The many faces of subsidized media

Do you buy the media you consume or is the media you consume subsidized in some way?

For the most part, one could argue that, in the United States, media is subsidized. When mentioning that word, most people will think of government subsidies but, while such subsidies exist in countries like the UK (eg. the BBC) or France (eg. France 24), the subsidies tend to come from more commercial sources.

We will look into that type of subsidies a bit later but let’s first look at one form that people seldom consider as a subsidy: advertising.

In the USA, such subsidies come in the form of advertising, which often represents the largest part of the revenue pie for newspapers, magazines, television, radio, or web media. The cost of a particular item is generally lower than one could find in Europe and consumer behavior treats such media accordingly, as a potentially disposable consumer good to which little value is given. This creates a particularly tricky situation for most media outlet as they are seeing their advertising margin erode, the result of greater efficiencies and return on investment presented by web media.

Genesis of low ad rates

In a way, such wound is self-inflicted. Once upon a time, in the early days of the commercial web (a bit over a decade ago), traditional media looked down on the new media. They treated it as something of little value and many of the larger media outlets decided to toss their online space as a freebie in exchange for richer ad buys in traditional media. Of course, they continued to apply the same ROI metrics to this emergent form of media, forcing many of the online components of larger corporations to figure out way to make their cost structure more efficient while presenting advertisers with a better value than their offline brethens.

I remember finding myself in several meetings, when working either as a full-time employee or consultant to media outlets small and large, in meetings where traditional media salespeople would “toss in online for free.” Eventually, advertisers started demanding online media and continued asking for lower costs on it, creating a prisoner’s dilemma scenario for most media organization as they all knew that the ads could go to their competitors if they didn’t acquiesce to the deal. Online media was now seen as inexpensive and, save for a few publishers who argued based on the merit of delivering a narrow but highly targeted audience, cost remained low while inventory continued to be very high.

Then came Google, which not only showed that online media could stay cheap but could also be offered on a performance basis, leaving advertisers with close to a dollar’s worth of value for every dollar they spend, something that just wasn’t true in the offline space. It was then only natural that the price pressures that had driven online media down be applied to all media.

This is slowly sending media organization into a death spiral as low ad costs force a reduction in costs associated with producing media content, which results in a lowered interest in that content from consumers. Those consumer have eyeballs which the media companies are trying to sell to advertisers and when those go away, it puts even further pressure on media cost. I call this the ad rate death spiral:

Why ad rates keep going down

And that’s the first problem with the current crop of ad-subsidized media: the model is just not sustainable because the cost of production for most media can never go to zero.

So where does that leave most media organization?

Advocacy Media

One option is to go with a different subsidy source. For example, some organizations could get rid of the pretense of impartiality and look to get subsidized to advocate a particular viewpoint or philosophy. In Europe, for example, many publications receive substantial parts of their funding from political parties. They are propaganda tools of those parties used to further the party’s agenda. While they are not fully subsidized by those parties, they are known to present a viewpoint that’s in line with the party’s ideals.

While many would argue that this could not work in the United States, there are substantial precedent to highlight that this, in fact, is an avenue that more media organizations could explore. The federalist papers, for example, were largely embracing a set of ideals from a limited constituency and were largely funded by those who espoused the ideals presented. In fact, one could argue that most newspapers have, at one time or other, been tools of certain political forces. To carry such alliances on their sleeve might actually result in a more diverse and balanced set of stories.

Non-Core Media

A different solution is to look at media as an non-core adjunct to a corporation, there to give the corporation a sheen as a corporate citizen that does good. Where it not for its pre-existing history as media company, one could argue that the Washington Post is now such a corporation, as it derives better margins from the services it offers through its Kaplan test preparation organization than it does from its news and media operation. The issue one could find with such balance is that it works as long as the shareholders are happy with the idea of a non-financially optimal media operation. This situation does not seem like a sustainable model in the long run because it could expose such corporation to the chances of a take-over or change in ownership control through acquisition. No family, no matter how much of the corporation stock they control, is so virtuous that it might not break at a certain price point, as was witnessed with the takeover of Dow Jones.

Paid Media

Another route would be to change the public they serve completely by embracing their consumer as the people they sell to.

The reason I create that distinction is that currently, most media is not looking at their consumers as the customers they are serving. In advertising, the actual customers of media companies are the ad agencies and ad buyers, with the media consumer being the goods sold and the content being there solely as a way to deliver more eyeballs to the advertisers. By moving to consumer-focused media, organizations could radically redefine the relationship they have with the people who consume their content, treating them as customers instead of products.

Of course, the model may not work for everyone as it requires a change in the way the media product is marketed. When shifting to “paid media” where the consumers pays a fair value for the media they consume, the product position has to be one of value to the consumer. Bloomberg can deliver such value to the people who pay thousands of dollars yearly for access to their product because the content is of value to those consumers. NPR tries to position its programming as being a lifestyle choice by its consumers, asking them in pledge drives to join the NPR tribe by paying for some of the programming (but let’s not fool ourselves, NPR is more of a hybrid model as its “supporters” can include large corporations that contribute to show their “social responsibility”).

Consumer Reports is another example of such “paid media” as are smaller publications like Lapham’s Quarterly, for example.

What are the challenges?

The challenge presented by the paid media model is one of how much? How much can one charge and how much can one cover. And this comes back to the question of content value to the consumer. Certain tribes can exist but how does one cover the “important” stories? Is that something that can only be done via advocacy type media? Or is there a different model that mixes parts of subsidies with higher paid models?

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

How it started

When I first started classifying media as entertainment vs. information, I was looking for a basic answer as to how to resolve the contradiction of having organizations like CNN, MSNBC, and FoxNews, classified in the same category as Bloomberg News, the Wall Street Journal, or the Financial Times. Each seemed to appeal to a certain audience and each of the audiences seem to be very distinct and thus interested in very different things.

For example, the sexual behavior of many politicians may serve as great meat for the 24-hour-newscycle of cable TV channels but financial newspapers would pay scant attention to them. On the other hand, in-depth analysis of the decision making process around changes of 5 basis point in an interest rate might garner an audience in the financial world but may only merit a 15 second mention on some cable news channels. That disconnect seemed to only get sharper over the last year, as the world economy teetered on the brink of total financial collapse but most of the TV channels seemed more interested in attacking or praising a particular political point of view.

Why this axis?

Answering a question about where on the entertainment vs. information axis a particular media organization can fall gives us insights into some of their potential business strategy.

