Media Dojo

Archive for the ‘Media and Marketing Industry’ Category

I’m up from a deep dive in which I developed a course on transmedia production and distribution for the Master of Communications in Digital Media program at the University of Washington. I teach the first class tonight as an adjunct professor and then take a crack-o’-dawn flight Wednesday morning to San Francisco to attend GigaOm’s Structure 2011.

Structure is hands-down the most important pure cloud computing get-together of the year for my money. All the players who matter are there as are a bevy of new start-ups. By and large, the agenda focuses on computing iron and performance rather than specific industry applications, which I think is good even though I consider myself a media guy first and a cloud guy after that. I make it a point to go because it’s how I top up the tech tank given the pace of change going on.

However, I do see this as probably one of the last Structure events in which there isn’t a hard-core industry track. Maybe not next year but definitely the year after that, Om and crew will need to start including the voice of the user beyond the obligatory hat tips to Facebook or Werner’s rapid-fire listing of various start-ups and enterprises using AWS in his state of the cloud presentation.

In the media space, the news is mixed. Sure, there is no way in hell that a new media start-up gets funded without being heavily cloud-based. But notwithstanding some Black Swan pop from a start-up, most of the development $ for media properties come from traditional sources and they are just getting started. It comes back to the old saw of people overestimating what they can do in one year and underestimating what they can do in three years.

That’s one reason why I’m 90 degrees into transmedia right now from a media services point-of-view. Just as e-business evolved from buzzword into something more substantial once it let go of the e-commerce angle and focused on how to deliver a superior customer experience through a network interface, so too will transmedia grow into something beyond trying to bounce people all over platforms once media creators realize that they’re still in the business of delivering an experience to the user.

That experience will rely on the interplay of creative narrative, applications/networks and social connections which most likely will be riding on computing clouds. That’s why I’ll be in San Francisco.

It took 20+ hours of traveling but I’m here….a bit crispy but not too worse for wear.

Upon checking into the spectacular Yas Hotel, I discovered that the Abu Dhabi International Book Fair was happening the same week as the Media Summit. Tomorrow, I will spend the day with publishers across the Middle East North Africa (MENA) region learning about how digital is affecting their business.

The Yas Hotel is built over a Formula One track so I heard and saw practice runs this morning by some of the fastest cars in the world. Talk about a wake-up call!

The International Book Fair is now in its 21st year. The book fair is part of several initiatives underway to make Abu Dhabi a hub for cultural and media industries for the Arabic speaking world.

My main reason for coming was to attend the Abu Dhabi Media Summit, which is a 2 day confab featuring the top leaders from through emerging markets as well as big gun media names like James Cameron, who is going to give a salon style briefing on the next Avatar project of his. In the tech space, we’ve got Stephen Elop from Nokia to talk mobile as well as Akamai’s Paul Sagan and Hans Vestberg, the CEO of Ericsson.

This is only the second AD Media Summit. But it’s being organized by my friends at Publicis Live in partnership with the Abu Dhabi government so I’m expecting some big things.

In media markets dominated by physical formats, channels and devices, insurgents must pull off the perfect heist.

The incumbents have not only capital and distribution muscle at their disposal, they’ve got a more deadly weapon which is time to analyze and react to competitive thrusts. One flaw in the insurgent’s plan or execution and the full weight of the incumbent’s advantages comes crashing down on rebel’s head.

When you flip that equation to digital media, incumbents must craft the perfect defense.

An insurgent has all the time in the world to find that one flaw to exploit. In the information security world, there’s an old saw that a software patch is the best advertisement for where an attacker will find their next meal. The gap between the release of a security patch and when the patch is universally implemented gives the attacker a precise road map for picking off weak or non-compliant users who don’t update their machines.

When I view how most of today’s incumbents are responding to the tidal shift of digital media from physical to virtual, from ownership to rental, from consumption to participation; I’m not seeing strategy.

I’m seeing patches.

Hollywood’s mass hysteria over streaming rentals as epitomized by Netflix isn’t as knee jerk as it sounds.

How would you like the prospect of reorganizing your business around $2 rentals as opposed to $20 physical DVD sales?

Effectively speaking, broadband and the rental model has started strangling the product sell-through business of video. Netflix is simply the current poster child of the fact that technology and some well timed licensing deals have created a more convenient model for consumers to access high-end paid video.

