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media2.0 – Page 2 – jstrauss

Tag: media2.0

Entertainment-as-a-Service

[Cross-posted from my company blog.]

I just got back from a really fun (and delicious) lunch with Peter of Pantless Knights, who is in LA working on a hilarious new video, and one of the main things we discussed was the idea of Entertainment-as-a-Service. The term is a reference to the concept of Software-as-a-Service (SaaS), which is a business model generally contrasted with the conventional packaged or ‘shrinkwrap’ software model. Essentially, SaaS is a subscription business and packaged software is a retail business.

The entertainment industry is a retail business. Books, movies, tv shows, music are almost universally sold as one-off purchases. But, those things are just the packaging and the people selling them to you are just middle-men. The business of entertainment (not to be confused with the entertainment *industry*) is fundamentally a marketplace of attention between fans and content creators — fans have a finite supply of attention for which content creators are competing. So, then what is the entertainment industry? To use a very relevant analogy, it is the collection of intermediary businesses (i.e. publishers, studios, networks, labels) that have been acting like investment bankers, taking the raw materials of talent and creativity and packaging them up in a form they know how to sell (i.e. retail) and commanding a big slice of profit along the way. Entertainment doesn’t want to be a retail business, and that is the fundamental essence of the disruption the Internet has unleashed on the entertainment industry.

[Clarification: For the sake of this discussion, I’m using the term ‘content creator’ to represent those who add unique creative talent to the production process. As my dad pointed out, content creation is rarely a solo effort (most notably in film production, which can involve hundreds of individual contributors) to which studios, networks, labels, and publishers often contribute substantial value. But as those contributions are opaque and thus interchangeable as far as the consumer is concerned, I am excluding those who make them from the class I refer to as ‘content creators’ in this post. Otherwise said, even though the sound engineer plays a crucial role in creating the album, no one buys it based on *who* the sound engineer was.]

When you think about what elements of the entertainment business technology has really undermined, it’s nothing more than the packaging — the time slots and release dates and viewing windows and region codes that are artificial constructs of these middle-men trying to slice-and-dice the content into as many tranches as possible to squeeze out every last cent of profit. Just like the investment bankers and their CDOs fragmented and obscured the connections between investors and their investments, so have the studios, networks, publishers, and labels introduced complexity into the connections between content creators and their audiences. While that complexity, and the companies who created it, may have been a necessity in an era of technologically inferior marketing and distribution systems, they are simply market inefficiencies in the Internet age.

So, what is the difference between retail and subscription when it comes to entertainment? In a recent post on my personal blog about SaaS vs shrinkwrap software, I wrote:

The business model of packaged software invites feature bloat, because it’s upgrade driven and you need to continually find ways to justify why Thingamajig 2009 Pro Edition™ is so much better than Thingamajig 2008 Pro Edition™. Software as a Service businesses have a much different (and arguably greater) challenge, they need to continue to create value for their customers month after month….So, you end up with a much more customer-centric product…and a vendor who is truly interested in addressing your customer needs.

The first priority of a retail business is to maximize sales, building brand loyalty and repeat business may be means to that end but they always take a back-seat to whatever else will drive more sales. Whereas in a subscription business, customer retention (and thus customer satisfaction) is always top priority, even above new customer acquisition. So if a studio believes they can get a lot of people to see a crappy movie by spending more on marketing and less on quality, they will (and do, again, and again, and again…). Because all you’re buying from them is the packaging, they know you aren’t really paying attention to whether it’s a Fox or Warner Brothers or Paramount film (do you buy your cereal based on who made the box it comes in?). But, a director would rather disown a bad film than endorse the studio releasing something that doesn’t meet his standards and his fans’ expectations. This is because the director knows that his relationship with his fans is a subscription business, and if he disappoints them he will be unable to continue exchanging his content for their attention in the future. The studios understand this too — they don’t give Tom Cruise $25M (plus a cut of the gross) per movie because his acting skills bring $25M of quality to the screen, they do it because he has more than $25M in ticket, DVD, and merchandise sales worth of fans.

