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TechnologyDaily Mobile
It's The Distribution, Stupid
by Drew Clark
This is a time of high anxiety in the media business. Newspaper publishers are worried that no one buys their broadsheets, while everyone cherry-picks their best articles from the Web. Broadcasting general managers fear that no one tunes in anymore, while everyone sets their TiVo digital recorders, skips advertisements and downloads favorite news clips. The changing media world has put fear into media executives from Manhattan to Burbank.
Now they have one more worry, and it is a big one: the rising heft of the Bell telephone firms and cable companies. Those companies may use new freedoms from the FCC in a quest to shift value from the intellectual assets of creation to the physical assets of distribution. Think of all the trucks rolling by homes in your neighborhood emblazoned with logos like "Comcast," "Cox" or "Verizon Communications." They are a symbol of the telecom-cable industry reach.
In the early 1990s, the maxim of the information superhighway was that "content is king." It held that value in the Internet food chain resided at the top of its layers, with the intelligent content and software. Fast and dumb high-speed Internet pipes would carry the valuable stuff into homes and businesses, where it would be purchased by willing customers. Media companies, the theory went, would benefit. Pipe owners fed at the bottom of the Internet's layers.
After the rise of the Internet, the burst of the bubble and now the rebirth of "Web 2.0," it may be time for a new mantra: He who rolls the truck, rolls the competition.
The Rise Of Search Aggregators
The past decade has spawned a revolution in the media value chain. Companies like the online retailer Amazon.com, the eBay Internet auction firm, and search companies like Google and Yahoo did not exist when the content-versus-pipes debate first occurred. Now Google is a $124 billion company. Google and Yahoo also are now participants in "news" and "broadcasting."
That reality was pointedly framed during a discussion last week at the National Association of Broadcasters convention in Las Vegas about the news business in 2010. Assembled was a panel of experts from the news end of the broadcast and print businesses -- and Marissa Mayer, vice president of search products and user experience for Google News, the company's automated search of 4,500 news sources on the Web.
John Seigenthaler, an anchor and correspondent for NBC and MSNBC, referred to "how much I rely on Google News as a source of information" in describing the company as "one of the most powerful forces in the news business."
Mayer said Google provides "tools" for Internet users, like news alerts and its omnipresent Google News page. The company benefits from not having journalists and instead "gathers news from the thousands of sources," she said. Google uses computer algorithms so Web users can "see the collective judgments of editors" working for many different publications.
Google certainly drives traffic to otherwise lesser-known news sources, with Hindu Times cited as an example. Seigenthaler asked Tom Curley, the CEO of AP, how that helped his reporter get paid for the AP-written story in Hindu Times. "Let's see if Marissa can answer that," Curley said.
She acknowledged that Google's driving of traffic to Web sites benefits newspaper sites more than AP, which gets paid by its newspaper and broadcast owners and does not have a consumer-oriented site of its own. Curley chimed in: "Let me say more clearly, we are not suing them."
That's what Agence France-Press did last year, demanding that Google drop all links to its stories. AP has not followed that self-wounding strategy, but Curley and Mayer both said Google and AP are in negotiations over potential future deals.
Seeking A New Revenue Stream
In considering who will have leverage in the new media world, it is worth considering one of the key functions of newspapers.
Originally, publishers sold papers to readers, who bought their valuable collections of fresh information. As historian Paul Starr documents in his book "The Creation of the Media," newspapers in the 19th century matured to the point that they also could "sell" their readers to businesses. "Advertising was the key here as it enabled newspapers, magazines, and other media to be sold at a price below cost -- in tsa case of radio programs, to be given to listeners at no price, in exchange for their attention."
The question of who will pay for content creation is relevant to the "network neutrality" debate raging in Washington. Bell and cable companies oppose any efforts to regulate the way they design and charge for access to their broadband networks. The big Internet players, like eBay, Google, Microsoft and Yahoo, are making a concerted effort to bar Bells and cable operators from charging higher rates for delivering certain content.
That is where the uniqueness of newspapers' historic dual-revenue streams -- circulation and advertising -- glimmers brilliantly for industries now as diverse as the traditional broadcasters and telecom firms.
In sum, broadcasters have had advertising but now want circulation or subscription revenues. Telecom and cable firms have had subscription revenues but now want more than just monthly charges for a commodity phone or broadband service. They want "ad" monies from the businesses with the greatest interest in delivering content to their consumers.
Turning Piracy Into Revenue
Also at NAB last week, Anne Sweeney, president of the Disney-ABC Television Group, articulated the reasons for her company's vigorous pursuit of new business models. For example, the ABC broadcast network has bypassed local affiliates by allowing Internet users to download advertising-free episodes of popular shows like "Desperate Housewives" and "Lost" to their digital video devices for $1.99 per episode.
Much more of such disintermediation is in store. Sweeney announced a two-month pilot, starting Monday, of the ability to watch shows at the ABC.com Web site. Unlike the downloadable versions, the shows are available for free but are digitally wrapped with ads that must be viewed.
As a media company, Disney still is perhaps the most evolved of the broadcast networks in its reliance on cable television -- in the form of subscription revenues from channels like ABC Family, the Disney Channel and the ESPN sports network on expanded basic cable. The goal of the new Internet ventures, Sweeney said, is to defeat piracy by offering a better-quality and more convenient media product on different platforms: broadcast, cable, Internet and cellular phone.
"Our future is not a zero-sum game, where one platform erodes another," Sweeney told the crowd of broadcasters, including grumbling affiliates cut out of the network-only deals. Broadcasting did not kill radio, nor did cable television kill broadcasting, and neither will mobile broadband kill the Internet, she said.
"Instead of staking out territory based on old business models, we need to make the most of the emerging possibilities," Sweeney said. "We need to stop saying, 'this is how we have always done it.'"
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