And as we know, convenience trumps EVERYTHING.

But let’s not get ahead of ourselves. During the 80s, the original video rental market started killing the sell-through market for VHS tapes. When the first VHS tapes for purchase came on the market, you were talking $39.95 or even $49.95 price points. So once Blockbuster started renting out tapes, people stopped buying because rental made so much more sense.

The studio response? Flatten the price curve. Drop the price for VHS to squeeze Blockbuster or force it to raise the rental fees. Tapes went from nearly $50 to more like $20. Then DVDs emerge to enable the studios to bundle in more content in a way to maintain prices for a while. And once DVD prices began their descent, physical rental became a secondary market and physical product sell-through became the big market.

Sure, Blockbuster and other physical rental firms like Hollywood Video made mistakes that hastened their demise. But it was home entertainment sell-through via cheap DVDs that killed them. People said , “screw it, I’ll buy the DVD at Walmart rather than troop down to the store”. Note, I’m not discounting Netflix’ DVD-by-mail launch model in the least. But let’s face it, if Netflix hadn’t gone the streaming route, we would start tuning up for its swan song rather than heaping praise on Reed Hastings.

Now Hollywood and the CATV industry are screaming bloody murder because studios like Starz and Epix cut deals with Netflix that offer literally digital pennies to cable dollars. Epix licenses content to the CATV industry at roughly $2 per sub per month according to some sources I know. The relative fee Netflix paid was on the order of $0.15 per sub per month. “Why the hell did you do that deal?!” bellow the studios while the cable guys are screaming just as loud “why the hell did you do that deal?!”.

“Stimulating the market” for paid streaming content may have been Epix’ motivation for cutting such a deal. However, the reality is that these deals have moved the price point down for paid video. Just like digital music prices must orbit around $0.99 plus or minus depending on features and bundling, so too are Netflix and its competitors ensuring that John & Jane Q Public believe that $7.99 per month is about right for paid streaming video.

Sure, there’s going to be a lot of words traded as the deal comes up for renewal. Netflix says it’s a friend of content providers. But they may not see things that way. In addition, the cable guys are re-evaluating what they’ll pay studios for content, especially reruns, which has a higher proportion of cream. Turner Broadcasting cited overexposure on digital platforms as one reason for not picking up “Modern Family”. True, it could have been a negotiating ploy but there’s also a grain of truth.

Thus, the battle lines are drawn. It’s a struggle by the studios to maintain physical/digital/some-kind of sell-through against streaming rental.

That’s probably why we’re going to see a lot of cloud-based digital lockers for storing purchased movie content in the coming months. The studios like the cloud because they’re betting that people won’t want to fill up their hard disk but will still want to own something. That’s Ultraviolet in a nutshell.

In the meantime, Netflix is habituating people to rental.

So what do you think? Will we look back at the original streaming deals cut by Netflix as the video equivalent of Bill Gates licensing QDOS (quick & dirty operating system) from IBM?

I bit the bullet and bought my airline ticket to Abu Dhabi for the Media Summit in March. I helped with some of the groundwork for the first Abu Dhabi Media Summit held last year but wasn’t able to make it in the flesh. My friends at Publicis told me it went over very well.

The focus is on media of all stripes in emerging markets. One look at how media (especially al Jazeera) has played a huge role in the Middle East revolutions (the proper technical term) makes it all the more important to travel to the region.

Aside from the obvious networking opportunities at the Yas Hotel, I plan to soft-launch my next e-book on the technical and business back-end systems for transmedia. Right now, a lot of the production work and distribution is an extension of the previous paradigm.

I’m taking a stab at a broader question of what would a cloud-native transmedia infrastructure look like—not simply in terms of data storage, processing and networking, but also the business processes at work. Send suggestions or tips about transmedia or Abu Dhabi for that matter. Agent Smith and his brother thank you in advance.

Over the next 1-2 years, it’ll boil down to whether studios/ISPs on the supply side or Netflix/social nets on the demand side will define the paid digital video market.

The content owners and distributors have only a short window to establish firm control over the paid digital video market lest they suffer a similar fate as the music labels. Netflix and its imitators too have only a short window to grow large enough to where they can negotiate from strength once the current clutch of licensing deals expire.

My money is on the demand side.

