Traditional Media Model

In the United States, it appears media companies are following three different models: advertising supported (broadcast TV, for example), directly paid (first-run movies) or funded by alternate means (eg. merchandising concepts).

The established models are currently feeling pressures created by the rise of digital media. Advertising supported models, for example, have traditionally relied on high levels of inefficiency, allowing for high priced productions to be paid for by advertising. With the rise of online advertising, some of those inefficiencies were highlighted and advertisers have started to put some pressures on the advertising prices around traditional media.

Meanwhile, directly paid media is starting to suffer as an explosion of cheaply produced content hosted on the likes of youtube is now competing for viewers’ attention. When coupled with the fact that some corporations have tried to compensate from the lower audiences by increasing the per unit price of a seat (whether it is a theater seat, with Broadway first run shows now often getting $100 per ticket or movies, which are edging closer to $20 per seat), the level of attendance at paid media events seems to be decreasing.

Merchandising still seems to succeed pretty well, with media content now being created around toys (eg. Transformers) or web sites (eg. the upcoming Onion movie).

The New Media World

Meanwhile, around the tech industry, there seems to be a growing consensus that media models will focus around product, people, or platforms.

Some people feel that customers may continue to flock to established brand, because of a certain recognition of qualities associated with that brand. They view the product as key to the potential future of media and look to the establishment of new brands as the key to success in the long run.

Others look to the future of media as being predicated on adopting a model that includes a wider group of people. Whether it is blogs, twitter, or other consumer-generated media, this camp looks to the lower production and distribution costs associated with such model as the saviors of the media industry.

Another group looks to the platform model, providing tools that enables people to create and distribute media without being involved in any of the editing or selection. People look to the creation of platforms that can work for distributing media across multiple channels and provide an accelerated rate of turn-over in terms of the type of media pieces being distributed. So basically, platforms are a basis for merchandising cross-sell deals.

The Agency Model

With merchandising platforms being the only arena on which traditional and new media seem to agree, there may be a chance that the agency model, where companies are producing content on behalf of brands, are the future of media.

For example, one of the biggest success in online media this summer was the product of an advertising agency: Wieden and Kennedy produced a very successful ad campaign for Old Spice, a deodorant company, that took the online world by storm earlier this summer.

A couple of years ago, Cripin, Porter, Bogusky launched subservient chicken, another ad campaign that was well received online.

In both cases, the agencies have done a great job creating characters around brands. The chicken was supporting a Burger King; the old spice guy is ultimately pushing deodorant.  In each case, they can be considered traditional ads but the addition of characters means that they could build media-like developments around the characters. And I suspect it’s only a question of time before some characters created for ads start showing up in TV shows or movies.

What has gotten me thinking that the model for the future of media may be in following the path set by advertising agencies is that, increasingly, when one asks a new media person about their business model, they focus on how they work with marketers to reach out to audiences.

The internet is equalizing access not only for people but also for brands. As a results, brands are now creating their own form of media goods to cut through the clutter and no longer need to attach themselves to any other form of media. A clever ad can stand on its own as a media good or a clever storyline can receive a sudle influence from a particular product.

In a world where media is increasingly dolled out in more of a bite sized form, ads are competing for airtime with other forms of content. The future of media companies, as a result, is to figure out a way to help those brands break through the noise and, as a result media companies may increasingly find themselves at odds with the advertising agencies they traditionally saw as equal partners.

The question remains as to what will happen to subsidized media and journalism in such a context. Will it continue to exist of will those forms of media completely disappear? Online time will tell.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Agency is the future of Media. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

TNL: so the rumors are true: Webjay acquired by Yahoo! You should post it on your blog.

Lucas Gonze: That’s right. It turns out that when they sign up new people, y! makes them put on this pointy hat that sorts them into “houses”. This makes no sense to me, but it turns out that I am “hufflepuff”

TNL: Hehe… stay away from Slitherins

Lucas Gonze: They’re over in the DRM group.

TNL: Tell me the reason for this acquisition.

