So what is a Media Mogul to do? They control pipes in a world of zero margin costs. It costs virtually zero to sell one more digital song, or run one more digital ad or post one more digital classified. As chips and bandwidth get cheap, digital distribution crumbles the quaint old days.
- Craigslist took the classified ad business away from newspapers by doing it better for zero marginal cost. They charge for job listings in San Francisco and NY because, well because they have some bills that need to be paid. So classifieds were are huge profit center and are now,... , are worth almost nothing.
- Music is must cheaper to distribute in digital form than truck deliveries to record stores. Copyright issues be damned, listeners preferred digital music to be carried around in devices the size of a deck of playing cards or a pack of Wrigleys Chewing gum. Morpheus, Kazaa, BearShare, LimeWire gave customers what they wanted. iTunes barely makes up for the record labels missing the beat. Music may not want to be free, but it sure wants to be distributed for free.
- Voice calls via Skype, PC to PC, are free. They singlehandedly yanked down the price umbrella of overseas calls to 7 cents a minute. The telcos had to respond to free.
- Newspaper and TV journalists had a long run as the trust voice of news. Now distributed bloggers can take turns scooping professionals. It's not only that distributed news gathering is cheaper, its the zero marginal cost of distribution. Post it to a blog, get picked up by other blogs and search engines. Bask in glory. Rinse. Repeat.
In each of these examples, because of marginal costs approaching zero, it is increasingly a better business to provide technology to millions, even billions of folks rather than try to protect the control of a pipe to a few. The right answer is to GO WIDE. It's time to get horizontal. Newspapers should have licensed Craigslist's (or eBay's) technology years ago. Telcos should have embraced or emulated Skype. Drop CDs and distribute all your music (and everyone else's) online at a price that doesn't protect retail, but destroys it (which is happening anyway!).
The time and the tools are ripe for this GO WIDE approach. Especially on the Web, which is nothing but layers and layers of functionality.
Let's go back to the days of so-called Web 1.0. There were a few online services, Compuserve, AOL and lots of dialup bulletin boards. The Netscape browser came along and was basically a container - a bucket. You sent out a request and packets which found their way from a server and "filled" your browser container with text and images. It set off a battle between Netscape and Microsoft but in the end, roasted the non-Web online services to a crisp.
It was a real time link between client and server. You could run and control programs running inside the web browser, again without hitting Refresh. Google Maps is the best example - it paints the screen with a map and then when you scroll north, the server fills in the pieces of the map you are missing.
But more importantly, via an API, you could do mashups - put hotel or restaurant locations into maps. Play music in your blog. Or very easily put video from another website into yours (YouTube uses a Flash Player). You could seamlessly link applications into each other in, dare I say, layers!
AJAX allows for the "layerification" of the Web - not just transport and routers and cable modems, but applications and content too. So as the Web starts to emulate, emolliate and eventually circumnavigate today's media, its power will come from a stack of individual layers, each a mile wide.
Let me say that again. It's the ability to both run programs inside the browser window AND allow for applications to pass information to each other that allows media on the Web to organize into horizontal layers instead of the fat and mogul owned pipes we are used to.
The layers are endless. Someone does search better than anyone else. Or classifieds, or music sales, or telephone calls, or video, or real time highway traffic, or comedy, or news or social networking, gaming, recipes, or WHATEVER anyone wants that can be delivered with zero marginal costs and provides it anywhere and everywhere.
Think about how different this is from media today. The technology of sticking a microphone in front of someone, or turning on a camera or switching a phone call has been perfected years ago. It's not about technology anymore, it's about programming to attract viewers (which with a few decent exceptions, has been a race to the bottom, thank you Mr. Murdoch!). Animation and special effects movies are increasingly commoditized too.
But now getting packets through that bumper car of an internet to
create a virtual pipe, actually takes someon writing code and
designing easy to use services, so much so that a Chad Hurley
becomes a rock star. But who wants to write code? It takes forever -
Jolt, all nighter, nerf guns, the brightness up on the monitor and dark
sunglasses to get all the bugs out. Better to let coders write code,
and programmers (as in network TV) develop 30 minute sitcoms. Layer
this sucker out.
The Moguls of Media 2.0 (sorry, I hate all 2.0 terms, but you get the idea) will be about creating virtual pipes out of a stack of these separate layers. Facebook for Senior Citizens, with friends to call in the event of a Clapper emergency, discussion groups on how to make your children feel guilty for not calling, and videos of how to properly wear Depends adult diapers. This thing will be a lock. Want to be a Mogul? Think out all the free services never thought possible without lots of broadband and pieces you can pick and choose from to build it and you are on the right track.