Entertainment is naturally a subscription business, and the Internet returns it to its natural state. The content creators who thrive online are those who understand this and focus on the ongoing satisfaction of their customers (see Ze Frank, Michael Buckley, Chris Leavins). The level of customer satisfaction these creators deliver is really only possible on the Internet because they can go direct-to-consumer without need of the middle-men and their packaging. These creators publish in all forms — video, photos, blogging, micro-blogging, music. They do not see themselves constrained by the legacy dividing lines of the entertainment industry, their goal is to entertain their audience by any and all means available. There is no distinction for them between primary and ancillary content, they are 360° entertainment brands. The other thing that has made these creators so successful online is their direct interaction with their customers. The best your most engaged fans can do offline is give you their personal attention (and the money that comes with it) and try to recruit others to do so as well. But online, they can interact with you and become part of the show. Empowering your customers is the surest way to make them even more engaged. As I wrote in another recent post on my personal blog:

Bringing your customers into the product development process has the dual benefits of helping you build better and more customer-centric products and making your customers your most passionate sales people (because after all, it’s their product too).

So, the Internet enables these creators to spend more time listening to their fans and creating new content they’ll enjoy while outsourcing the marketing to the community for free. This is the exact opposite of the offline retail model in which the studio takes money out of production budgets to put it into marketing campaigns. The ability to establish deeper relationships with their fans also allows online content creators to attain higher average attention per customer (ARPU) than is possible in the retail world, thereby making it easier to build more value by going deeper with a smaller audience.

To be clear, I’m not trying to say the only business model for content on the Internet is a recurring subscription fee. The ‘subscription business’ to which I’m referring is more the theoretical exchange of value between content creators and their fans, which can and will take many forms — including selling packaged goods. I’m also not saying that the online entertainment market is solely the domain of Internet-only content creators. In fact, I believe the Internet is most powerful as an entertainment marketplace when the quality and reputation of a historically offline content creator is freed of the constraints of the legacy packaged goods business model. Take for example Josh Freese, who gets extra points for using this freedom precisely to illustrate the absurdity of the conventional retail approach.

And now, I leave you with the profound product of the coming entertainment revolution:

P.S. Hat tips to Ian Rogers for the marketplace of attention thinking and Umair Haque for the marketing vs quality dichotomy.

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On Hulu and Boxee or Sometimes it sucks to be right

A little under two weeks ago in a comment on a GigaOM post about Boxee, I wrote:

I think [Boxee’s] current differentiation is based primarily on giving users the features and content they want in the form they want it, which is mostly a function of Boxee not being encumbered by the legacy business models of the incumbents.

Frowny BoxeeWell, today those legacy business models came knocking on Boxee’s door in the form of Hulu pulling its content from Boxee at the request of its conventional media incumbent content partners. Though the very diplomatic (but still genuine, which is a hard line to walk) blog post from Hulu CEO Jason Kilar doesn’t say why, I agree entirely with TechCrunch’s assessment that the content partners weren’t so keen to see Boxee getting all this great press for doing an end-around the legacy value chain these guys are fighting tooth and nail to prop up. Boxee was a stand-out at CES in early January and I don’t think it’s any coincidence that Boxee first heard from Hulu on this matter just 2 weeks after the NY Times ran a very high-profile and positive article on how Boxee was so awesome for delivering major media content to the tv in the way consumers want (which also happens to be exactly what the major media companies have been fighting against). When you think about it, this timeline pretty much matches what it would take for the content companies to read the NY Times article, bitch about it to each other, decide to go to Hulu, get push-back from Hulu, and then steam-roll them.