The production or discovery of facts or information is generally a more time-consuming and/or costly production than the production of opinion or entertainment. For a simple measure, think of the cost of a reporter doing an investigate piece either in a war theater or about a financial institution; Having thought of that reporter, now think of a different reporter interviewing a TV or movie star who is promoting the latest vehicle he/she is in. Because the motivations are different and the amount of work to feed those motivations is different, the business model needs to be different.

Entertainment

As I mentioned earlier, I consider organizations like Fox News, MSNBC, and CNN to be more deeply ingrained in the entertainment side of the house.

This, by the way, is no accident: Rupert Murdoch is a savvy media man first and a politician second. He was the first in his industry to realize that it would be cheaper to put opinion on the air and focused on delivering such opinions to what was then an under-served customer  niche: people who are of more conservative leanings. This is why Fox News can exist under the same roof as the definitely racier and more left of center fares delivered on the Fox TV network. The network appeals to a different audience but, by serving both, a near-full coverage is achieved in terms of advertising reach.

The recent success of MSNBC in reproducing the FoxNews model but for the more liberal audience seems to validate the model: Keith Olbermann is the Bill O’Reilly of the left.

But one must realize that the value of entertainment as a business model is driven by the idea of maximum return on investment: the production costs are cheap, the consumers are aplenty and while they may not be willing to pay, someone is generally ready to subsidize the lower costs in exchange for access to that audience. For example, book publisher love giving their authors away for free interviews if they can get them because it helps promote their books; movie and TV producers push their stars to give interviews for free too so the movies and TV shows they are in get an audience (a form of virtuous circle of entertainment); and political parties or organizations pushing a particular political agenda are happy to deliver “research” and “experts” that can be used to produce news-like segment.

Because most media organizations in the United States are profit-driven corporations, the appeal of those lower production cost is hard to resist.

The challenge to that segment of the axis is that entertainment is based on the available mind share one can capture. Every time an audience member is moved from one TV channel to another, or from an internet site to another, the place where he/she was loses some value. And, in recent year, the mind share and attention share traditional media used to get has been diminishing because new form of entertainment have arisen. The sheer volume of videos posted on YouTube alone means that, even if 99% of them are awful, 1% will find an audience and drive it away for whatever period of time the end consumer is engaged with that one percent.

So the margins on entertainment media are bound to become a little tighter in the future which will push that end of the media spectrum to move further and further into the sensational and traffic-generating space. This, in turn, could mean more of a focus on formulaic type of content that is known to appeal to a broad segment and hoped to appeal to a wider one.

Information

But information driven media is different. Information tends to be something that is actionable and therefore something that is more valuable. When people speak of information media, they generally focus on the business-focused content category. But why do so?

A lot of information is usable to someone. For example, I am sure that politicians enjoy sentiment-related information (poll numbers, data on how the population feels about an issue); gamblers find use for sports-related information; medical professionals and other scientists keep up with research in their field to come up with more breakthroughs; companies, of course, need industry-specific information to better position themselves.

But professionally created and vetted information is expensive to produce. In the past, such information was produced and vetted by a cadre of professionals with deep knowledge and some level of recognition within the arena they would cover. On the more extreme end, the producers were the subject of the news themselves (for example, most of the scientific journals are written by the scientists who have done the research in the first place).

And the other interesting thing about information is that it can have some stickiness.

But the tricky part is that most information is of no interest to most people. And some information may be of value in terms of public good but not necessarily of actionable value for most people. That, unfortunately, is the case for most of what is presented as “news” in newspapers. Town councils, officials corruption, issues surrounding policy making are things that need to be covered in order to create a proper functioning democracy but have little value outside of having a properly functioning democracy. And few people are willing to pay to keep democracy working.

Enter two new phenomenons: the wisdom of crowds, and the self-correction of personal interest. Let’s assume for a moment that crowds can actually be led one way or another. But, as we all know, for every action, there is an equivalent reaction. So we could extend on the idea that any system is bound to eventually become self-adjusting when all interests start fighting for its own share of whatever is at stake. On most policy issue, there will be two sides, with each side arguing passionately that its position is the correct one.

So one could assume that the self-interest of individual sides could lead to the rise of advocacy media or at least politically-aligned media. In such a model, “information” may be gathered and presented by self-interested parties. The consumer is then left to evaluate the pieces of information aimed at him/her and see if it confirms his/her own biases or is or isn’t more factual. This, by the way, is a model that exists in a lot of democracies around the world (France, where I originally lived, still has newspapers that are clearly aligned with political parties) and I would argue that the penny press was probably more akin to this model than what we know today as newspapers.

This brings another qualifier on the information slide, which would allow us to analyze the level of bias in a piece of information. Some may argue that doing so would be abandoning the concept of objective reporting but I would argue that such concept has been largely a chimera: whenever a reporter chooses one quote over another, or frames a questions in a particular way, he/she imbues the reporting with some form of bias.

What’s the take-away?

Entertainment and Information are important dividers in assessing media property. Understanding that divide can help us better under the potential risks or reward associated with such. Entertainment media is cheap to produce but does not necessarily create real value; Information media (which may have differential level of biases) is not only valuable in both short and potentially longer run but could be dependent on a self-interest effect.

In the next entry, I will examine how the media is paid for and what that may mean for some segments of the industry.

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

Media as a Mode of Delivery

In most of the conversations about media, the discussions centers on modes of delivery. People talk about television, radio, newspapers, magazines, or the Internet as media. Under that definition, the way a piece of content is transported appears to define what that piece of content is. It’s an odd approach that seems to put more emphasis on the how than on the what, that really believes that the envelope is more important that the message it carries and this offering seems like a flawed assumption in many ways.

It would seem foolish to consider the telephone a media form so why do we treat the television or paper as components? They are channels and nothing more and the hand-wringing around delivery to those channels seems based on the flawed assumption that the mode of transport is more important than what is transported.

There is an inherent danger in that flawed assumption as previous industries which failed to recognize the business they were in found themselves displaced and ultimately delivering value into the hands of a single player that concentrated its power by offering itself as the primary toll-gate on another form of distribution. The music industry circa 2001, for example, believed that it was in the business of moving plastic goods known as CDs and let Apple take what was written on those plastic goods, the music that is ultimately the value created, and delivered it over the internet. To this day, many in the music industry still believe that CDs are how music ought to be distributed, leading to such high performance act as Danger Mouse’s decision to just release a blank CD-R when the labels wouldn’t let him release the CD otherwise.

