Craig Moffett of Bernstein Research has set the cat among the pigeons with a provocative piece that argues advertising is not going to underwrite the online video industry. His claim is part of a broader thesis that the emergence of "free" news is causing the demise of traditional investigative journalism -- and with it one of the pillars of democracy. The problem is simple: consumers are turning to the web for news, but will not pay for it and digital ads can not make up the shortfall. According to Moffett:
"Five years into the video-over-the-Internet revolution, we have learned two things. First; consumers won't pay for content on the web, so it will have to be ad supported. And second; it won't be ad supported."Moffett argues online video consumers will only tolerate about two minutes of advertising per half hour and when a like for like comparison is done between TV and online video, web producers will need to produce content at 1/8th the cost of traditional TV to make the same returns. The question he asks: "Are content producers prepared to reduce production costs…by 88%? Moffett is pessimistic about the ability of Hollywood to make this transition and it is a question equally relevant to magazines and newspapers, as news organizations around the world seek to re-size and re-make their newsrooms and sales forces to fit with the new order. (Radio arguably went through its re-incarnation a decade ago.)
Some random observations why the roof is not about to fall in:
- For many media organizations it is a case of going from 30 % plus margins to something around 20 %. The media business is still a nice earner and will make margins retailers, communications providers and manufacturers would die for. Take into account the relatively low capital costs of establishing a media business, (which thanks to technology are also collapsing,) and media remains a very attractive business.
- Most media has always been "free." Broadcast TV, radio, community and commuter newspapers and many magazines have successfully built strong franchises from an advertising-only model. Indeed in some cases it has made sense to actually pay consumers to take a media product as a means of reaching a key advertising demographic (e.g. a magazine about large sailing boats.)
- It is not that consumers don't want news -- the web has vastly increased the audience for numerous "traditional" media brands-- they just want it in a different form. The one-size-fits-all model most favored by old media looks curious, to say the least, in a world where consumers can buy multiple flavors of Coca-Cola in a variety of packs ranging from a small glass bottle in the convenience store to slabs of cans in the supermarket. Ditto cars, mobile phones and virtually any modern product you can think of.
- An example of rethinking the old model: slicing eight years of Jon Stewart's Daily Show into 13,000 pieces topped and tailed with video ads to be played on mobile phones, PCs and laptops around the world.
- There are some success stories of traditional media transitioning to digital. The lesson: it is not rocket science, but does take leadership, clear vision and focus.
- Open source technology and cloud computing platforms are creating lots of good opportunities for media start ups and investors. The booming U.S. blog industry is the best case in point. The only barrier to entry for media companies to the blog sector is their own "conservatism" -- Gizmodo, Techcrunch, Autoblog could arguably have been all started by any media company in the world.
- There are lots of different revenue models which media companies have not even begun to explore. Web usability guru, Jakob Nielsen, has suggested for example a micro payment subscription model based on usage similar to say electricity or telephones. Two hours of the NYT would cost say 20 pennies.
- These new models also include lower cost advertising which is attractive to residential and small business consumers, both previously locked out of the high cost broadcast sector. Google simply took the old classified system of cheap user based ads and made them smarter and easy to do. Small (and big) business loved it and $16 billion later (07 revenue) they are laughing. Already we are seeing sites which enable video ads for as low as $170 and both the UK based Daily Mail and News Corp. have bought into the budget self serve advertising game.
- Google has been truly disruptive, but hopefully sooner than later someone will come along with a search engine which actually returns information in an intelligent and usable manner, rather than the illogical and now completely gamed, page rank returns we now get. The point: What Google does is not unique and although much better than the first generation of search engines it still has serious inadequacies and inevitably some one will find a better way to do search. That suggests more disruption, but also the need for media to stay focused on what they know best: creating communities around the the stories which interest them.
- As the IP (internet protocol) revolution continues there will be lots of opportunities for smart media companies who understand the power and opportunities which comes from connecting all the various devices and applications together. (Video tours of communities streamed into GPS devices in cars is my own under the shower idea today.)
- As the IP revolution plays out how journalists make and publish their stories changes and in many cases quite radically. Is it as radical as when television arrived in the 1950's? I don't know. Over the next few decades a lot of newspapers closed, but without checking the numbers I would contend that television (and radio) actually grew the media (and advertising) pie.
- Economists are fond of describing the new media model as akin to the modern book store industry. Low barriers to entry and little restrictions on access. If so then some journalists will work in the big "Barnes and Nobel" shops, some in the "indy" neighbourhood stores and others in the virtual world, similar to say Amazon.
- While fragmentation is the order of the day, all the surveys suggest the traditional 80/20 media rules still prevails i.e 20 per cent of the sites get 80 per cent of the traffic, confirming what we all know: that we are creatures of (brand) habit.