Yesterday, Netflix reported blowout numbers for subscriber growth in Q4 2010. The top line figures showed over 20 million subscribers, with over 3 million net additions in the past 90 days. The fourth quarter capped an extraordinary year of growth with over 7 million new subscribers in all. This came after management had predicted 3.6 million net adds at the start of 2010.

Reed Hastings and the rest of Netflix’ management are shrewd enough to realize that a victory lap is premature. A spasmodic backlash is brewing among the content and distribution side (especially given the greenlighting of Comcast/NBCU) to throttle Netflix through punishing renewal terms or even surreptitious tinkering with network performance. Studios remember how the music industry allowed Apple to gain insurmountable scale before realizing that the new model wasn’t an addition to the legacy music business, but a substitution.

Not this time, they vow.

I think they’re already too late. In common with generals who focus on preparing for the last war, most of the supply-side responses (higher licensing fees, bandwidth caps, tiered services) miss the most important difference between today’s paid digital video market versus yesterday’s paid digital music market.

Competitive advantage is no longer exclusively a format, device or channel game. It’s a battle for registrations and account information as the fundamental currency, which is a service-oriented rather than property-oriented way of looking at the world.

Consider how fast Netflix has grown its streaming services since late 2010 launch. More than 1/3 of new subs are signing up for the pure streaming plan (including yours truly). Netflix management is betting that percentage will grow sharply over time. In its Q4 2010 SEC filing, Netflix cited three factors that form the flywheel for scaling its subscriber base:

1.) More subscribers means more money to license content, which drives more subscriber growth.

2.) More subscribers means more word-of-mouth from subscribers to those who are not yet subscribers, which drives more subscriber growth.

3.) More subscribers means Netflix can increase R&D spend to improve its user experience, which drives more subscriber growth.

Nice theory some may argue. What’s not arguable is that Netflix marketing spend decreased 10% in Q4 2010 compared to a year before, yet it grew its subscriber figure by 63% year-on-year.

So what does Netflix gain in addition to cash flow from this “get big fast” strategy of subscriber growth?

In a sentence, it gains pole position in the digital video demand chain. As video capable devices and *contexts* proliferate, understanding the demand patterns of the audience is the most valuable resource of all. Streaming not only gives Netflix the distribution path to end devices beyond PCs and TVs, it provides a real-time feedback loop into the demand cycles of its audiences.

The fact that the company is openly discussing deeper integration with Facebook only solidifies its fundamental bet that digital video taste making and distribution is poised to become more social than music ever thought about. That’s really hard to do when the main product is physical media like a DVD in the mail. However, once you’re dealing with cloud-based media, the ability to integrate content with ancillary applications, services and social links (‘Like”) is limited only by licensing terms.

Netflix and other cloud-based digital video players are slowly but surely eating away at the classic entertainment product sell-through (eg. windowing and various formats). The new sell-through will revolve around customized enhancements of the core product rather than different versions of the same product (a future post on this blog).

In my view, the basic reality escaping the incumbent digital video players is that they’re looking at Netflix as just another entertainment distributor (a different flavor of a CATV channel) when in reality, it’s an e-commerce play with digital video at its center.

There was another e-commerce player that started out with books in order to “get big fast”. This company concentrated ruthlessly on demand chains in order to sell more things—and more different things—to its registered users. It eventually began to sell computation itself. The fundamental resource wasn’t exclusive rights to books or territories but one of the best registration and account databases in human history.

Now Netflix has started turning the same trick with digital video using Amazon Web Services. Jeff Bezos would be foolish not to eventually write that multi-billion $ check.

(Editor’s Note: this is a family friendly blog so only the title is NSFW. My wife is still getting over the barfing cat graphic from last week)

Last week’s salon on transmedia and Net Neutrality has been uploaded to the web. I suggest skipping through the first 10min or so because it just shows people kibbutzing before Hanson Hosein kicked things off. If you want the condensed version, the UW FliptheMedia blog has a summary of the main points.

Hanson noted that the salon took place at a fortunate point in the news cycle. That very day, the FCC voted to approve the Comcast NBC merger. Naturally, the conversation tacked around the core issue of who owns the pipes and how does that impact transmedia.