Lucas Gonze: The point of it is playlists. It’s a sign that Y! takes playlists seriously. The point of playlists is that they are to internet media what RSS is to weblogs and HTML is to browsing. Playlists are the one vehicle for timed media; if it has an intrinsic sense of time, it’s a playlist, that’s an important category of functionality. Now, aside from Webjay and XSPF, the action is all over on the iPod.

TNL: So, if I understand you well, playlist + MediaRSS + content = new form of distribution channel?

Lucas Gonze: that’s about right. From the audio and video perspective, the meaning of playlists is that they’re the container format for the internet. CDs are over; mixtapes are only an analogy; Radio, television, movie theaters — not internet. So Webjay and my other playlist work is what Yahoo is about with this acquisition

TNL: If I understand well, playlists are somewhat of a reintegration item. Yahoo! is looking at them as a way to tie all the disparate bits that have come out of the breakout into podcasts, independent tunes, movies, shows, etc… to resort things into channels?

Lucas Gonze: That is beautifully said, Tristan. I agree with that, except that reality is not quite as elegant. The point of this work is to create a truly healthy and robust internet media industry but one which is not just a transplant of the old ways of doing things. The new industry is going to be native to the internet (the playlist is a native format).
Playlists do resort things into channels and they do make possible all the sort of goodness we’re used to with weblogs — like Technorati and Del.icio.us — with multimedia Examples of the kinds of goodness I’m talking about:

• Interactivity wide open; anybody on the internet is a full participant
• Implementation wide open; anybody with the chops can write programs which contribute to the ecosystem
• and interoperability; anybody should be able to author content which anybody can render

TNL: This sounds dangerously like a lightnet. You seem to be offering a world that is widely open, while all the big portals are looking at locking things up.

Lucas Gonze: I think that the place we’re going is to a media industry which is perfectly at home on the internet. Given that I’m here to make money for Yahoo, it’s fine to lock things up by doing such a great job that users would be crazy to use any other software.

TNL: You mentioned interactivity as a key feature of playlists. Do you think that playlists merge multimedia with social software? And, if yes, is that a direction Yahoo! plans to take it into?

Lucas Gonze: That’s exactly the value. Social software is not an empty trend. It’s central to the value of the internet. So the question with regard to media is how do you make social media? How do you make songs which anybody can get inside of and interact with on their own terms? To some extent that’s what playlists accomplish.
About whether that’s the direction Yahoo! plans to take it into, I can’t speak for Yahoo!, given that I’ve only been an employee for about 45 minutes.

TNL: So what are you going to be doing at Yahoo! ?

Lucas Gonze: There’s a spacecraft which crash landed in the desert. My job is to investigate the dead lifeforms and attempt to make contact with their homeworld. But that’s off the record. On the record I can only say that we’ll be building best-of-breed internet-native social-software with tags.

TNL: can you throw a couple more buzzwords in there?

Lucas Gonze: I can enable that.

Lucas then had to run off but I wish him much luck on this venture. The obvious value of something like WebJay to a company like Yahoo! is in the social aspect of sharing multimedia. I believe that the real value, beyond the core tools being acquired in the organization and sharing of digital media. Over the last year, Yahoo! has been acquiring companies that relied on the wisdom of crowds to organize content of various types (del.icio.us for bookmarks, flickr for pictures). WebJay nows fills that space for music and could probably easily be extended to support other media types. In that sense, Google is now taking an early step in terms of merging social software and multimedia.

There are many opportunities in that space: Much as Flickr has shown that user-generated and organized pictures are a good way for people to share this type of media, something like WebJay could extent from sharing your music collection and/or tastes to an eventual basis for sharing larger media files (like videos of the family).

The tool also allows for auto-discovery of content: point it to a URL and it will find any songs that’s linked from it and organize them into an easy to use playlist. This could have some great implications for podcasters as it provides and easy tool to create archive pages.

Beyond the sharing and auto-discovery is also the openness of WebJay. What is most astounding, when you look at it, is how open it is. The system gives you the direct URL of the files that are shared, even though the files themselves are not stored on WebJay itself.

Update:

It’s now official.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Yahoo! acquires WebJay. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

What is a module?