Today, newspapers are focused on finding better ways to move paper; magazines are focused on increasing profit margins against physical goods; TV channels are still arguing over number of viewers in a single sitting and radio is partly organized around two competing models: one where people and corporations pay in a coop form to get some form of programming created and distributed and another where advertisers count numbers of earlobes they are reaching. Even on the internet, some people still believe that the passage of masses by a web site has some level of importance.

In each case, the players are focused on the distribution and not the product and yet, the distribution medium is only one end of a relationship that needs too.

In the Middle

Because if you look at the core definition of a medium, it’s something that’s in the middle.

But in the middle of what? Trying to assess this becomes a little more difficult. Obviously, a good is produced and it is consumed. Focusing on that equation may get us closer to establishing the right model for media in the future because it forces us to admit that what we know today as media is not a single thing but a variety of things:

• On one dimension, it could be listed as going from entertaining to informative
• On another, it could go from being considered as purchased or subsidized
• On a third axis, it could be treated as mass generated or professionalized

In three simple dimension, we can break down most of the known media industry.

For example, take newspapers: They strive to be middle of the road between entertaining and informative, with a bias towards the front section of the newspaper being informative and the back section being entertaining; They also range from the completely subsidized approach (free advertising sponsored newspaper) to the heavily subsidized model (most newspapers). And most tend to be more professionalized, with professional editors and reporters building most of the content.

Magazines run the gamut, but largely focus on entertainment (the delivery of information is generally left to a much narrower portion of the market knows as newsletters); they are, for the most part heavily subsidized goods and mostly professionalized.

In the TV space, the news channels tend to be moving further and further into the entertainment arena (I would group opinion as a form of entertainment); They are 90+ percent subsidized as their main goal is to serve the advertisers and only a portion of their revenue is coming directly from consumers through some of the cable system carriage fees.

In radio, NPR is balancing between entertaining and informative; the interesting thing is that it is the closest thing to a purchased good as the group tends to attempt to get its consumers to ante up for their consumption; and it mixes mostly professionalized goods with mass-generated content (call-in shows, for example). Other “news” station tend to focus on the entertainment part of the equation (talk radio is focused on keeping its audience as engaged as possible) and fully subsidized (advertising based) and mostly mass generated (talk show host merely serve as the forum administrator ensure that like minds confirm their own bias or vent to each other).

On the Internet, diverse sites can run from pure forms of entertainment (celebrity or gossip blogs, for example) to heavy information delivery (generally more niche focused publication); they are also all over the place in terms of models, ranging from the fully subsidized model to the fully purchased one; and one could argue that they tend to also run the gamut in terms of mass-generated vs. professional production.

While I have given you a short preview of each of the dimensions, I would like to focus the discussion around particulars so I will delve further into each of the three dimensions in the next few entries.

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 Three Dimensions of Media. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Traditionally, the model or rent vs. own has been one that most consumers and companies have mostly considered when it came to real estate (and traditionally, people have looked at renting real estate as more normal than owning, with the possible exception of the last couple of decades, during which real estate ownership appeared more attractive). But today, that concept seems to be increasingly extending to other arenas.

Netflix

For example, Netflix has build a very solid model around renting movies over the Internet. True enough, many people will mention that rental of media dates back to the early days of the video store and were a substantial component in the rise of companies like Blockbuster (born Blockbuster Video). True also that said companies have been falling on hard times lately. But the substantial difference between what Netflix offers and the traditional rental model is focused on convenience: one could argue that Netflix’s original business model was largely centered around the distribution of physical media (the DVDs themselves) but I would argue that the true success of Netflix will be due largely to its digital distribution model, allowing for instant distribution of movies and TV shows with the click of a few buttons. The instant (and the emphasis here needs to be put on instant) access to a large media collection can easily call into question the concept of owning similar content in a physical form: What is the advantage of having a physical copy of a movie sitting on your shelf, collecting dust most of the time, when the same movie is available at the touch of a remote control button from the Internet?

However, the challenge in such concept is that once someone stops paying Netflix, the access to said collection disappears. An owned movie is paid for upfront and can be watched time and time again by a consumer but a rented one can only be watched as long as one keeps paying the owner renting party.

Apple

With Apple’s recent move to sell music tracks without any digital rights management features on it, one could safely assume that Apple is not in the rental business. Apple’s move was largely a response to Amazon’s own marketing around selling DRM-Free music but it is interesting to note that, while the restrictions on music went away, the same was not true of similar restrictions around music videos, movies, and TV shows. The lock-in that appears here is similar to that which exist with Netflix in that if you decide to end your relationship with Apple, the media you bought will stop working. Under such restricted mode, can one really assume that he/she owns the media he/she purchased?

Similarly, Apple is renting out, in partnership with telecommunication vendors like AT&T, an ingenious device called the iPhone. The reason I would call it a rental model is that use of the device is limited by the partners to people who have paid the initial fee and continue to pay a fee to the telecommunication provider on a regular basis. It is a model that exists for most phone providers, as devices tend to be tied to a specific vendor. Once again, people will highlight that it is possible to get rid of that lock-in with software but I will counter that doing so is a violation of the contract terms of the device, voiding warranty and your agreement with Apple. To claim otherwise would be similar to saying that everyone has access to as much money as they want, as long as they are willing to rob banks. (In the interest of disclosure, I should highlight here that I own an iPhone which is not connected to the “authorized provider”.)

Going a little further, Apple gets to lock-in who can and cannot play on an iPhone, only allowing developers who submit themselves to Apple’s whim and offering what is sometimes only temporary access to the userbase as release of every update to a product still has to go through Apple’s review. In other words, Apple gives developers temporary access to the iPhone user base, an access it can choose to revoke at any time.

The Amazon Kindle

All this conversation bring us to Amazon and a couple of its products, starting with the Kindle, which serves as the incentive for writing this lenghthy post. The Kindle, much like the iPhone is a pretty impressive device, bringing several technologies (always on device, e-ink) out of the labs and into more mainstream consumption. And like the iPhone, it has both fans and detractors. And once again, the Kindle offers an interesting kind of lock-in, allowing you to read titles purchased on the kindle (or through the iPhone kindle software) but allowing you access for only as long as you keep a relationship with Amazon. Where the model moves to rental is around magazines and newspapers: you may purchase subscriptions but, should your Kindle be completely full as a result of your subscription, you may loose access to the back issues you “own”.

