Venture Capital, Disruption & The New Media Order
I gave a talk yesterday at the Paley Center for Media to a number of members of the Writer’s Guild of America. The group generally consisted of folks who make or want to make a living by producing content — a job increasingly challenged by the web’s democratizing open platform.
I attempted to explain a little bit about venture capital and its significance in helping fund many of the most innovative companies of our time, how and why those companies tend to disrupt the status quo, the specific impact this disruption has had on the media industry and some practical tips for how to hopefully stay relevant in the new media order.
It was a thoughtful and receptive group. I hope they found the discussion worthwhile. If you’re interested, my slides can be found below.
As an aside, one thing the Internet sure has done is make the process of putting these presentations together so much easier. Images, data and even fully blown charts are all readily available in the public domain for anyone who needs them. Services like Slideshare and Scribd are simply fantastic. The web forces a premium on ideas and richness of discussion vs. the ability to make a fancy graph or chart. Yet another example of how the web enables us to focus on what really matters by making data and information so easily accessible to all.
View more presentations from mokoyfman.
Niche Media’s Unlikely Savior: Offline
I’ve been thinking a lot lately about the real and virtual worlds — where they intersect, where they depart, how they are the same, how they are different.
As we spend more and more time (and money) in the virtual world, elements of the ‘real world’ seem to actually increase in importance. While authentic real life experiences and interactions can be augmented significantly, they cannot be completely replaced.
For this reason, the live event business continues to thrive as many traditional media businesses struggle to survive.
Live sporting events are an immediately obvious example — anyone who’s been watching the NBA playoffs knows how powerful they are. The only part of the music business that makes money today are concerts. See Irving Azoff’s comments at D7 yesterday. Speaking of which, conferences such as D are a big business. Nothing can ultimately replace that live interaction.
Of course the current recession has a negative impact on the live event business as well. But it’s woes are temporal rather than the systemic ones of traditional media.
Niche media brands will increasingly struggle if they are solely reliant on selling banner ads against limited online inventory. While these brands will begin and end their engagment with the customer on the web, and they must be really smart about how they leverage the broader social web to do so, they will distinguish themselves from the evergrowing pack of competitors for consumer attention by actually touching their consumer in tangible ways.
A perfect example of this is an email I received yesterday from New York Magazine, 
advertising a unique culinary experience they are offering their devout readers. They have done a great job engaging a very targeted, high value audience, both on and offline, and driving meaningful revenue opportunities beyond the advertising they sell on their site.
This is only going to get more widespread and more targeted, audience by audience.
I recently spoke at an event with Scott Heiferman, and I couldn’t help but marvel at what Meetup is tapping into in this regard. What began as a community organizing tool, may actually turn into one of the most engaging platforms for advertisers to reach authentic *live* communites. Is there anything better for Pampers branding efforts than sponsoring 5000 simultaneous mommy Meetups across the country complete with free diapers?
The niche media businesses that tap into these authentic connections and experiences will survive. Those that don’t and rely on traditional publishing and banner ads will have a very hard time doing so.
First Destruction, Then Creation
That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place…And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won’t break before new systems are in place. They are demanding to be told that ancient social bargains aren’t in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.
Clay Shirky, Newspapers and Thinking the Unthinkable
Since I read these lines from Clay Shirky’s brilliant piece on the decline of newspapers, I can’t seem to get them out of my head.
Recognizing destruction when it’s occurring takes a tougher emotional toll on us than an intellectual one. We may be acutely aware of what’s happening, but we still cling to familiar institutions. It’s a very natural human reaction. But once we begin to loosen our emotional grip on the past, we can break free.
Understanding what is to come in the wake of a revolution is an entirely different story. It is what venture capitalists attempt to do every day. But in reality, while we may be right on certain trends we certainly cannot predict the future with any degree of accuracy. We therefore bet on talented entrepreneurs going at big markets in the hope that *they* will figure it out.
Many markets are being completely upended today. The combination of increasing broadband penetration and speeds, rapidly declining personal computer costs, information and services moving to the cloud and recessionary pressures on many high cost traditional businesses has created the perfect storm.
But what will come in it’s stead? What businesses will be built? What models will be employed?
These are the questions being asked across a number of media and advertising markets today — the music business, the publishing business, the classified advertising business, the yellow pages business, the banner advertising business, the video business and the list goes on.
We have to change the way we think. We have to ignore old models and old cost structures. Forget the labels. Forget the printing presses. Forget the banner ad.