A module is the smallest logical unit of a product. Modules can generally be bundled in larger groups to create a new product. For example, if you look at the music business, a song would be a module and an album would be a group of modules.

A module is small and therefore is always the enemy of big. Because it is small, it moves fast. Because it is small, it sometimes needs to associate with other modules to create something big. Because it is small, it is inexpensive and because it is inexpensive, it resists bundling.

What is the modular by design approach?

The modular by design approach is a concept I would like to introduce which can be quoted as such:

A modular by design issue is one where a problem, industry, group, can be broken down into increasingly modular parts, revolutionizing the business models on which the aggregation of those small parts was based.

Who should worry about the modular by design approach?

In one word, everyone. When push comes to shove, the majority of today’s business models are based on some kind of aggregation. When services and products are packaged together, that’s an aggregated model; when your TV station offers a number of shows, that’s an aggregated model; when a company bundles hardware and software, that’s an aggregated model. Aggregated models can be seen everywhere; they are the enemy of modular design. And because modular designs are small and fast, they act as David did against Goliath, taking him down when people didn’t think that was possible.

In the next few days, I will examine the impact of the modular by design approach on music, digital downloads, broadcast television, cable television, telephony, news-gathering and software, highlighting how this approach has impact that is applicable to all of those. I hope you will join me for this journey and feel free to comment.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Modular by Design — Introduction. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

• On the shifted librarian, Jenny talks about changing behaviors when it comes to music. A 9-year-old thinking of music as something you burn, not a piece of plastic, represents one of the biggest challenges to date to the music industry. While peer-to-peer networks represented the beginning of a battle, that shift in behavior among kids represents a potentially disturbing trend: if this behavior doesn’t change, 5–6 years from now (when those kids are teenager) the music industry will see steep declines in the sales of music CDs. In other words, the medium no longer matters as an entity. Recurring revenues based on changes in format (as was the case with the move from LPs to tapes, and then from tapes to CDs) will no longer exist.
• In a somewhat related story, Martin Tobias talks about bands selling concert videos through iTunes. This represents threat number two to the music industry in that no record label was involved in this transaction. It could be because they didn’t want to be but that’s a source of revenue that is no longer available to a label. This lack of foresight could eventually lead to artists or bands dealing directly with the stores instead of using the labels as a go-between. As I predicted earlier, Apple is now starting to sell other media types than music (I expect movies will be next). I had predicted the rise of online music stores as a potential way for music labels to adapt to the new world of digital media but had not anticipated the possibility of “someone else” running the relationship between artists and consumers. This could have devastating effects on companies that do not adapt quickly enough

Between the change in behavior patterns among consumers and the threat represented by online music stores cutting their own deals with bands, music labels could find themselves squeezed out of existence, or at least out of growth potential (since they still do own copyrights to large collections they can still sell) within the next 5–10 years.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The changing musical landscape. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

For the past few years, Microsoft has been trying to figure out how to remain relevant in an era of increasing openness. The rise of HTML and of HTTP as the underlying protocol for distribution on the Internet have challenged the level of control that Microsoft had on the computing world. The initial control was borne out of a partnership between Intel and Microsoft, which allowed them to establish both companies as the essential players in the desktop computing world (the partnership often being recognized as the Wintel (Windows plus Intel) behemoth.

When the Internet started to rise, the network jeopardized that relationship as open standards offered the ability to move more of the software logic to servers and rely less on the client desktop, with HTML being pretty much the universal interface to those new systems. With the advent of Linux, a cheap alternative to Windows, Intel found itself remaining in a very strong position (as Linux can run on Intel boxes) and Microsoft sees the possibility of being increasingly marginalized. The problem comes from the fact that Microsoft, as holder of the software component is really only working as a middle tier in a relationship that involves processors, network bandwidth, software, and content. Let’s review why this development is significant in the new world.