But Amazon’s move to a rental model is not just around the kindle device. On the consumer end, Amazon now play in the same spaces as Apple and Netflix, renting out or selling digital versions of movies, TV shows, and music.

Renting at the Enterprise Level

In other example of the evolving trend moving from the consumer to the enterprise space, Amazon is now renting itself, or rather portions of its own operating capacity, to anyone willing to pay a fee. Its infrastructure (storage, computing, and databases ) are all available to organizations who are willing to put their application on top of Amazon’s own servers. Amazon offers similar solutions for payment services, and goes as far as providing space in their warehouses along with complete pick, pack and ship capabilities.

The infrastructure component is part of a trend in which enterprise vendors are now providing data center capabilities on a per data transaction costing model. For many Chief Technical or Chief Information Officer, it changes the basic questions around data center from a “Build vs. Buy” to “Build vs. Buy vs. Rent”.

In the process, it also changes the dynamics of how a business can be built as a substantial portion of a company’s activities can now be outsourced to outside players (I’ll go into more details around the enterprise related issues in my next post)

Is it all bad?

If you read this far, you might assume that, by this point, I’m going to claim that this is all about the over-reach of DRM and that it is all a horrible thing.

I’m not.

What I am trying to highlight here is that the experience around internet driven goods is changing. As connectivity speeds increase, the ability to access any movie/TV show/video/ music clip/ books / magazines / etc is going to have a substantial impact on our relationship to said goods (in a fashion similar to the type of relationship kids now have to music, assuming that music on the Internet ought to be free of restrictions, while at the same time assuming that mobile phone ringtones are something one ought to pay for).

The change in our relationship to media forces us to reassess the value of the physical good. In the case of our household, we have made a leap of faith, assuming that the content of certain DVDs will always be available online from one rental provider or another. The reason for that approach is that the experience of watching such thing on our TV using an internet connected video player is not diminished by the lack of a physical medium. Living in a more constrained space (in Manhattan, space is always at a premium), the physicality of a DVD box is actually an impediment to the experience of the medium. As a result, the internet connectivity, and the rental model, appears to make much more sense than the physical ownership of DVD boxes.

In the same way, the value of a CD collection is in what’s on the CD rather than the plastic container it’s in. Much of the value of the physical container of music has decreased: in the past, LPs were designed and the wraping of the LP was almost has important to the experience as the music itself. However, as CDs reduced the size of the cases, and music production companies spend less time on designing custom boxes, physical CDs became more of a commodity, with the music on them being the only thing that truly distinguished one CD from another.

But what about books, magazines, and newspapers?

To a large extent, I would venture that the relationship we have with magazines or newspapers is different from that of a book. When I first saw the Kindle, I was not attracted to it because I could read books on it but rather because I might be able to subscribe to newspapers or magazines. The clear line falls in the arena of experience: with a few exceptions, magazines and newspapers are read and then discarded. The ephemeral nature of that experience archetype seems to make such relationship a prime candidate for digitization: Once again, the convenience of something like a Kindle seems to trump the experience of having to fold a newspaper in a crowded subway or the guilt associated with recycling large amount of newsprint or magazines on a regular basis: because the intrisic value of newspapers or magazines is as conveyors of temporal information that now appears to be archivable and retrieveable online, the need for ownership of that data appears to be lowered.

Books, on the other hand, are a different issue. Reference books may lend themselves to a good digitizable model (O’Reilly, for example, has had success with its Safari offering, as have encyclopedias like Brittanica and the OED) but fiction books may be in a different class. The book as object may be falling into the same class as those ancient LPs, being designed as a full object rather than just its content and rental of such good (though people will mention that books have been something you can borrow from a library for a long time) may take longer to break through as the advantage of reading such a book on a Kindle is not necessarily higher than that of a physical good. I may be romantic in my thinking, attaching to books not only the content and the packaging but its experience in a greater space, as each book I own has, in itself, a number of memories attached, in the form of sand from a beach where it was read, or wrinkles from being carried on a trip or fold marking and writings from a particular era. In those rare cases, the books serve as containers for more than the stories they held when first presented on a bookshelf or through the online presentation they had: they are containers of a full experience and that, at this point, is not yet something that any digital device (whether it is a kindle or other) has yet been able to reproduce.

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

Media: Advertising

The advertising industry is probably going to be one of the most affected industry this year, hit by the double wammy of a slower economy and a push to digitization.

The economic slowdown will result in a substantial drop in advertising expenditures for traditional media: Newspapers and magazines are already feeling the pinch and I suspect it is not too much longer before television, radio, and display advertising go through the same changes.

Direct media will continue to do OK, however, as it is result oriented and this fully measurable.

Online advertising will continue moving towards performance-type models with CPMs dropping substantially and CPCs and CPAs becoming the de-facto standard.

Social Media will see a sharp reduction in investments unless it can prove that it can perform better than other forms of advertising, as companies will be less interested in experimenting this year. This will put pressure on pricing models relating to social media. One potential way to fight back is to highlight targeting and demonstrate as such targeting benefits ad buyers.

The net-net of all this is that advertising agencies and their holding companies are going to feel pretty squeezed this year, unless they start developing marketplaces than can help their customers purchase bundles in a more efficient and more cost effective fashion. Because ad agencies have generally been slow at reacting to changes in their industry (we’re over 10 years into web-based advertising becoming mainstream and some ad agencies buyers are still questioning its impact), I’m not very hopeful for their short term outlook and positively worried about their long term one.

Media: Print

Print media is about to have one of the worst years of its existence. Newspapers will continue to fail and at least one major newspaper will close by year end (by major, I mean one of the top 100 newspapers in the country).

Most magazines will see substantial drop in their advertising base and many will move to web-based only productions, transforming themselves from print publications into web-based ones. In the process, many of them will have to shed staff as the economic model for web-based publications tends to be much more thinly staffed than that for prinit publications.

Other magazines, like The Economist, The Atlantic, Harper’s, and The New Yorker, will continue to thrive as print continues to be a better place for long form writing than the web. As other publications depart for the web, those long-form, more reader-oriented (and by reader, I mean people who READ instead of scan articles), will continue to thrive, with their advertising base increasing in value.

Media: TV and Movies

The movie industry will, at best, remain flat, and probably see a small decrease in revenue.

TV, on the other hand, is in for a major shake-up. Just as newspapers are starting to feel the pinch of the Internet, IP-based video is going to have a substantial impact this year, eroding audiences as they increasingly choose the place and time for the shows they want to see and, in some cases, may even demand the way in which the media offerings are offered to them.