We have to start by asking what does the consumer or customer *really* want? How can we deliver it to them as efficiently and effectively as possible? What is the least it can cost us to deliver? What can we fairly charge for it?
Let’s take the classified ad business as an example. While the largely free craigslist has gone a long way towards annihilating a good portion of that market, does that mean there will be no value created in the future servicing local businesses looking to acquire consumers?
Certainly not. But with our limited current view, we often fail to see the possibilities or even what’s happening right under our nose.
First of all, old school classified categories such as recruiting, autos and personals have all seen hugely profitable businesses built on the web (e.g. Monster, Autotrader, Match). Now these businesses, or at least their current models, are themselves likely to be upended by better, more efficient models over time. But new ones will certainly be built in their stead to service the same needs but with very different business and economic models.
Secondly, while craigslist is incredible at inventory and demand aggregation, it has other holes in its offering for local merchants. Social marketing and payments solutions are just two examples where innovation has barely scratched the surface.
I continue to be intrigued by vertical content and marketplace businesses starting anew in the wake of the creative destruction we’re experiencing. The businesses of tomorrow are being created today. Keep ‘em coming!
Pitchfork: ‘The New Man’
The re-launched Pitchfork.com is flat out excellent. I’ve been a big fan of the site for years, but it took a quantum leap forward with the recent redesign. The editorial sensibility is as sharp as ever, the layout is incredibly clean and easily navigable, the use of lists is a great way to synthesize content into smartly digestible bits and the ability to sample more music and videos was sorely needed. All in all, it is an outstanding face-lift for what was already the gold standard in music editorial on the web.
The Pitchfork redesign and my friend Dan Harris’ Tweet to me yesterday asking if Pitchfork had become ‘the man’ got me thinking more broadly about the evolution of editorial filters.
Outside of expensive video production and serious investigative journalism, the barriers to content creation are largely non-existent today. Content is flowing like water on the web. As a result, ways to filter and curate that content are becoming ever more important for overstimulated consumers.
Technology has enabled new types of open, ‘pull’ filters previously impossible at any degree of scale in a closed, analog, ‘push’ distribution world. It’s always tough to appropriately categorize and label these things, as the specifics often fall into multiple buckets, but I generally think of two categories for these new curators: Platforms and Aggregators.
Platforms such as Twitter, Tumblr (both Spark companies) and others easily enable me to get a constant flow of great suggestions from friends and other trusted voices. Folks put stuff out, and I decide what I want to consume. Twitter has effectively replaced my news reader (more on that another day), and I get a ton of music on Tumblr from folks I follow like tuneage, tracks, Andy, Bijan, Fred and many others.
Aggregators such as Techmeme and The Hype Machine present information pulled from editorial sources across the web deemed most relevant to their respective audiences. They are not purely user-driven platforms, but rather aggregate and curate largely through technology built to measure relevance.
Brands are all the way on the other end of the spectrum and are of course more traditional in their approach to content — they are fundamentally human created and edited offerings. This is where the Pitchforks of the world reside.
Maintaining and certainly building brands with so much noise out there today is incredibly difficult. And given the openness of the web, even great brands are reliant on these platforms and aggregators for distribution. I get Pitchfork updates through Twitter; I read NYTimes content through Techmeme.
And that’s exactly what is so impressive about Pitchfork. They stuck to their guns through the ups and downs and smartly built and grew a best-of-breed niche web brand from scratch — one that rises above the crowd, leveraging these new distribution points but making it worth spending some real time on the site itself. For this they will be rewarded with a business that continues to generate revenue, albeit less than what Rolling Stone made in its hayday, but with a much lower cost structure and therefore a profitable, sustainable model.
So to Dan’s question, yes Pitchfork has become ‘the man.’ But I don’t think they sold out. What they did instead is build arguably the best niche music editorial brand on the web. How many others in the music business can say anything that positive?
Pitchfork is the new model for niche web media properties. Well done.
The Kindle Swindle? Really?
I am a bit puzzled by Authors Guild President Roy Blount Jr.’s op-ed piece in the NYTimes today. He is up in arms over the Kindle 2’s new text-to-speech feature, defending the Authors Guild claim that it violates authors and publishers audio rights because they are not specifically compensated for them.
While this may be technically true given current IP laws (disclaimer: I haven’t spent enough time digging through the archane statutes to know for sure), I don’t understand the rational behind it. Unless a Kindle book purchaser would have separately purchased a full price audio book, there is absolutely no cannibalization taking place here. I’d frankly be very surprised if there was much overlap at all between individual’s purchases of printed and audio versions of the same book. In fact, I would bet that folks will buy books they otherwise wouldn’t have (in either printed or audio form) because of the Kindle’s additional text-to-speech benefit. I certainly will.
