Friday, March 23, 2007

Commentary: How consumers hijacked the media model

Inside out
Commentary: How consumers hijacked the media model

NEW YORK (MarketWatch) -- It is no secret that the traditional media are under assault from audiences.
Not only are some consumers not paying for content, some are displacing those heretofore assigned to create it and others are affecting the economics by their online-sharing behavior.
That additional power given to the audience is evident in the financial results of many companies.
In the magazine industry, advertising pages at Time Warner Inc.'s (TWX) Time magazine were down 23.8% in 2006 from 2000, according to Publishers Information Bureau. Newsweek's ad pages fell about 17.6% in the same period.
In the newspaper industry, the New York Times (NYT) stock has been halved since trading above $50 in 2002.
In the music industry, sales of CDs have been declining in the last seven years and fell 20% in the first quarter of this year. And a significant distribution channel of music in the last two decades -- retail outlets -- saw 800 music stores shut down in 2006.
So how are media companies responding? In more ways than I can enumerate in this column. Each week, there is no shortage of a new response to the Internet-era's audience participation phenomenon.
On Thursday, News Corp. (NWS) and NBC Universal joined forces to create a joint site that will host both their popular shows. Additionally, the two entertainment giants inked deals with the Web's leading portals -- Yahoo Inc. (YHOO) , AOL and Microsoft Corp.'s (MSFT) MSN -- to distribute their shows and movies. The new site, which will accept user-generated content, is being created to serve the new TV audience, which to date has preferred YouTube-styled showcasing. See related story.
The audience also will determine which shows or movies, News Corp.'s or NBC Universal's, will get top billing on the joint site, according to News Corp. Chief Operating Officer Peter Chernin and NBC Universal Chief Executive Jeff Zucker. Again, the ability for the audience to vote or rate the content they wish to see is changing the way media companies are operating. See blog post.
Moreover, this week Time remade its magazine cover with skyboxes plugging other stories that highlight brand-name voices. In my opinion, what the magazine is doing is countering the easy information that's accessible all over the Web, thanks to the audience now contributing to the news- and information-gathering process. The breaking news bubbling up from the crowds is found everywhere on blogs as well as on new sites, such as NowPublic, which collects stories or eyewitness accounts from anyone willing to share.
In order to compete, the monolithic traditional magazine, newspaper and television networks appear to be relying on reporters to move up the value chain and become brands themselves to attract the audience. Why? It's not a one-size-fits-all media world. The audience is learning or becoming conditioned to identify with a personality or expert or show, rather than one big institution. So each reporter/columnist must provide more analysis, more insight and more dedication to his or her trade to outperform and outshine the crowded stage of free stuff.
Regarding Time, the Wall Street Journal writes: "In addition to the new look, editors have invoked the Economist as a role model for the new Time -- less of a news digest, more of an opinion journal." It goes onto to say: "It's a risky strategy for a mass-market magazine. If the appeal is too narrow, circulation could suffer, bringing advertising down with it."
Risk worth taking
But throughout the last half-dozen years, I think that many people who've led traditional companies have looked in the rearview mirror and saw that the risk was, in fact, worth taking. Blockbuster Inc.'s (BBI) slow move into the online DVD-rental business underscores the risks of not adapting to the new audience, now influenced by automated recommendations based the collective rental habits of others. Today, it's fighting to get the customer base now loyal to Netflix Inc. (NFLX) Essentially, the greater risk for Blockbuster was not changing or accommodating to new consumer behavior.
In like vein, the media are undergoing a significant overhaul of business models, and this is driven by the customer, now involved in producing and marketing content. The consumer or audience has a lot of power today.
It is with such power that magazines, such as Time, are trying to relate to the new consumer while not abandoning the old by testing out new models.
One new business model is in the economics of sourcing content and talent. At least for now, new sources of content can be bought cheaply -- meaning free.
At some point, however, the 1% of those who create the majority of the content that's retaining an audience will demand some form of incentive. That is why we are seeing an enormous amount of competitions as incentives.
Viacom Inc.'s (VIA) VH-1 just launched to find talented undiscovered filmmakers and producers. On the new site, amateurs can upload their 2-minute short comedy clip and submit them for a vote. One winner will have the chance of getting his or her production aired on national television.
According to Michael Hirschhorn, executive vice president of programming at VH-1, some of the user-submitted videos are "surprisingly good." ( Go to my blog to watch my interview with Hirschhorn.) Though VH-1 has no plans to hire any of these would-be filmmakers, it might have to consider this option down the road, since talent that attracts an audience will always go where the money is.
So what appears to have changed in the economics (at least for now) is the winnowing process of finding talent. Perhaps it's cheaper than hiring an agent? Still, there are new costs. The costs are the burden of exposing talent for free for someone else to capitalize on. Will one talented filmmaker go to Google Inc.'s (GOOG) YouTube or other sites, such as Metacafe, to get paid and be in front of a larger audience?
The economics for freelancers in media also appears to be changing. Google just introduced a "pay per action" advertising model, requiring a potential customer to do more than click on a page for the publisher of the advertisement to get paid. This pay-for-performance model is also finding its way to the content-generating process. On Metacafe, video producers only get paid after their content is viewed above a certain threshold.
Higher-quality demands
What about the editors, now that there are the people who want a say in what is news, like on Will there be fewer? Not necessarily. Editors and those who are paid to make decisions have been given their posts because of their ability to make good judgment calls. Those editors become more important to keep the audience who are more passive about ranking and rating news, but would prefer someone to spoon-feed it to them.
It's even more important for journalists to resonate with the audience as well. Time magazine seems to be doing just that with its big print announcements of its star columnists. Those are the new costs of supplying content, thanks to user input.
What other ways are models changing? The models are changing in the distribution of content. In a recent panel on citizen journalism, I noted that user-generated content isn't just in the form of creating it; it's in the form of their actions -- such as sharing, e-mailing or embedding little widgets on their social-network profile on News Corp.'s (NWS) MySpace or blog. It is in these actions that they are changing the distribution economics on the Web.
At MarketWatch, the power of big-media distribution has been at our roots from our early days with CBS. Now we're part of Dow Jones & Co. (DJ) But distribution can also be had in new ways.
Today, users get their media content piecemeal, and they get a lot of it from their friends who share bits and pieces of information by e-mailing or tagging or posting single stories on their social networks. Sharing news via word of mouth has become an incremental way of getting distribution thanks to today's users.
In the old pre-Internet days, consumers went to the newsstand or subscribed to periodicals. They also paid for cable channels to get a bunch of shows they liked and didn't like. They bought albums with songs they liked and didn't like. On the production side, talent moved up the value chain within big organizations to broadcast or publish their creations. This is all changing thanks to the audience.
Is it good or bad? Neither. It just is, and everyone will have to adjust to this new world order. End of Story

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