In a sentence, I think Comcast is trying to sew up supply right at the point when controlling the demand chain is the most important play in media and communications. By controlling the demand chain, I mean that successful media companies will start acting more like retailers and less like utility providers. Let’s face  the fact that we can’t identify a single $1bn pure-play digital media company that has launched in the past decade. Most every supply-centric channel or title orientated media player to emerge has resulted from some kind of M&A, not a start-up or even an existing corporation getting into media.

Contrast that with Google, Facebook, Twitter, Foursquare, and a gaggle of other companies that use media as part of an ongoing conversation among their audiences. Whereas a Paramount focuses on media audiences (eg. those who line up at the multiplex to buy a ticket), these latter companies are serving audiences that need media as part of their interaction.

Let’s also face another fact. From an economic point-of-view, the only way that 1+1=3 is for existing Comcast customers to start watching more NBC content or NBC fans on other networks to switch to Comcast. All the synergy and efficiency stuff is a distraction if they can’t make that happen. Moreover, both Comcast and NBC are M&A creatures in their own right. I remain sanguine about the merger for those very reasons. Not only is Comcast/NBC potentially TW/AOL redux, it’s happening in a radically different environment.

Effectively speaking, Comcast/NBC are two humping camels trying to make a horse.

Tonight, I’ll be at the University of Washington (“UW”, “yoo-dub”) as a guest of the Master of Communications in Digital Media program. Brent Friedman of Electric Farm Entertainment, Russell Sparkman from Fusionspark Media, and myself will attempt to make some sense of transmedia in the context of Net Neutrality—specifically “those who own the pipes” a la Comcast.

You can catch the event via live streaming. From 6-630pm PST, Brent will be interviewed by Hanson Hosein for UW TV. Then, from 630pm, Hanson will open up things in a salon format with the Digital Media students and the public. That also will be streamed live albeit at a different web address.

I’m sure there will be a healthy dollop of Church/State gnashing of teeth over Net Neutrality, which has evolved into a 9 headed monster that’s feeding the coffers of both industry and advocacy groups. Both sides tend to push a stereotypic binary choice of either embracing or rejecting the dark side of the force—(e.g. discriminating/optimizing network traffic). A quick pass through Content Delivery Networks (CDNs), caching servers, edge servers, mirror sites, packet discrimination based on media type suggests that we’ve been doing this since day one.

Moreover, we’ve moved into a multi-flavored Internet. We’re using the basic protocol suite to have an Internet of documents which we call the World Wide Web. We’re linking sensors and devices into an Internet of Things. We’re linking data, processing and networking into a Cloud. We’ve launched an app-based digital economy on mobile. Facebook and other social networks have created an Internet of ID and personal history. In other words, it’s a hell of a lot more nuanced than either side would have you believe. But then again, nuance doesn’t lend itself to sound bites and fundraising appeals.

Enter transmedia, which pulls from almost all of the previous mentioned Internets. Now, you’ve got media that in theory moves across multiple devices and contexts while carrying with it the ability to transact. By transact, I mean that a transmedia experience doesn’t simply involve the audience “consuming” or even “experiencing” a story, but interacting with a story through making choices—where to enter, which character to focus on, which enhancements to bring into the story, which social objects to contribute to the story, with whom to share those stories. In other words, transmedia crosses almost all of the current instantiations of the Internet model of communications, content and community.

That makes transmedia one, big fat regulatory hairball. You’ve got QoS performance issues so the pipe owners have a say. You’ve got multi-device experiences so the consumer technology players have a say. As people interact, personalize and share their experiences within the property, you’ve got social and privacy issues that need airing. Transmedia is a full-employment-pay-for-the-kids’-college-tuition Act for intellectual property lawyers. And you’ve got a Great Lakes sized plankton soup for an X-Factor innovation that’ll blow the whole thing up yet again…

….sounds like a party to me!!

If you haven’t read Tim Wu’s Book, The Master Switch:The Rise and Fall of Information Empires, by all means get it. It’s destined to be required reading for anyone hoping to master the Media Remix.

Tim has condensed the story of the rise/fall/rise of information empires in telecom, radio, film, TV and Internet, all without losing fidelity to the larger idea of open vs. closed systems and services that have consumed technology policy debates since the start of the last century.

Beyond the historical analysis, the true value of Wu’s book in my opinion revolves around the idea of whether today’s struggle over “Net Neutrality”—a term he coined—is different from previous battles in 20th century media markets.