Steve Raymond has a great post on why this is such a short-sighted move by the content providers, with which I totally agree. So, I won’t rehash it here. But, I will say that this issue is only the tip of the iceberg threatening Boxee. Though they have effectively found an un-endorsed end-around to the legacy living room value chain, this shows how dependent they still are on the goodwill (or at least ignorance) of the incumbents. They have poked the bear and it is now awake. The networks obviously don’t want to lose the high CPMs and concentrated audiences they get from broadcast tv, which can arguably be replaced by online ads at some point in the future. But, what can’t be replaced is the increasingly valuable fixed revenue stream from the carriage fees paid by cable and satellite operators (NBC and Fox, the primary content providers to Hulu, both own ~10 widely carried cable networks). A product like Boxee is a direct threat to cable and satellite operators because it eliminates their positions as programming gatekeepers and turns them into dumb data-delivery pipes. So, I wouldn’t be surprised if this move was driven more by the cable and satellite companies than the content providers.

In my original comment, I predicted if Boxee succeeded in pioneering this space they were likely to end up like TiVo. Now I think they’ll be lucky to get that far.

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Delicious Bookmarks for January 27th through February 1st

These are my links for January 27th through February 1st:

  • Bookmarklet Builder – Handy tool for building bookmarklets, can convert back and forth from normal Javascript to bookmarklet form.
  • TwitterFriends – Your relevant network on Twitter – The most comprehensive (and interesting) Twitter stats application I've found to date. Instead of gimmickry about how you rank against other Twitter users in meaninglessly vague and opaque terms like "authority," this exposes the hard data about yours and your network's behavior compared to average, and gives you some pretty cool visualizations. If I understood statistics and such better, I think this is the kinda tool I could totally geek out on.
  • Which HD video Web service is the best? | Webware – CNET – In depth side-by-side comparison of online video hosting services.
    "- The victor: YouTube
    This time around, we feel really comfortable giving YouTube the quality crown. Its HD encoding is really nice, and you can't beat the price (free). One thing that really separates it from the others is that you can do so many things with your clip once it's up there. You can replace the music, as well as add subtitles and annotations. Community members can also respond to it, adding in-line video replies."
  • The Bacon Explosion – Take Bacon. Add Sausage. Blog. – NYTimes.com – A (very tasty) example of the power of social media to spread content virally. According to the article, the blog post about this recipe garnered 27,000 views 2 days after being posted thanks mostly to Twitter, Digg, and StumbleUpon. In the month since being posted, it has been viewed 390,000 times and linked to from 16,000 sites. Not bad for some bacon.
  • Secrets of my success: Netflix CEO Reed Hastings – Jan. 28, 2009 – A brief profile on Reed Hastings w/ business tips:
    – Target a specific niche: When there's an ache, you want to be like aspirin, not vitamins. Aspirin solves a very particular problem someone has, whereas vitamins are a general "nice to have" market.
    – Stay flexible: We named the company Netflix (NFLX), not DVDs by Mail because we knew that eventually we would deliver movies directly over the Internet.
    – Never underestimate the competition: We erroneously concluded that Blockbuster (BBI, Fortune 500) probably wasn't going to launch a competitive effort when they hadn't by 2003.
    – There are no shortcuts: Occasionally great wealth is created in a short amount of time, but it's through a lot of luck in those situations. You just have to think of building an organization as a lot of work. It may or may not turn into great wealth.
  • Streaming video cannibalizing DVD rentals, says Netflix – Ars Technica – Netflix results show that streaming video views are taking away from DVD-by-mail volume. Given that there is no price difference (both streaming and DVD-by-mail cost the same per month), the streaming bitrate is at DVD quality or less, and the selection of films available for streaming is worse than that of DVD-by-mail, this is further proof that *convenience* (the only real advantage of streaming vs. DVD-by-mail) is a very powerful motivator for media consumers.
  • Facebook Pages Leaderboard – A neat tool for tracking the popularity of Facebook Pages by number of fans over time. However, the data doesn't appear to be totally reliable. So, be sure to check the current stats on Facebook before hanging your hat on any of these numbers.
  • Announcing the AllFacebook Pages Tracker – Interesting facts about Facebook Page fan stats (as of January 27, 2009)
    – Barack Obama is #1 w/ 4.7M fans, Homer Simpson is #2 w/ 2.6M, and Coca-Cola is #3 w/ 2.3M (I pulled the stats for these from Facebook directly)
    – All Facebook is tracking 620,000 Pages
    – Only 50,000 Pages (~8%) have > 1,000 fans
    – Only 276 Pages (~0.04%) have > 500,000 fans
  • Deborah Schultz: Life isn’t binary, neither is the Social Web – "The social web is my web – it's PERSONAL to me. I am not creating media when I am online so much as I am connecting with people using media as my medium…The social web can actually provide much deeper and more interesting connections for customers and companies than simply being a marketing channel – it ties into the entire product lifecycle. And that is where stuff gets really interesting…and much more complex. This is where relevance and context and trust and intention all come into play."

