Month: August 2006

Old Media as a Commodity

Is Old Media dead? Nope. It just smells a bit funny (to misquote Frank Zappa). But let’s start from the beginning. Media as a business is a mere pipsqueak in the troublesome world of high finance. Exxon Mobile as a single company has probably a large turnover than all media companies combined. And my fav example has always been the music industry, ogling the mobile business – when in fact Vodafone has a larger annual EBITDA than the whole music industrie’s cumulated revenues.

But media as a business has always been really attractive, too. Not just because of the Swarovski-glitz that comes with it (nice for us involved). And the potential of coming from rags to riches (and vice versa). Media mostly lacks direct financial power. But has the incredible leverage of making matters matter. Just ask Silvio Berlusconi. Or any given (former) Russian Oligarch. Or the people at Gazprom. Or, maybe, General Electric.

Sure, Old Media has been a quite good business, too. Maybe a bit volatile (yesterday’s hit is today’s fad). With some superstars milking their companies for the last cent (most investment bankers can relate to that). But if everything runs smoothly, the return was constantly pretty good. And if you’re in production, too, a real hit would mean a serious income peak (at least in movies, publishing or the music).

As any given business, the Old Media is based on scarcity: if you’re a broadcaster, spectrum is finite. If you want to produce movies, you need access to lots of capital, some rare talent and finite distribution. If you’re into books, you better own the printing press and know your distribution channels.

All those ventures did share some things: production and distribution are expensive. Sustainable stability of sales is a matter of expensive branding. And, with the notable exception of film, where you need an army or two to get a movie done, the creative part will be handled by just a handful of people.

And that’s why online media makes most old media companies a little queasy. In a peer to peer system, distribution cost is, well, distributed. There’s no real scarcity of spectrum or shelf space. And the technical expertise needed to setup a blog is worth a cup of Frappuchino per month. OK. Making money is still the hard part. And probably will be for the next foreseable future (AdSense just isn’t enough).

But the effect on media companies, after dabbling a bit in the New Economy bubble, has been quite soberng. Media outfits increasingly are abandoning the pretense of being “growth” companies—like Silicon Valley tech titans—and instead opting to return cash to shareholders, like boring but profitable electric utilities or food companies, writes Robert Marich for Kagan Research.

Meaning: the party’s not over yet. But don’t look for anymore bottles of Bollinger. If you want some sparkle, get used to Prosecco and Pellegrino. Of course, Old Media still means good business. But the old mainstays are eroding. Despite loosing market share, the US broadcast networks still sell their ad inventory for a premium (compared to cable networks). Because their still the only way to reach out to the masses. But those masses reached are shrinking. Local newspapers are still the opinion leaders in their communities. But webbased publishing and user generated are is already making inroads.

Sure, it’s a glacial process. But opinion making is changing from one to many communications to a more distributed process (where one to many still will be a major force, but not the only one).

It’s a process of commodization. But what’s in it for a media company? One reaction cold be: embracing the new media world order. News Corp buys MySpace, German powerhouse Hubert Burda Media picks lots of brains and everybody tries to extend their brands into the digital world. But a completely different thing seems to be going on with Bertelsmann. As, at first glance, the singlemost interesting activity of the company hadn’t been related to media at all.

Entry into ‘Public Service’ Sector in Great Britain is not the stuff you get some headlines out. Essentially, in July 2005 the Bertelsmann subsidiary Arvato took over 500 employees of the County of East Riding (a project, which seems to be running just fine). Is this the future of Old Media? Let’s not forget. Old media is quite good at competitively running large systems for subscriber management and other back end processes, sometimes involving millions of customers and subscribers. And running a town isn’t that new an idea for a media company. In Florida, Disney isn’t just the service provider for a municipality, but wholly owns Celebration. But then, real estate development is a completely different track (so don’t expect TimeWarner to take over New York City any time soon).

GoogleTube in search of tv riches

Is the Googleplex really the Dark Star, which attacks with sheer mental power all media conglomerates in the whole world? As we learned once from a tiny startup from Redmond, Washington: softwarebased world domination schemes are doable. It’s mostly a matter of the right timing combined with right cash flow.

Of course, Big G is to Microsoft what Austin Powers means to Mini-Me. They are much younger. Now look at that: Both are going after tv riches. The Microsofties conquer ally with old media since the nineties of the last millenium. From WebTV to WinCE STBs – nothing ever worked out. Their final (?) quest: selling Windows-based IPTV backend systems to telcos, so they can sell Windows-based STBs to consumers. Let’s see.

Googlianism works differently. The first law: For every problem there’s an algorithmic solution. The second law: If there’s no algorithmic solution, hire somebody who might find it. And, not to forget: As long as it might sell ads, it’s good.

And that’s how Google is going after the stupid box. Their cuckoo-approach, as published two months ago (listening into everybody’s home to serve the right ads) could have been a part of a Think Different! campaign. Their last move makes more sense. Google just hired Vincent Dureau, CTO of iTV/IPTV middleware company OpenTV.
FierceIPTV knows: Dureau was responsible for developing OpenTV’s key technologies, global business relationships and, in the early days, building its engineering team from scratch. OK. Quite a standard move, so far. But the good part starts here: Most interestingly, Dureau took the lead of OpenTV’s advanced advertising technologies, even penning a white paper that reads: “We believe that addressable advertising, where specific video ads are targeted to specific audiences will become central to advertising on digital television within the next 5 years… advertisers will be ready to pay premium rates to cable operators who can demonstrate increased efficiency of their advertising network through targeting.”

Here we go: Old media, be afraid. The main difference between the big tv networks and the cable networks with their smaller reach is: well, the footprint of the large networks allows them to sell their ad inventory with a premium. But IPTV means the possibility of a gazillion channels. AdSense-based IPTV should mean. the playing field gets more even. And as ad spending won’t explode, the monies have to come from some other segment.

But now the caveat: People spend onliy 5 percent of their time searching, but search commands over 40 percent of the online advertising market, writes David Berkowitz in Search Insider. Regarding IPTV, this translates into: the Dark Star will have to attack the EPG-empire of News Corp’s Gemstar TV Guide.

Via FierceIPTV