Weakness in the Media Distribution Business Model
No Longer Just King, Content Is An Entire Aristocracy – so Beware of Usurpers
While on a short holiday in Mexico last week, I noticed that season two of my guilty pleasure, Better Call Saul, was available on Netflix. Since I was on vacation in warm climes, I noted it with delight but avoided binge-watching all episodes. And was dismayed to come home and discover it was no longer to be found. Evidently the licensing for this very American series is such that it is not available yet to Netflix’ customers in the U.S. Even in this internet age, Sir Mick, we still can’t always get what we want.
I like movies and television as much as the next guy, but I’m not overall a big consumer of video. So if I’m frustrated by the way media is distributed, others must be much more so. Consumer frustration means there’s a need to be filled. Netflix, Cable companies, TV networks or the like will either fill it or get knocked about when new players do. The power and control that accrues to any media company is a function of its viewers. It’s a virtuous circle when on the upswing: popularity attracts advertisers which fund more and better shows which yield power and more popularity; but if people can’t find what they’re looking for on TV, they go elsewhere and the star maker machinery starts to rust. And there are new players now sawing at the pillars of the established business models.
At grave risk of over-simplifying, the value proposition of the big media conglomerates works three ways. Firstly, they provide delivery infrastructure: broadcast antennas, cable plants, satellites and the rest of it. Secondly, they produce or acquire content. And finally, they select it, curating it, as they like to say, in arrangements of channels and schedules. It’s easy to underrate the importance of this final prong. It’s less visible than satellite dishes and “Produced by” credits. But the decisions about what to show us, how, and when is what determines popular conversation and the public taste, media careers, and of course business success.
Each one of these pillars has withered in recent years. Take infrastructure. Who needs it? “Cord cutters” is the neologism for those who’ve decided they can live without cable; but plenty of people go even further. I have DirecTV included with my rent, but it stopped working in early 2012, and I finally got around to calling for support in the fall. The technician was due to arrive on October 29th, a date that’s easy to look up because it’s when Hurricane Sandy knocked out the power. Needless to say, the DirecTV rep never showed up, and I never bothered to reschedule. My wife and I have simply never missed it. Even if that seems strange to you (and it still does to many), there’s no question that any kind of broadcast physical plant is growing less important. Online content is taking exclusive hold over more and more eyeballs: a milestone was reached over a year ago in which half of U.S. viewers were watching digital video at least once a month. While traditional cable and network TV channels will hold the top spot for a few years yet, with younger millennials watching more online than on TV, the trend towards irrelevance looks strong.
Content production also isn’t what it used to be. While professional production values will always be important, it seems there is also room for anyone with a camera and a good (or just off-beat) idea. If you hadn’t figured that out from YouTube’s success, just look at Snap’s $30B valuation following its IPO last week. People are watching more and more informal, unprofessional or semiprofessional content that isn’t licensed and distributed except by the creators themselves. There’s an argument that this content doesn’t compete with CBS, News Corp., Viacom and their friends, but consumers can only spend so many hours a day looking at screens and if they’re watching my vine they’re not watching NCIS or The Voice.
That leaves curation. Networks lost their supremacy in the 80’s to the diversity of the cable companies. In recent years the cable companies have seen customer’s patience with packages diminishing in favor of the à la carte model. And in the same period Netflix has pulled viewers from all TV ratings. People like to able to pick and choose for themselves, be their own curators.
Since traditional media outlets are no longer the gatekeepers they used to be, they will feel pressure to make more of their libraries available. One of the reasons for the rise of reality TV is that the competition has been evolving from one fought on the basis of quality to one that can be won with quantity. When everyone is watching the same thing, the excellence of a company’s particular properties matters most. Now with so many narrow genres and specialty niches, how broadly you cover the whole fragmented market matters as much. Media companies will have to open the doors instead of playing the duenna to their catalogs.
It follows – perhaps letting me finish Saul Season 2 – that licensing will need to have a global purview. Carving up rights to a creative work never made much logical sense. It’s just a way to artificially limit access, to throttle supply. When a frustrated audience can proxy into Europe or go to the Pirate Bay, there’s less value to be had in drawing artificial lines on a map.
The content gusher that has welled up over the last few decades is flooding everywhere but especially online, and is set to explode into new dimensions of virtual and augmented reality. Media empires like Time-Warner will struggle to maintain their revenues, and to do so they’ll need to open the spigot, not dole it out a bucket at a time. They’re smart enough to know that the more they tighten their grip on their properties, the more will slip through their fingers.
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