Unfortunately, the architecture of today's infrastructure, huge datacenters near cheap electricity with racks of PCs and disk drives and uninterruptible power supplies and lots of fiber, is an artifact of our still narrowband world. It's faster to query to distant lands on fiber optic than to look something up on our own PC, or our next door neighbors PC. It's why video still sucks on the Web - 10 minute scratchy videos. It's not zero margin costs. The more video you stream or allow users to download, the more your bandwidth and storage costs rise and the more money you lose.
P2P: But that's about to change as well. Peer to Peer or P2P is another game changer. It allows for true zero margin cost distribution. It will be what starts today's media into its death flush spiral.
Post Napster music stealing sites use Peer to Peer. You download songs from your virtual neighbor. It's uploaded from their disk drive and downloaded to yours. With P2P, video is not so much streamed as shared, you get what you need one and preferably more than one source. BitTorrent is former underground, now being productized version of P2P video. Lots of first run movies and an occasional TV show before it is broadcast. You download the ".torrent" file and then have the option of being a "seed" and allowing others to download it. Not quite mainstream.
Skype founders Zinstrom and Friis are working on "The Venice Project" to do easy to use P2P video distribution. There are at least three P2P video networks in China. Here's a cool example. This is coming on fast. Think about a world with zero marginal cost video distribution - not even much in data centers and servers required. Pipes be gone. It becomes another horizontal layer in this Media 2.0 stack.
As an aside, Peer to Peer cellphone service is an obvious next step as well. Why blast signals all the way to towers when cellphones can just pass packets along until someone is close enough to an internet connection to dump the packets into the backbone. A wireless Skype is not that far fetched, wrestling control from the Cingulars and Verizons. It's not just Hollywood.
User generated content? It's all the rage, Mentos and all. Is that the future of media? I'm not so sure. I never even liked America's Funniest Home Videos. UGC will have a place. If you want to call it the Long Tail, feel free. It's not as long as you think. Or if it's long, it's as skinny as a fiber optic strand. It's the head and the fat belly where the money will be made to drive Media. Someone has to pay for quality output.
So, how do you get paid when you don't control a pipe and the payments from advertisers or customers for access to that pipe. And it's unclear that video ads fit the direct marketing model of click and buy beyond Home Shopping Network. It is similarly unclear at what price new networks might get to emulate that mass audience branded advertising, especially when you know exactly how many people watch, how many click away, etc.
As far as subscriptions or pay per view, DRM or Digital Rights Management is only so good. Plus, it's broken once the first person pays for it and it leaks out of the DRM virtual pipe into the P2P networks. Copyrights are tough to enforce in the Internet cloud. $100 million budget movies? Tough call. Hard to recoup. $1 million per actor per episode TV shows. Hmm. Tougher to imagine in a world without syndication.
Is there an economic model to these virtual pipes? Early TV was radio shows with cameras turned on, much as early movies were Broadway shows with film running (I still laugh at the Marx Brothers The Cocoanuts and Animal Crackers, hurray for Captain Spaulding...). It took awhile, but eventually, production values increased to $2.6 million per TV episode (for Friday Night Lights) and $100+ million movie budgets. This became the barrier to entry. Viewers demanded better quality, better than the cheap stuff they were initially fed. Animal Crackers is a classic, but now quaint.
The Web is still back in the pioneer days. Beyond the pirated stuff that leaks
out of the mogul's traditional media pipes, early Web media is mainly that user
generated content: MySpace pages, You Tube videos, podcasts, all disgustingly
cheap to produce (and armchair critics like me go sniff, sniff and mutter
"lame"). But lots of it is made and there are lots of people to view
I traded a bunch of emails with Mark Cuban (who knows a thing or two about both Internet video and owning media franchises) about the loss of control of moguls. This one paragraph by Mark nails it - the eventual economic model of this whole thing as production values inevitably go up:
Mashups, hyperlinks? We have seen it all before in the music business. Anyone can produce and distribute any song they want. We have seen some artists and songs emerge, but very, very few. And that is in an environment where there truly are no digital barriers to entry. Yet the moguls are still the moguls. Not as strong, but still in control. I don't see them going away. Why? Because in a long tail universe, the cost to crawl up the tail to the rat's ass is more expensive than the production. Which means only the people with the money can make the investment, which brings you back to the moguls.
The Yogi Berra problem - no one goes there anymore, it's too crowded. You gotta spend as much on promotion as you do on production to attract folks to your pipe, virtual or otherwise.
Mark might be right. Moguls will still roam the earth even after the asteroid hits. But they won't be like the moguls of today. It will be a different landscape. The view from here suggests it won't be possible to control pipes anymore. Not like today anyway.
How soon do we get there on the Web? Probably sooner than we all think. The Diet Coke and Mentos days will seem quaint. Go wide, young man.