique) or the organisation can add value to the data in some other way (archives, speed, metadata etc). So, the 2x2 says that:

- Generic, No value add - the data the only real choice is to grab a large audience (typically by aggregating a smorgasbord of stuff, as Newspapers and Portals do) and try and make money by a combination of Ads, Datamining and attracting offset funding.

- Generic, but value can be added - in this scenario some benefit can be gleaned from the added value and its probably here that Freemium models will work (ie a small % pay a prtemium for teh added value content). Typical of this is a social network giving higer levels of access or permissions to paying users (FriendFinder and other dating sites do this), or a newspaper giving access to archives.

- Unique, but No Value Ad - I would class teh WSJ and Financial Times basic reporting here - it is unique, its worth something, so some sort of paywall for some of the content will exist but it can't be too high as the stuff is not that valuable. One could argue its the same as a Freemium model but I think in this case the proportion of free-payers is much smaller (eg FT only gives 10 articles a month for free)

- Unique, with Value Add - this is the world of subscription economics. The Lancet is in here, as is Bloomberg etc - but these are few and far between.

The real skill going forward will be to create valuable services from less rareified data. Thanks also to Skillset for hostiing it.