These are my Delicious links for January 27th through February 1st:

  • Bookmarklet Builder – Handy tool for building bookmarklets, can convert back and forth from normal Javascript to bookmarklet form.
  • TwitterFriends – Your relevant network on Twitter – The most comprehensive (and interesting) Twitter stats application I've found to date. Instead of gimmickry about how you rank against other Twitter users in meaninglessly vague and opaque terms like "authority," this exposes the hard data about yours and your network's behavior compared to average, and gives you some pretty cool visualizations. If I understood statistics and such better, I think this is the kinda tool I could totally geek out on.
  • Which HD video Web service is the best? | Webware – CNET – In depth side-by-side comparison of online video hosting services.
    "- The victor: YouTube
    This time around, we feel really comfortable giving YouTube the quality crown. Its HD encoding is really nice, and you can't beat the price (free). One thing that really separates it from the others is that you can do so many things with your clip once it's up there. You can replace the music, as well as add subtitles and annotations. Community members can also respond to it, adding in-line video replies."
  • The Bacon Explosion – Take Bacon. Add Sausage. Blog. – NYTimes.com – A (very tasty) example of the power of social media to spread content virally. According to the article, the blog post about this recipe garnered 27,000 views 2 days after being posted thanks mostly to Twitter, Digg, and StumbleUpon. In the month since being posted, it has been viewed 390,000 times and linked to from 16,000 sites. Not bad for some bacon.
  • Secrets of my success: Netflix CEO Reed Hastings – Jan. 28, 2009 – A brief profile on Reed Hastings w/ business tips:
    – Target a specific niche: When there's an ache, you want to be like aspirin, not vitamins. Aspirin solves a very particular problem someone has, whereas vitamins are a general "nice to have" market.
    – Stay flexible: We named the company Netflix (NFLX), not DVDs by Mail because we knew that eventually we would deliver movies directly over the Internet.
    – Never underestimate the competition: We erroneously concluded that Blockbuster (BBI, Fortune 500) probably wasn't going to launch a competitive effort when they hadn't by 2003.
    – There are no shortcuts: Occasionally great wealth is created in a short amount of time, but it's through a lot of luck in those situations. You just have to think of building an organization as a lot of work. It may or may not turn into great wealth.
  • Streaming video cannibalizing DVD rentals, says Netflix – Ars Technica – Netflix results show that streaming video views are taking away from DVD-by-mail volume. Given that there is no price difference (both streaming and DVD-by-mail cost the same per month), the streaming bitrate is at DVD quality or less, and the selection of films available for streaming is worse than that of DVD-by-mail, this is further proof that *convenience* (the only real advantage of streaming vs. DVD-by-mail) is a very powerful motivator for media consumers.
  • Facebook Pages Leaderboard – A neat tool for tracking the popularity of Facebook Pages by number of fans over time. However, the data doesn't appear to be totally reliable. So, be sure to check the current stats on Facebook before hanging your hat on any of these numbers.
  • Announcing the AllFacebook Pages Tracker – Interesting facts about Facebook Page fan stats (as of January 27, 2009)
    – Barack Obama is #1 w/ 4.7M fans, Homer Simpson is #2 w/ 2.6M, and Coca-Cola is #3 w/ 2.3M (I pulled the stats for these from Facebook directly)
    – All Facebook is tracking 620,000 Pages
    – Only 50,000 Pages (~8%) have > 1,000 fans
    – Only 276 Pages (~0.04%) have > 500,000 fans
  • Deborah Schultz: Life isn’t binary, neither is the Social Web – "The social web is my web – it's PERSONAL to me. I am not creating media when I am online so much as I am connecting with people using media as my medium…The social web can actually provide much deeper and more interesting connections for customers and companies than simply being a marketing channel – it ties into the entire product lifecycle. And that is where stuff gets really interesting…and much more complex. This is where relevance and context and trust and intention all come into play."