Ten years ago, the big challenge in computing was processing power. Software was always coming out that needed to gobble up more processing power and more memory. In the last couple of years, though, the equation has shifted radically. Increasingly, users have more processing power on their desktop than they can use. Unless you are a hardcore gamer, the combination of Moore’s Law (which has pushed CPU speed to a point where any gain is of little relevance to most users) and the steady decline of prices for memory has meant that today’s user is finding himself/herself with a computer that is only gated by one factor: speed of access to the Internet. The challenge here is that, for most people, access to the Internet still happens over a regular modem, hence limiting what they can do online. While adoption of broadband access is growing, it still represents a gating factor in what most users can do. As a result, most people are now looking at how they can access the Internet faster, moving the discussion away from the desktop and onto that bit of the network that has traditionally been the realm of telephone companies.

With the rise of cable companies as access providers to the Internet, Microsoft now needs to find partners in two access camps: on the one hand, it needs to partner up with cable companies, and on the other, it needs to partner up with phone companies. For the first time in its life, Microsoft is actually forced to play in an arena where the monopoly players are somewhere else than in its own company.

With the AOL partnership, Microsoft is closing one part of the equation, by getting access to the pipes offered by Road Runner, the high speed access company offered by AOL/Time Warner. Coupled with relationship established with Verizon and Qwest, Microsoft has gained a foothold in the access space. However, this is potentially short-lived, as Microsoft could easily be replaced if any of those companies decided that they wanted to partner themselves with someone else.

So securing access to the pipe is one way to ensure continued relevance but it does not ensure the level of control that the desktop monopoly once allowed. In order to get that level of control, one must find a way to leverage the existing platform (windows) and create a lock-in with it. This is where partnerships on content can become useful.

In order to create a long term strategic control, Microsoft must ensure that it will be difficult to move away from its offering. This is where the Windows media strategy comes in. If Microsoft manages to get control of content created on the Internet, it will be much more difficult to unseat it in the future. With last week’s announcement that AOL would collaborate with Microsoft on digital media, the companies have started to establish something that may give Microsoft much more control in the future. Once content is encoded using the Microsoft Windows Media solution, it will be difficult to move away from it. A partnership on Digital Rights Management also ensures that Microsoft will hold the keys for content encoded using its solution, hence ensuring its tight control of a very lucrative market.

The ace card Microsoft holds in this is its installed base. By moving the dialogue from web servers (a battle it lost long ago) to video and audio servers (a battle that has yet to be fought), Microsoft is positioning itself for the future of the Internet. This early position will ensure that it will be able to offer Windows Servers that power the next generation of Internet content. The key in making its case is that, because it has control of the desktop, Microsoft can offer millions of users with a media player already running on their machines. This is an attractive public, and allows the company to make a strong case for an integrated suite of products and services (“here’s the player, here’s the server.. oh and while you’re using our streaming media server, how about using our rights management system… and you know all that stuff actually runs better on our windows platform…”)

So this is the worst case scenario. But, one can easily say, there are competitors and there’s no guarantee that this will work. Furthermore, the open standards are always creating a limit on the company’s power, right?

Well, that’s not even a guarantee. As we know, Microsoft came from behind in the browser wars. First, there was Netscape, and it was controlling 80% of the market. Then Microsoft launched IE but things didn’t really change much in the beginning. As Microsoft improved its browser (and Netscape, drunk on its own hype, believed it couldn’t be defeated), the percentage of control shifted.

AOL, with its established customer base of 30 million, and its ownership of the Netscape browser (bought as the company was already losing marketshares), was the only company that could have change the balance back. By bundling Mozilla first in Compuserve and then in the mac client for AOL, it indicated to Microsoft that this was something they might be willing to do, if Microsoft didn’t work with them. It quickly became obvious to Microsoft that they could be locked out of the browser market if they didn’t play nice with AOL. So they cut a deal and gave AOL a royalty free license to use the browser for the next seven years. That seemed to pretty much lock everything in place to keep tight control.

But the story doesn’t end here…

Apparently, Microsoft does not intend to build a standalone version of IE anymore. The relevant lines in that discussions are as follows:

Q: when / will there be the next version of IE?A: As part of the OS, IE will continue to evolve, but there will be no future standalone installations. IE6 SP1 is the final standalone installation.

Zeldman points out that IE will be built into future version of MSN for the mac but that otherwise, it will be part of the OS. This is an interesting development.