Just think of the current offerings: today, you can watch a show on television, you can buy it from iTunes or Amazon, you can stream it (or at least stream older episodes) on Netflix as part of you rental plan, or you can watch in in an advertising supported mode on either hulu.com or the station’s own site. On hulu.com, you may have a choice of advertising either watching a two-minute commercial before the show and watch the show uninterrupted or you can watch the show with some limited interuptions as you would on regular TV.

However, today, most of that experience is based on the assumption that you would be using your computer to do so. A new class of devices is starting to appear that are offering access to some of those services directly from your TV: Apple started with their AppleTV device and companies like Roku, LG, Samsung, and others also now have offerings on the market. This will become more common and continue to erase the mark of what TV networks are about. The focus will continue to shift to shows, giving more power to creatives who can deliver the goods to an audience and lowering the usefulness of aggregating middlemen, which is essentially the role TV networks currently play.

In turn, advertisers will want to pay less for TV as they can measure those audiences less than they can those online and see decreasing return on investments for their TV-based advertising expenditures as compared to their digital ones.

So the bottom line is that traditional TV will suffer as more an more of video production is moving to an IP stack.

In the next entry, I will look at general technology related trends that may emerge over the next 12 months.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title 2009 Predictions: Media. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

A few weeks ago, the major TV networks held several events catering to advertising, expecting to sell some advertising for the fall TV season. This period, called the upfronts, is generally a good time for TV stations to attempt to scare advertisers into paying a lot of money for advertising, riding on the fear that their competitors might pick the best spot. However, something different happened this time: some advertisers decided to not join the dance.Â

The reason I’m looking into this effect is that there seems to be a major shift under way in the traditional media business and it is one that gives only two choices to traditional media company: adapt or die.

How TV works

The interesting thing about traditional broadcast television is that its model is based on large market inefficiencies. Let me explain: When a new TV show is created, the creator generally has to pitch the TV network, in an attempt to get the network to pick it up. The network then goes through some analysis in trying to figure out how the show might fare with its audience and whether the audience it attracts is one advertisers is willing to pay for. If they determine that the show could make them some money, they agree to fund a pilot, which is essentially one show that they can take around to test. If that pilot looks like it has potential, the TV station then orders up a few episodes of the show to put it on the air. In the process, they also make their affiliates, who own a geographical monopoly on distributing that content, that the show will be coming up.Â

TV networks make money from two sources: advertisers and fees from affiliates. They use some of that money to buy the rights to a TV show, which is often produced by a separate company. While the separate company may make a relatively small margin on the initial run of the show, a success can enable it to sell the show rights to other companies after the initial run. This is why some non-network TV station can run re-runs of older shows long after those shows are no longer producing new episodes.

TV is imploding

Jeff Jarvis uses the the term exploding TV to talk about the current changes in the TV industry. I believe is contention is wrong: TV is not exploding but rather, it is imploding. The current model is predicated on inefficiencies in the way content is distributed. However, in a future where IPzation rules, TV is trying to reform itself into something new and here, it runs into some problems.

The first problem that TV networks are going to encounter is that their whole living is predicated on something being big: big shows, big audiences, big money from advertisers. But the new model is about small: single episodes, smaller audiences, and less consumption at a single time. As a result, what was once the sweet spot of 8pm to 10pm, when most people had a limited choice in terms of what show they could watch, no longer exist. This happened as a result of both external and self-inflicted factors.

The first external impact was the introduction of the VCR, which allowed people to start shifting the time at which they watch a TV show. Technology constraints, however, made it difficult for the general population to figure out how to properly set up recording of TV shows. However, enough of a critical mass was formed to give people a taste of the concept. When digital video recorders like Tivo were introduced, they simplified the process and made it very easy for people to start shifting their schedule. However, this still gave the TV an hedge: while most people could shift schedule, they were still tied to the device and didn’t know how to get the content of that box.Â

Enter companies like slingbox, which created a device that took the concept one step further by allowing people to shift WHERE they’re watching TV. The second barrier to content being available anywhere anytime shifted, making it very difficult for TV stations to figure out who is watching their shows, when are they watching them and where are they watching them. As a result, they can no longer guarantee their TV affiliates an audience and are therefore finding some pressure in terms of the fees they charge those affiliates.

In an attempt to recover some of their lost revenue, TV networks are now experimenting with putting their shows online, either via their own sites (as ABC did) or through pay mechanisms like the iTunes store (which, surprisingly, Apple still calls the iTunes music store, even though it sells much more than music now). I’d venture that this creates another potential danger for the networks. Why? Because, at the end of the day, TV networks are just re-packagers, using other people’s content to support themselves. What value do they add? At the current time, they can claim that they have the audience, and they have the relationship with the advertisers: it’s a strong advantage in the short run but what about the longer timeline?

Organizations like myspace and the web 2.0 video hosting company of the week are similarly packagers and, while the quality of the video on their systems is still relatively week, one can envision a future where they could easily compete with the TV networks for audience. In some critical audience segments (for example, the much coveted 18–25 male audience), those distinctions no longer exist and, if you extend that trend out for a decade, ABC and youtube are on the same footing. The only difference is that ABC has contacts with the advertisers, where youtube doesn’t really. One can venture that something like Google AdSense is coming for the video space and this is bad news for packagers in general as it will relegate them into the space of just being bandwidth providers (and recent technology development point to P2P networks as not being far from being able to deliver TV quality video at a percentage of the bandwidth cost)

The reason I’m thinking that the new model is bad for packagers is that the brand identification is now going to shows, not to TV networks. Most people think and talk about shows, not about a network lineup so conversations are relating to Lost, the Simpsons, or American Idol, each of which is produced by an outside company. What happens when the creators find that advertising is good enough to support their effort outside of the network system. As TV and the Internet merge (an effort furthered by the recent announcement that Tivo will put web content on your TV), the control is going into the hands of the content producers, not into the hands of the packagers: in a future where the boundaries no longer exist, what happens if the producers of the Lost TV series, seeing that they have a large enough following, decide that they are going to distribute their show on their own and use an adsense-for-video system for ad insertions.Â

So what’s a network to do?