The larger point this highlights is the unecessary complexity embedded in our intellectual property system. This is largely a legacy effect, as technology has moved far faster than IP law has adapted. As Larry Lessig has been preaching for years, we must simplify the way intellectual property works or we will cripple our ability to effectively disseminate and monetize it in this new age.
As far as literature is concerned, I would posit that there should be one price for a digital copy of a book and a slightly higher price for a printed one to compensate for the cost of printing and publishing. With either purchase, one should get access to a digital copy as well as an audio copy so it can be enjoyed anytime, anywhere, anyhow. And the industry should price accordingly to ensure there is aporopriate margin for all involved.
At the end of the day, the IP is the IP. What form it gets consumed in is irrelevant. This approach will likely increase the overall sale of books as it will make it easier for people to actually read them.
Always Act From a Position of Strength
Nielsen and LRG released their latest media consumption reports yesterday, with some very encouraging results for the traditional media business.
The money stat from the Nielsen Q4 report:
The average American watches more than 151 hours of TV per month, an all-time high.
The key conclusion drawn in the LRG study:
The impact [of online viewing] on traditional TV viewing and multi-channel video subscriptions [cable and satellite] has been “negligible.”
Further, according to the LRG study:
Among all adults online, [only] 3% strongly agree that they would consider disconnecting their TV service to just watch video online – compared to 4% last year.
These results are certainly great news for an industry increasingly besieged by forces of change, perhaps still more ‘vocal’ than ‘real’ as confirmed by the latest research. And they are even more welcome as we face perhaps the worst economic downturn in our history.
I fear though that these results, as they often tend to do, may breed complacency in a media industry that should be bracing for change. Granted, with all the talk of convergence, the consumer is still not there. But mark my words he’s coming quicker than you realize.
Peeling back the onion on these two reports, a number of the secondary stats point to clearly shifting behavior:
- 74 million people watch time-shifted television vs. 54 million people in the fourth quarter of 2007, a 37% y-o-y jump.
- 31% of Internet activity occurs while consumers are also watching television.
- Young viewers (18-24) watch video on the Internet and on a DVR at the same rate: about 5 hours per month.
Simultaneous web surfing and TV viewing, the increasing move to time shifting and the growth in online video consumption, especially amongst the younger generation, are harbingers of what is to come — a largely on-demand, networked, social, lean-back viewing experience. It’s simply a matter of time.
So how should the media industry, and specifically the cable companies (where most of the value in the chain is consolidated) respond?
It is precisely at these times that they should use their existing power with consumers to lead innovation, rather than stifle it. The cable industry should act from a position of strength, ensuring that they emerge in the wake of disruption as a powerful force rather than a regulated utility.
This will involve some tough decisions and some serious wrangling between content creators/owners and distributors. But in the end, it’ll likely require some variation of the following (with many specifics of course to be worked out):
- Full embrace of the Internet as the platform for content delivery.
- Charge consumers for tangible usage rather than opaque bundling.
- Redesign content packaging to be useful for consumers rather than to protect sub-par programmers. Feed the good networks, kill the bad.
- Embrace third-party innovators and new technologies, such as Boxee (a Spark portfolio company) and others, leading the charge on the consumer front.
- A potential shrinking of overall revenue. To protect and grow margins in this new reality will require, in addition to the aforementioned ‘killing of bad networks,’ a reworking of the inflated content creation model and an end to inefficient uses of marketing dollars.
Admittedly this reality is a long way off, perhaps 10+ years before it comes to full fruition. But the time to act is now, and all parties will be better off when that day comes — cable companies, content creators, innovators and, most importantly, consumers.
Kindle Anticipation & Ambivalence
I ordered the new Kindle 2 this week, and I’m super psyched about it. Being on the move so much, it should make my reading life a lot easier. I’m especially excited to see how the speech to text feature works.
But one thing still gives me pause. Call me old school, but I am a serious lover of the book form factor. I simply adore books — how they look, what they represent, building my library — and I don’t want to give them up. Maybe I’ll laugh at this notion one day, but for now I’m not ready to part with them so easily.
I would think I’m not the only one that feels this way, so I was surprised to find that Amazon does not offer a reasonably priced bundled purchase option for the print and kindle versions. I’m buying the book already. How much can it cost to beam me a digital copy at the same time?
I hope Amazon offers this package soon. Otherwise, I may end up paying twice for my favorite books.