Delicious Bookmarks for January 9th through January 23rd

These are my links for January 9th through January 23rd:

  • Tube Mogul Buys Video Analytics Firm – "TubeMogul currently has over 40,000 users, ranging from networks and studios such as CBS, to web only video producers and bloggers like 'Fred.' Illumenex current clients include Internet TV pioneer Revision3 and comedy site 'eBaum’s World.'”
  • "Don’t forget…" – a set on Flickr – Really cool street art project in Berlin (where else) that is adding Photoshop interface elements to billboards to remind passers-by that these images of beauty are artificially enhanced. (via https://addons.mozilla.org/en-US/firefox/addon/9591)
  • Facebook Developers | Facebook Developers News – Facebook is now allowing custom FBML tags, essentially code libraries produced by 3rd party application developers that can be used by other application developers to add functionality from one app to another. This opens the door to officially sanctioned mash-ups of Facebook apps, which are already mash-ups in themselves. Using the term mash-up in a non-ironic fashion makes me want to punch myself.
  • The Inauguration of President Barack Obama – The Big Picture – Boston.com – A poignant collection of photos of Barack Obama's inauguration and the reactions to it around the world. My favorite is the American soldier in Iraq crying tears of joy (#19). The fact that the routine transfer of power in our country can inspire such powerful reactions around the world is evidence of what a truly global world in which we now we live. And I believe it shows that we as American citizens are making progress towards redeeming ourselves in the eyes of the world, who hold *us* (not just our leaders) accountable for the actions of our nation.
  • Transcript – Barack Obama’s Inaugural Address – Text – NYTimes.com – Text of Obama's inaugural address.
  • Rev. Lowery Inauguration benediction. Transcript. – Lynn Sweet – "Lord, in the memory of all the saints who from their labors rest, and in the joy of a new beginning, we ask you to help us work for that day when black will not be asked to get back, when brown can stick around — (laughter) — when yellow will be mellow — (laughter) — when the red man can get ahead, man — (laughter) — and when white will embrace what is right."
  • Resources Every WordPress Theme Developer Should Know About! | Arbenting – A comprehensive list of resources for WordPress Theme development.
  • YouTube Videos Pull In Real Money – NYTimes.com – Many have long claimed that the only profitable type of online video content was repurposed TV shows/films or other "professionally produced" content. This article give several examples dispelling that myth and showing that the online video audience and business has reached a point where even so-called amateurs can make real money. For example, Michael Buckley is making >$100k/year from his homegrown entertainment news show "What the Buck?" purely through YouTube's partner program.
  • Op-Ed Contributors – The End of the Financial World as We Know It – NYTimes.com – Comprehensive (if not revelatory) overview of some of the primary drivers of the financial bubble and resulting collapse by Michael Lewis and David Einhorn. Puts things like the failures of the ratings agencies and the greed of financial services company shareholders, which have been examined more deeply on their own, into the broader context of our current hindsight.
  • YouTube Is Changing How We Think About Video | Techdirt – "The power of YouTube is that it enables something entirely new and different to emerge and to thrive. In the history of disruptive innovations, merely taking a product from one medium and moving it to another usually doesn't get very far. It's the projects that really embrace the new possibilities that are only possible via that new medium that really make an impact."