Under this model, networks are headed for the trashbin of history but they may have a way to keep themselves relevant. In order to do so, they need to :

• Recognize that audiences will be smaller
• Focus on a core audience
• Produce your own content
• Give a platform to newcomers

The first item is probably the harder one for them to deal with. Recognizing that audiences are going to be smaller, means that they will have to go through painful reorganizations and shrink themselves to fit the new reality. Such reorganization are always painful but will give them a chance to move to step two: focus on a core audience.

That focus will put them, however, in head to head competition with some cable TV channels, which have taken than approach and have successfully mined their audience. For example, Fox News is known as the news channel for right-leaning people, or lifetime is known as the network for women. And so on and so forth. This may mean jettisoning some existing fares like, for example, the presentation of a particular sport (or going to extreme, the presentation of all sports as the sports leagues are generally the content producers, getting paid large fees for their offerings).

Another tack is one where convergence, that much used but seldom implemented word, comes in. Most, if not all, networks are part of large media conglomerate. This gives them access to production resources to build up their own content. Some of the networks have already smartly moved in that direction, giving them more control of their destiny. Â

Last, but not least is establishing your network as a platform for newcomers. Fox, now considered the fourth network, managed to establish itself by presenting fares that were edgier and different enough in a world where triangulation to get a portion of the middle of the road audience had driven shows that were mostly bland. One interesting challenge, when building up on such a strategy is how one chooses their battles. In the United States, the FCC has made it difficult and sometimes expensive to produce more risque shows. But what if, using their new internet platform, TV networks were to offer two versions of their shows: one that is cleaned-up for television, falling under the proper guidelines for “acceptable” content, and one that is produced for the freer, more unregulated internet. Edgier content is, after all, how some cable channels like HBO have established themselves as powerhouses in the content space.Â

One interesting approach in terms of providing a new platform is that of current.tv. I initially wasn’t sure of what to make of it but I think it goes to the same impulse that has driven youtube to become such a phenomenon: users love to create content and, while most of it is probably not that compelling, such systems break down the stranglehold than TV networks programmers have on distribution.

So why this long piece?

There doesn’t seem to be much new in that piece to people who are interested in that space but I would contend that, when you look at it in perspective, it explains a lot about why TV stations are so interested in ending net neutrality. The fight over net neutrality is about imposing artificial barriers in order to protect monopolies. However, the new threats presented by upstarts like youtube are upsetting the apple cart and traditional companies are now trying to find a way to ensure that their monopolies are protected. Of course, they’re never going to say it that way but, ultimately, the fight over net neutrality is a fight over what content will be available. As I’ve mentioned in my earlier piece on net neutrality, the battle is primarily one happening around the future of the internet in the United States. And, in thinking some more about it, I’ve come to the realization that, at the end of the day, the US companies opposing net neutrality may be fighting not only for the benefits of the telco providers but also for the benefits of the large content producers.

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

Broadband penetration

Broadband penetration will continue to increase in the United States and Europe. Large scale deployments of city-wide broadband efforts in several large cities will start making internet access similar to phone or electric service, widespread and the type of thing few people think of. On the bleeding edge of the Internet access development world, some large scale networks, most probably coming from phone companies, will break the 10-Mbps barrier and close in on the 100-Mbps speed, making internet access on par with regular local network access.

The downside of this widespread deployment of high-speed internet access will be in the phone industry, where next generation (3G) rollouts of high speed wireless networks will prove costly and offer lackluster service considering its high price. This will force a drastic reduction in prices towards the end of the year or early 2007, in an attempt to recover some revenue from the large investments.

Implications of increased broadband penetration

The increase in broadband penetration will have several large implications, including the rollout of more voice over IP services, video services, and the infrastructure security.

Voice Over IP

Voice over IP will continue to see widespread deployment and large phone companies will start migrating their full networks to IP-based traffic. This will make VoIP the primary form of telephone communication for wired lines by the end of 2006, though few people will be aware of the change as it will largely happen behind the scenes, not touching people’s independent system.

Telephony services will increase as the VoIP phenomenon continues to increase. Expect early efforts in video telephony to start rolling out and becoming more mainstream towards the end of the year. Also expect to see the rise of wireless devices that can bridge the gap between computer and regular telephony, providing access to the network in a number of different ways.

Video

Video over IP will be very hot in 2006, with several major changes in the industry. First will be the announcement, by Apple, of its new mac-mini intel-powered platform designed specifically for the living room. Following on the success of the iPod, Apple will market the device less as a computer and more as a video consumption tool that will include stunning high definition resolution and will offer direct access to the iMedia store (formerly known as the iTunes music store) where one will be able to download movies and TV shows, as well as content created by amateurs.

Google, in partnership with AOL (and its sister companies within the Time-Warner world), will offer a pay-per-view system, mirroring some of the iMedia store offerings. The system will be available both in the AOL closed garden client (where it will use some level of acceleration to speed up delivery) and on the web through a new client package offered by Google and largely developed by the AOL client software team. The strength of the move will generate enough positive buzz for AOL that Time-Warner will be able to spin-off the unit and will be considering an IPO towards the beginning of 2007.

Seeing their advertising revenues eroding, TV stations will start offering more content online, also sponsored by advertising. New types of online video ad insertion and tracking system will be created by several companies, with Google, Microsoft, and Yahoo! offering aggregated model based on something similar to Google AdWords but offering not only targeting based on keywords but also based on certain demographic information.

New video aggregators will start appearing, offering a way to customize your own TV station. Some will be acquired by the major portals (unless the portals themselves have already developed that capability by the time this trend manifests itself). Meanwhile, Tivo will recast itself as one of those portals and will be acquired by Microsoft and merged with MSNTV (unless it is acquired by Sony, and merged with the PlayStation 3, or Panasonic, and kept as a standalone.)

Having lost in the bidding war for Tivo, Yahoo! will decide to acquire NetFlix and merge it with some of its video offerings, providing not only distribution of DVDs but also online streaming of content.

On the strength of revenues from online ads, some small cable or local TV stations will start offering their complete programming slate online, for free, and adverting supported. This will rankle a few of the cable companies and syndicators who looked to those companies as another revenue stream. Meanwhile, on the same basis, most local TV news will be available online for free through an advertising supported model. During one major story, a local TV station’s feed will compete with the national networks in terms of reporting, as more viewers flood its website than watch the same story unfold on television.

The competition for those types of stories will continue to increase, as citizen journalism provides raw unscripted video of events. Videocasting, following on the success of podcasting, will start seeing some traction with a few podcasting and vidcasters signing deals with traditional media. Traditional media will look at it as an interesting set of development but one that ultimately won’t be trusted by the public because they do not have the right seal of approval; their prediction will turn out to be wrong.