Let’s extend this concept out to beyond seven years: Microsoft and AOL are at the end of the current agreement. AOL did indeed use the Windows Media suite and is using the OS-embedded IE. Microsoft decides to renegotiate terms. AOL balks. Microsoft says that it will change its browser so that AOL doesn’t work on it. What happens then? What is AOL’s fallback position? On one hand, it’s got 7 years worth of media now encoded in Windows Media format (and would need to reformat all that in order to move off the Microsoft platform, a huge undertaking unto itself), and is locked into the Microsoft OS.

It seems that, unless AOL is keeping Mozilla alive, it is about to sign a deal that could eventually put it in a tough position on the browser end. It also seems that unless it hedges its best and encodes content in windows media and another format, it risks lock-in.

On the web development end, this also has huge repercussions. If we all develop solely to Microsoft, and agree to extensions they might make to HTML once its in the OS, we run the risk of all becoming windows developers, beholden to Microsoft.

This is a really all about a fight for the soul of the Internet. In the 90s, Microsoft announced a strategy of “embrace and extend”, which was often derided as “engulf and devour”. We’re now starting to see the extension happening, and it seems to point back to windows. Do we want to be locked in?

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Microsoft Lock-in?. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

IM

: One of the conditions for the AOL/Time Warner merger was that AOL open its instant messaging platform to other parties. By agreeing to interoperability between the AOL IM client and MSN messenger one, AOL will now be able to point to its “openness” while maintaining a relatively tight control over the progress of that tool. I am sure the two companies are interested in working together and somehow doubt that they will be very interested in opening the world to other competitors.

At the current time, IM has taken the consumer world by storm and is starting to make headway in the enterprise. Because of its presence concept (you can see whether the people on your buddy list are online right now or not), it will eventually become a critical tool in the enterprise, moving some data traffic from the phone and email to this new platform. Already today, enterprises that have implemented IM solutions are seeing large amounts of traffic on those networks as employees send the shorter requests via this tool. Enhancements in the collaboration aspect of those tools make them perfect to be used for setting up online discussions and document sharing. I suspect that, because AOL is forbidden from adding new features to its IM platform until it has shown to be more open, we will see the company point to Microsoft and get a free pass in terms of adding new features. This will be good for AOL because it will allow to enhance its enterprise offerings. It will also be good for Microsoft, as it will probably be able to increase its footprint into that space.

Long term, I would expect most of the development of this eventually ending on Microsoft’s lap, with AOL doing an asset transfer of its software division to Microsoft.

Digital Media

: Part of the deal includes a non-exclusive agreement for AOL to use the Microsoft Windows Media 9 software suite. Once again, this is good for both companies and bad for every single one of their competitors.

AOL will benefit from the lower cost of software acquisition moving forward. As it looks to move more into fee-based digital media services (with words that it could offer TV shows, music, movies, etc… from its vast assets collection) the company will make more substantial investments into those kinds of technologies. Since this is a partnership, I suspect the products will be heavily discounted.

Microsoft wins in that, if AOL, with its fairly large customer base, start offering more services running on Windows Media 9, it will make it easier for Microsoft to go after other media player and present its installed player footprint as a competitive advantage. The story will go as follows: use Windows Media 9 server and you will not have to worry about your customers having to download extra software. Of course, Windows Media servers will continue to run on the Windows operating system, which should increase sales in that market and protect Microsoft to some extent from the Linux onslaught.

Another important part of this portion of the agreement is that it will allow the two companies to set standards for digital rights management. DRM is basically covering how to ensure that copyrights and purchase rights are assessed on digital media. What this means is that a DRM system basically encodes a piece of digital media (whether it is a movie, music track or piece of software) to include information about what you purchased and how you are allowed to use it. For example, the Apple Music store currently sells music tracks that you are allowed to use on only three computers. Because AOL is one of the largest producer in the world of such media, and Microsoft regards this software area as a very lucrative market in the future, the partnership will give both players a substantial amount of power in shaping the future of digital media.