These are my Delicious links for January 9th through January 23rd:

  • Tube Mogul Buys Video Analytics Firm – "TubeMogul currently has over 40,000 users, ranging from networks and studios such as CBS, to web only video producers and bloggers like 'Fred.' Illumenex current clients include Internet TV pioneer Revision3 and comedy site 'eBaum’s World.'”
  • "Don’t forget…" – a set on Flickr – Really cool street art project in Berlin (where else) that is adding Photoshop interface elements to billboards to remind passers-by that these images of beauty are artificially enhanced. (via https://addons.mozilla.org/en-US/firefox/addon/9591)
  • Facebook Developers | Facebook Developers News – Facebook is now allowing custom FBML tags, essentially code libraries produced by 3rd party application developers that can be used by other application developers to add functionality from one app to another. This opens the door to officially sanctioned mash-ups of Facebook apps, which are already mash-ups in themselves. Using the term mash-up in a non-ironic fashion makes me want to punch myself.
  • The Inauguration of President Barack Obama – The Big Picture – Boston.com – A poignant collection of photos of Barack Obama's inauguration and the reactions to it around the world. My favorite is the American soldier in Iraq crying tears of joy (#19). The fact that the routine transfer of power in our country can inspire such powerful reactions around the world is evidence of what a truly global world in which we now we live. And I believe it shows that we as American citizens are making progress towards redeeming ourselves in the eyes of the world, who hold *us* (not just our leaders) accountable for the actions of our nation.
  • Transcript – Barack Obama’s Inaugural Address – Text – NYTimes.com – Text of Obama's inaugural address.
  • Rev. Lowery Inauguration benediction. Transcript. – Lynn Sweet – "Lord, in the memory of all the saints who from their labors rest, and in the joy of a new beginning, we ask you to help us work for that day when black will not be asked to get back, when brown can stick around — (laughter) — when yellow will be mellow — (laughter) — when the red man can get ahead, man — (laughter) — and when white will embrace what is right."
  • Resources Every WordPress Theme Developer Should Know About! | Arbenting – A comprehensive list of resources for WordPress Theme development.
  • YouTube Videos Pull In Real Money – NYTimes.com – Many have long claimed that the only profitable type of online video content was repurposed TV shows/films or other "professionally produced" content. This article give several examples dispelling that myth and showing that the online video audience and business has reached a point where even so-called amateurs can make real money. For example, Michael Buckley is making >$100k/year from his homegrown entertainment news show "What the Buck?" purely through YouTube's partner program.
  • Op-Ed Contributors – The End of the Financial World as We Know It – NYTimes.com – Comprehensive (if not revelatory) overview of some of the primary drivers of the financial bubble and resulting collapse by Michael Lewis and David Einhorn. Puts things like the failures of the ratings agencies and the greed of financial services company shareholders, which have been examined more deeply on their own, into the broader context of our current hindsight.
  • YouTube Is Changing How We Think About Video | Techdirt – "The power of YouTube is that it enables something entirely new and different to emerge and to thrive. In the history of disruptive innovations, merely taking a product from one medium and moving it to another usually doesn't get very far. It's the projects that really embrace the new possibilities that are only possible via that new medium that really make an impact."

Happyjoel on the CBS Evening News

Cross-posted from the Snowball Factory blog

Last week, our friend (and first client) Joel Moss Levinson, aka Happyjoel, appeared in a CBS Evening News with Katie Couric segment called Cashing In on YouTube (watch it below). For Joel, this follows an appearance on the Tonight Show with Jay Leno, a profile in the New York Times, and (our personal favorite) being named an AccessHollywood.com Rising Star. As you can see in the clip below, the majority of this coverage has been driven by the novelty of Joel’s success. He’s a guy who subsists entirely by making amusing music videos for products for which he has no personal affinity — what news producer wouldn’t love this story?!


Watch CBS Videos Online

For us though, the real story isn’t the wackiness of Joel’s success but rather how he has achieved it. Of course, having the ability to come up with witty lyrics about how awesome watermelons are and the time and energy to scour the interwebs for brands looking to crowd-source their marketing are necessary, but they’re not sufficient. Michael Buckley, the other online video personality covered in the CBS News segment, told the NY Times “I was spending 40 hours a week on YouTube for over a year before I made a dime.” Like Michael, Joel does a lot more than just what you see on screen. Arguably, making the videos is the easy part (at least for someone like Joel) — the real challenge has been building and cultivating the loyal fan-base (or as Joel calls it, his “contest voting army”) that has made him such a newsworthy phenomenon.