Infrastructure

The rise of broadband and the increasing numbers of basic services running on the internet infrastructure will give rise to fear that the infrastructure is under-protected. From a technical policy viewpoint, electronic infrastructures will become a major national security matter with fears that the very openness of the internet could represent a large security risk. This will be seized upon by the network providers (phone companies, cable companies) and some security consultants as a way to push for policy that will allow those incumbent communications services to administer their networks with tighter control, with decision as to what they are willing to let run on the network and what they are not willing to. A subsequent battle will ensue as VoIP companies and media companies will complain about the network providers squeezing them out. No decision on any of this will be made in 2006 but the debate will continue through 2007 and beyond.

Growth and Scalability

2006 will be an explosive year in the Web 2.0 sphere. Explosive because it will see triple if not quadruple digit growth in number of users but also explosive because it will see several popular sites unable to deal with the capacity issues relating to that explosion.

On the RSS end, the explosion in growth will really start when Internet Explorer 7.0 becomes a priority upgrade on windows stations. The inclusion of some RSS feeds as defaults in the browser will prove to be too much for some sites which had not expected the onslaught of millions of new hits. Readership from RSS readers will increase as more users realize that they can get their favorite sites delivered to them instead of going out and checking to see if they are updated.

As more people discover RSS, more of them will start valuing blogs and many will start their own. However, the concept of becoming a professional blogger will decrease as many people who thought they could make money off their blog will find that the effort in doing so was higher than they had expected and will abandon their blog.

Meanwhile, other web 2.0 subjects will fail: Tagging services like del.icio.us will be see as too complicated by the general public (although they will continue to thrive in the more geeky world) but tagging of pictures (as in Flickr) will continue to grow. Most blog networks will fail to attain the amount of traffic required to play seriously in the advertising world and will be forced to either merge or shut down. Meanwhile, companies offering only a set of web services with the idea to generate revenue solely from advertising may find themselves in a bind as advertising revenue will fail to grow at the same pace as the new offerings.

Implications of Growth

The explosive growth in traffic see during 2006 has implications across a number of players in the blogging world and metadata space. It also has implications in terms of scalability, business, and trust.

Blogging, podcasting, vidcasting

As blogging takes better hold in the mainstream (your parents WILL be blogging), the number of subscribers per individual blog feed will drop into the low teens, with blogs being read by close family members and friends only. A few breakout blogs, specializing on particular narrow subjects will manage to increase their readership but the world will largely consolidate around less than 1,000 major blogs: of those, the vast majority will not be from any members of the Technorati 100 or any other such list. The vast majority of those mainstream blogs will be the ones created by mainstream media outlets, which will use their existing reach to heavily promote their own blog.

Radio stations will increasingly start offering podcasts and TV stations will offering vidcasts. Most, however, will do so through centralized hosting capabilities provided by their parent companies. Smaller podcasters and vidcasters will have a hard time to compete with those larger companies as they are forced to look into ways to support their own bandwidth costs and will sign contracts with hosting services promising a share of advertising revenue in exchange for doing the hosting: that share will largely go to the hosting service with many podcasters/vidcasters finding they are not really making more than a few 100 dollars a months from all their hard work.

Crash and Burn

One of the hosting services will crash in a major way, taking with it a few days worth of the hard work of thousands of people who were hosting on it. The provider will initially recover but suffer a subsequent crash that will seal its fate as a doomed company. The majority of its users will leave and join one of the larger hosting services provided by Yahoo!, Microsoft, and Google.

Beyond the hosting world, scalability will also be a hot buzzword as more services, ranging from RSS hosting providers like FeedBurner to search engines like Technorati and Feedster to analytics providers like Google and MeasureMap will experience temporary failures and growth pains.

The cost of upgrading the service infrastructure will be too much to bear for some companies, which will be forced to shutter their door, sell out, or merge with a similar service. Meanwhile, many web-based service companies will fail to generate enough advertising revenue to continue upgrading. A flurry of mergers and closures will happen over a few months, leading people to wonder if this is bubble bust 2.0.

The downside of all those fears about a bust will be in the increased number of negative stories about technology in the mainstream media. Stories will mention the hubris of web 2.0 founders and will showcase Google as a typical example of this hubris, highlighting its free lunches and other things that were thought cool in 205: As a result of all those negative stories (and others but more on that later), Google will loose several billions (possibly even tens of billions) of dollars from the high of its market capitalization, shedding anywhere from 10 to 25 percent off its high.

After the consolidation, there will only be one or two independent players in each of the following (notwithstanding the fact that there will also be offering from the bigger portal players): blog hosting , vlog hosting, podcast hosting (WordPress and Typepad will either be the two in these three sectors or will have merged), blog search, social networks (speaking os social networks, Yahoo! or Microsoft will buy LinkedIn (if it’s Microsoft, LinkedIn will quickly be integrated with Outlook and offer Plaxo-like features).

Meanwhile, a sector which will have been decimated will be tagging. Following slow adoption by the mainstream, largely due to the complexity of adding tags to pages, many tagging companies will fail. Tagging, as a concept, however, will remain and be adopted by most major search engines: as Metadata entry is simplified with the introduction of Windows Vista and Office 12 (both of which will be delivered by Microsoft to a relatively lukewarm market), and tagging becomes a browser feature, it stops being a differentiator.

Trust is hot topic

Fear of Google knowing a little too much about people will bring a slate of bad press for a company that was the darling of the mainstream media in 2005. The introduction of its Google finance service, hooking up into people’s bank accounts and payments systems will be seen as the company becoming too large a player, with fear of it becoming a monopoly. The backlash will first start in silicon Valley, with many tech luminaries starting to tear down the company. It will continue with publications that were once its biggest cheerleader becoming its biggest detractor. As a result, many of the companies that relied on Google for key services (advertising, analytics) will try to distance themselves from it and start looking for other providers (meanwhile, companies looking for funding will excise Google from their business plans, in order to avoid being associated with it by VCs). Yahoo! will pick up some of the adsense/adwords business, along with Microsoft, which will offer a similar service.

Meanwhile, in the analytics space, new companies will be formed and attract a lot of venture capital. Many of them will offer ways to opt-out of their tracking and some will offer added incentive to people willing to provide them with more information. New models in the space will emerge and at least one player will provide a revolutionary approach that will change the analytics landscape.