I tend to come down on the side of “yup, it’s different this time around”—but probably not for the same reasons as Wu or others might argue.

Rather than a new technology or regulatory paradigm, I believe there’s a fundamental shift in audience behavior that’s driving the bus. I call it the difference between a hacker mentality and a consumption mentality when it comes to digital media. I think the bellows effect of gamer culture and social media has created the opportunity for a hacker approach to media to take root. Lest we forget, “hacking” in its intended sense isn’t about cracking computer networks so much as it is pulling things apart to understand what makes them work and find unintended possibilities. We used to call these people “inveterate tinkerers”.

Regardless of the particular philosophical bias toward media, both a hacker approach and a consumption approach are after the same thing with an audience—engagement. But how they get there are different. In a consumption centric mentality, the media creator and distributor are saying in effect, “we know what you want and it’s all right here”. Engagement is a function of how well the media migrates the audience along a formally defined story arc. It’s a train carrying people very efficiently along a hard coded path.

In contrast, engagement in a transmedia environment comes from the audience hacking into a story to discover new or unanticipated things, finding and even planting digital candy, contributing objects of self-expression and sharing the experience. Engagement in this sense is the media creator saying, “you’ll love discovering what’s inside this experience, especially if you bring a friend along”. There’s a story arc but many more doors for getting into the story at many more points.

Not every audience will want to be hackers on a story. It doesn’t matter. What does matter is that the proliferation of devices and socially infused media objects means that people finally have real choices for deciding how much or how little they want to engage with a story. Given that trend, it’s going to be a lot harder for new information empires to launch based on the traditional choke points of ironclad control over a media title, a channel or a device (sorry Steve).

The new empire builders will have to be more creative….

Over the next few weeks, I’m putting together a series of posts on how cloud computing and a changed media market will remix the digital media industry.

I use the term “remix” deliberately because what were once constraints (eg. bandwidth) are becoming assets and what were once assets (eg. channel specific rights to content) are becoming constraints. This remixing process is changing the face of competitive advantage in media.

A remix of the media industry is inevitable because whenever an economic good can be digitized and experienced on-demand; push oriented business models that depend on scarcity must necessarily yield to pull oriented business models that help consumers navigate a world of abundant choice. The fundamental challenge to today’s media industry is thus: what happens when end-users expect a persistent connection to media, applications and services regardless of their device or context, at a trivial cost or even free?

Murdoch plays Canute ordering the tide back with paywalls. The cable cos and the TV studios are locked in a fight over retrans fees. Netflix has Hollywood and Madison Avenue shitting kittens over near unlimited video (sans commercials) for $7.99 a month. Music execs remember how Apple pegged a music download at $0.99 and what that did to the industry. Of course, the notion of getting everything under the sun for one low price is irrational and short-lived. However, the problem—to paraphrase Keynes—is that consumers can stay irrational a lot longer than many of today’s media companies can stay solvent.

And what are the answers being offered to the media industry? Go to most any digital media event and you’ll find a conga line of professional conference whores advising media companies to link and/or twitter their way out of every problem, which is just a riff off of getting other people to whitewash your fence a la Tom Sawyer.

In the face of such uncertainty, I opt for a return to the recurring questions that affect any business: who buys? why do they buy? how do they buy? Media companies are in the midst of rephrasing their tasks as who engages with content, why do they engage, and how do they engage?

I contend that the Internet has solved only half of the problem of media, which is managing supply. The other half, demand is only being scratched. And yet, there’s nothing more powerful than knowing when and how a person comes into a market and is thinking about something they value. That’s scarce.

Moreover, the classic mix of product, place, promotion, and price doesn’t go away. I believe it gets translated into a new vibe—-a remix. The remix of media assets and constraints to create demand chains attacks the basic challenge facing media companies which is to produce media customers as opposed to producing just media content.

In this new world, owning the demand chain should be the goal of media companies.

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I plan to test some of these ideas in front of a live studio audience in a week. Hanson Hosein, who runs the University of Washington’s Master of Communications in Digital Media program has graciously provided a platform on January 18 with my fellow partners-in-crime Brent Friedman and Russell Sparkman. We’re going to riff at a public salon on Transmedia Storytelling and Distribution. If you’re around UW campus on that date, think about dropping in to tell me what’s wrong with this picture.