As of this writing, Joel has:

Each of these relationship channels has different strengths and weaknesses, and we have achieved a good measure of success using them in concert through best practices and a substantial time commitment. But, the system is far from perfect. In addition to the redundant work required to build and maintain relationships through all these various channels, it is very difficult to identify and de-duplicate the individuals across them, and it is basically impossible to have a cohesive view of what is going on in your fan universe.

While 800 lbs brands like Britney Spears or 50 Cent have enough clout to ask their fans to sign up for new services, the rest of us need to find effective ways to reach our potential fans where they already live online. YouTube, Facebook, Flickr, MySpace, and other popular social media services provide access to their huge existing audiences, but the relationships you build through them have to be on their terms. We’ve learned from experience in the trenches with clients like Joel and Handsome Donkey, and we’re hard at work on a solution that gives independent online media brands the best of both worlds: access to existing social media audiences with greater control over the fan relationships it generates. So, stay tuned!

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If you love something (and/or want to make money from it online), set it free.

This past Sunday, I had a long discussion about the NY Times article on Time-Warner’s new content-centric strategy with my father, who happens to be in the film business. While the article touched on some of the complexities that exist in the legacy value chains for both movies and tv, I thought it glossed over important details and ended up being somewhat contradictory. On the one hand, the author labels the move to spin off T-W Cable as “eviscerating the once-popular corporate notion peddled by business consultants and merger specialists that content and distribution should reside under one roof.” But just a few paragraphs down, he talks about T-W’s interest in NBC Universal, primarily as a distribution outlet for the tv shows T-W produces.

In theory, a pure-play content company would *just produce content* — it wouldn’t program (i.e. tv network), it wouldn’t distribute (i.e. movie studio), it wouldn’t deliver (i.e. cable/satellite provider). This type of horizontal focus (or modularization) is advocated by Clayton Christensen once a market of vertically-integrated solutions has reached a “good enough point” for consumers, because it enables the firms at each layer in the value chain to focus on what they do best and exploit best of breed solutions available in the rest of the stack to do the rest, thus maximizing overall efficiency and profit. In our terms, a company purely focused on making the best content is free to choose *whatever* distribution solutions will make it the most money from that content. In NewTeeVee’s analysis of this same NY Times article, they said “How we watch is all the same. What we choose to watch, however, is a different story.” In other words, distribution is the commodity and content is the differentiator. I couldn’t agree more if the only channel in question is online. But as long as content creators want to exploit their content beyond the Internet, there is a different set of rules, and those rules generally extend to what those creators can do with their content on the Internet as well.

Studios can no longer claim ignorance of what consumers want — Jeff Bewkes (T-W CEO) tells a story of how he was told by file-sharers “We’ll pay for movies if you give it to us the right way” — but, they are now claiming (however ironically) impotence to deliver it —  that the major stakeholders in their other (more lucrative) means of exploitation, like Walmart (DVD), theater owners (theatrical, duh), and cable/satellite operators (PPV), won’t let the studios innovate too much online for fear of cannibalizing the other channels. As much as this may be true, the studios are pretty happy to have their hands tied because they already know how to (and do) make a lot of money from those other channels and they have barely started to figure out how to make real money online. Going back to Christensen, this is a classic example of an entrenched incumbent seeing disruptive innovation coming a mile away and doing nothing, as epitomized in this quote from the NY Times article:

But until technology forces Hollywood’s hand — Mr. Bewkes suggested that it would take three to five more years before high-definition videos are delivered conveniently over the Internet — the industry will retain its grip on sequential windows of release.

This all stems from the fundamental discontinuity of extending an offline media business online. In the offline world, control is the key to success — it is what enables the winners to exploit the inherent inefficiencies in the system at the expense of the losers and, to no small degree, consumers. In the online world, attempts to retain control generally stifle growth by limiting exposure — you have to be willing to let go of your content to a certain degree and you need to build business models designed to take advantage of that approach. Not only is this counter-intuitive to a lot of conventional media executives, who have built careers (and personal fortunes) retaining the tightest controls possible, but it may also be in direct conflict with other important revenue streams, as we see with T-W above.