AOL wins in that it gets someone to do the heavy lifting on the software side to tighten up control of digital media. Microsoft wins in that it gets a better understanding of what large media companies will want and builds a solution it can then resell to other companies. Once again, this is also a good argument for furthering the number of implementations of windows servers as I suspect that Microsoft will strongly recommend media companies use their platform to handle this.

Browsers

: By now, the browser wars are, at best, a distant memory. While a few holdouts do not use Internet Explorer and considerable development and innovation is still happening by makers of non-IE browsers, the market for alternative browsers is relatively small. At last count, IE was controlling over 85% of the global market. The only bright spot in that market was a browser named Mozilla, an open source project for which Netscape, a subsidiary of AOL, was the largest contributor. Because of the bad blood between America Online and Microsoft, there were a lot of rumors about AOL implementing Mozilla as the core browser in its flagship client (it has already done so on the Macintosh computer). With the announcement that AOL will get a seven year royalties free license for Internet Explorer, it seems pretty apparent that support for Mozilla from the AOL camp will probably wane. The long term outlook for the Netscape unit does not look very bright, even if the AOL chairman said that they were not closing the unit for now.

Politics

: This announcement also shows some interesting development in internal politics within the two companies.

In the mid-90s, Microsoft was starting to move more into the general media space. With this agreement, Microsoft signals the completion of a shift back to its software roots. It is probably a realization that there is still a lot of growth in that arena and that it doesn’t make sense from their standpoint to try to get into the media world by acquiring and/or building media assets.

On the AOL/Time-Warner front, this announcement shows a clear power shift in who controls the company. The power is now in Time-Warner hands, with any concept of competing with Microsoft on the software end now a distant memory. Time-Warner understands media and figures that it is better to rely on an outside party to deal with the software side of the business than to try to develop things themselves.

I am sure I’m missing a few things but I expect this story to continue unfolding and having repercussions across the whole Internet space.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title AOL-Microsoft Settlement: The Future. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

We have shared ideas on how to handle digital media

. What exactly does that mean? I wish someone else elaborated on that point as it isn’t clear. Does it mean that they will collaborate on development of joint services? Does it mean they will collaborate in the development of joint product?

Whatever happens is a bit worrisome as we now have the two largest players on the American Internet essentially joining forces. Microsoft has a commanding lead in the desktop OS and the web browser market. AOL hold most of the remainder of the browser market (yes, a few people out there use browsers like Mozilla, myself included), and has a similarly large lead in the IM and access market. The two of them joining forces leave cold beads of sweaty fear running down my back.

Obvious losers in today’s announcement are Yahoo, which will have to fight an uphill battle in terms of making their messaging client remain a viable option in a market where AIM and MSN messenger will inter-operate, Real Networks, which will have to figure out how to makes its media player more competitive in the marketplace (part of the agreement between Microsoft and AOL includes the right for AOL to use the Windows Media 9 software suite).

Surprisingly, few of the press reports seem to cover the point about Windows Media 9. This is pretty significant as it could play a major role in shaping the future of digital media. At the current time, Microsoft is in a three way battle with Real Networks and Apple (which makes quicktime) for future supremacy over next generation online audio and video. Offering their media suite to AOL gives them tremendous leverage as it could increase their marketshares by several millions. Consider yesterday’s announcement that AOL was dropping Real from its partner lineup, it looks like Real will have to eventually transform itself to the point where letting go of its own technology might make sense. At that point, only two players will be left, with Microsoft becoming the dominant player in the arena, and Apple picking up the remainder of the market. Smaller formats, like Ogg Vorbis, will remain the province of aficionados but won’t gain much in the way of marketshares. The worrisome part about all this is that DRM restrictions on both end might get worse and worse as time goes on. I have already complained about Apple not disclosing what DRM setup it was offering and it seems that they are already tightening the vise. I somehow doubt that a new alliance between Microsoft and AOL will be more magnanimous.

However, it’s not all bad news. PC Magazine reports that AOL does not intent to close Netscape, which might be good, though it is not clear why they are doing so.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Microsoft and AOL: Friends again. You can follow him on twitter here or receive his weekly newsletter by subscribing here.