Unfortunately, there is no easy solution for those trying to bridge the gap. Some companies, like the NY Times itself, are leaping across this digital divide while they still can and largely abandoning efforts to artificially protect their offline business from the specter of cannibalization. And, they seem to be having some success. This past Sunday evening, there were five NY Times stories on the front-page of Techmeme (the next closest sources were TechCrunch and CNET with two stories each), which should be driving some solid traffic to nytimes.com. By making their high-quality content available for free on the web, instead of holding it back to drive paying offline subscribers, the NY Times is aggressively driving readers (and thus ad revenue) to its online business. While those online readers may not be as lucrative as the offline subscribers today, there’s lots of room to improve online monetization if you have the readers, and offline readership is only going down and fast. On the opposite end of this spectrum is the Philadelphia Inquirer and their recent moves to consciously make their online offering *less* competitive in preservation of their offline business. T-W and the rest of the film industry seem stuck somewhere in the middle — keeping abreast of what consumers are demanding and giving them just enough incremental progress to remain satisfied without actually doing anything really disruptive to the studios’ other businesses. Christensen would argue that waiting too long on the offline side will preclude one from successfully making it to the online side when it’s finally more attractive (see Recording Industry). I guess we’ll see which side Bewkes and company end up on when “technology [finally] forces [their] hand.”

On Apple and Steven P. Jobs

[Originally posted on my 360 blog]

First of all, yes people, this blog is not (entirely) dead. I’ve been a bit busy with stuff over the last few months. In many ways, Flickr and Twitter have replaced this blog for cataloging my random acts of self-expression. And while there were a few subjects I felt worthy of real blog posts in that time, and I even started writing up a couple of them, I just haven’t had the time (or, more accurately, the attention span) to see any of them to completion. But today, I found myself writing a blog post sized comment on my friend Ian’s blog for the second time in a week. So, I figured why not leverage some of that energy over here. So, here goes…

Right now it seems that everyone is talking about Apple, and you can’t talk about Apple without talking about Steve Jobs. As a student of business and management, I find Apple since the return of Steve Jobs to be an extremely interesting case study which I’ve followed very closely. And for someone who’s never worked there, I think I’ve been able to glean some relatively deep insights into the company:

  • I’ve been an avid Apple customer for the last 17 years, giving me a solid grasp of the history of their consumer product efforts
  • The product I work on was originally Mac-only and is now competitive with features in OSX, so I know what it’s like to be an Apple ISV and competitor
  • I work with a number of hardcore Apple fan boys (and one ex-employee/fan boy) — no less than 5 members of our team waited in line for the iPhone — so I get to observe first-hand the impact of Apple-mania even though I’m no longer as personally passionate about the company as I once was
  • I’ve been able to attend the last 4 Stevenotes (2 MacWorlds, AppleTV special event, and this week’s iPod Touch special event) thanks to another Apple fan boy for whom I work, so I’ve experienced full power and glory of the Cult of Steve.

A little over 2 years ago, I sold the 200 shares of Apple stock I bought back when Jobs returned to be CEO. At $41/share, I made a tidy profit and an $18,000 mistake based on yesterday’s closing price (or, more depressingly, $21,672.35 based on the 52-week high). Why did I sell? Simple, I underestimated Steve Jobs.

I originally invested in Apple because I felt it was undervalued based on the assets that were in plain sight. Contrary to people who thought Apple was on its last legs and about to be steamrolled by the cheaper WinTel ecosystem, I believed strongly that the innovation and quality Steve Jobs brought to computers insured that Apple would lead the growing high-end segment of the home PC market and would be profitable doing so. When the stock started surging on the hype of the iPod, I sold because I felt the market was placing too much value on a non-core product line with unsustainable growth. Boy, was I wrong!

Continue reading “On Apple and Steven P. Jobs”

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