In the blogosphere too, trust will be a major subject as some of the top bloggers will grapple with issues surrounding defamation of character, libel, accuracy, and reliability after a top-name blogger is sued for something he/she said or linked to. Furthermore, some of the top bloggers will grapple with issues relating to invasion of privacy as they become more famous in the mainstream media.

On the Wikipedia end, anonymous editing will be abandoned after the revelation of a major hack altering minor facts over several months in an automated fashion has rendered a core version of the wikipedia unusable. The wikipedia trustee will revert wikipedia to an earlier date, erasing all changes performed during that period of times and destroying several significant entries on 2006 current events. The mainstream press will pile on about the inaccuracies of wikipedia, bringing back earlier scandals as proof that no information on the internet can be trusted unless it comes from a reliable source (incidentally presented as being a member of the media establishment).

Conclusion

In late 2006, a substantial portion of these predictions will be wrong and some may turn out to be dead on (although most of the ones mentioning companies by name will most probably be wrong).

Meanwhile, on a personal level, 2006 will be a year of big changes. However, I promise it will also be a year of continued writing on TNL.net, even if it is at the same substantial post every week or two rate that readers have gotten accustomed to. I hope you’ll join me for the ride.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title 2006 Predictions. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

The power of the network and links

Many in the blogosphere say that traffic is not a good measure of what blogs are but that conversation, as represented by links and indexes like Technorati, represent a more accurate view of the value of a blog. As a result, I decided to look at how may sites were linking to sites in the WeblogInc empire. Jason and Brian have been doing a great job at building a stable of blogs but it seems a large portion of their success comes from a single blog. Let’s dig into the numbers.

In the following table, I took a look at the list of blogs listed on the weblogs Inc. main site and ran the Technorati site numbers against them (duplicate entries in the weblogsinc list were removed as well as entries that pointed to sites which no longer exist).

Once you have this data, you can start doing some quick analysis. For starters, I started to analyze what percentage of the overall network linkage each blog represented. I then took that percentage figure and used it against three different financial scenarios which have been floated around: some people say the company received 25 million dollars in the acquisition, and others have mentioned a figure of 30–40 million dollars. The details look as follows:

However, in order to get a cleaner picture, I started to dig into more details. First, I analyzed the different segment performance:

What’s interesting here is that the consumer segment is responsible for the majority of linkage so I dug in much further. What I found is that the sum of the EnGadget linkage represents over a third of the overall network traffic (the actual number is 15,529 links for a 35.07% share of the network).

Data for the rest of us?

In acquiring Weblogs Inc., AOL has now provided us with some numbers traditional media are willing to pay for a blog. Looking at the numbers above, one can try to guess at the value of a link from an external site. a single link on the weblogsinc network represents 0.002258559942180087 percent of the overall network.

At the different rumored price points from AOL, it looks as follows:

I don’t know if those values are based on any real rationale but it’s nice to dream up the value of one’s blog based on this.

Should we now assume that traditional media companies are willing to pay between $500 and $1000 per site that links into a blog?

Not quite. The incremental value is in the size of the network and the underlying tools. Jason and Brian have been working on developing a blog authoring technology, called BlogSmith, that sits at the core of their network and one has to believe that AOL saw some value in the software too. However, one can easily say that blog valuations are going to be easier to make after this deal since it provides the first yardstick in that 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 Doing the numbers on the AOL-WeblogsInc deal. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

It seems there are two clear camps here: the new media adopters and the traditional crowd. They can easily be identified based on whether they have laptops in front of them or not. It creates an immediate delineation line as the blog crowd obviously has a backchannel to use whereas the traditional media crowd does not. That’s another facet of WeMedia: always connected, enhanced knowledge through immediate sharing of data.

We News Panel

The AP showed a few familiar citizen generated clips of the Tsunami, the London bombing, the WTC bombing and said they started to use contributions as a way to get speed to market.

“Technology is fundamentally changing the business and if we don’t adapt, we will loose that audience” — Richard Sanbrook, BBC

Discussion of class disparity and availability of access to the internet channel. The United States are behind on this and it seems that there is little leadership in terms of moving forward on this.

Keynote: Al Gore

“TV dominates the flow of information in America… The most prominent casualty [of changes in the marketplace] is the marketplace of exchange of ideas…

It is the destruction of that marketplace of ideas that accounts for the strangeness of our times.”

He sees three basic tenet of the marketplace of ideas:
1. Open to every individidual with no barrier to entry
2. Depended on meritorcracy of ideas
3. Accepted rules of discourse presumed that all speakers were trying to find general agreement

Talks about how television is not a two way conversation (leading up to current.tv pitch, I’m assuming).

“News divisions are now seen as profit centers and used to pursue the agenda of the corporation they are owned by” He then goes on into media manipulation by the White House and current state of coverage (no real news but rather entertainment).

He now is talking about how private control of the TV airwaves is a problem for democracy (gives example of moveOn being shut out because advertising is the only way to get one’s voice on the air(because their ads were not accepted while the White House’s ones were).

Current.tv is about enabling a two way conversation in television.

He stills see TV as the dominant medium of the next few years and closes with a plea to ensure that Internet access remains free and open.

We, Inc.

Discussion of business and media. There is a lot of discussion about the potentials of the Internet as a new channel but, as Scott Rafer, of Feedster, points out, they are “on a higher socio-economic bracket… People aren’t able to find the tools to hear independent voices.”

Craig Forman, GM of Yahoo!, is asked by Jason wether Yahoo! is a media content creator or an area that content producers can work with. He talks about the hotzone, which is independent content and flickr (also owned by Yahoo!) and how the community self-organizes around new tags.

Jennifer Feikin, Director of Google Video, sees it as organising information based on user-generated content. Sees it as “just the beginning”. Lots of talk about Google Video and how it makes video content more readily available. Google’s long term aspiration is to also facilitate video on demand and be able to charge for it (this seems reminiscent of the initial Microsoft model (circa 95–96) of trying to get a vig off every transaction on the Internet)

Andrew Heyward, president of CBS News still sees the Internet as not on par with TV right now. “There is no 60 minutes of the internet. There are very few stars, no compelling storytelling… ”

There’s discussion of a generational divide. According to Heyward, the main reason traditional media is slow to react is that they still have very large audiences, ie. the people who are over 40. He also believes that opinion from journalism on the blog is probably antithetical to the philosophy of CBS news. It’s not something he wants his journalists to engage in.

The most successful writers in the blogosphere, according to Rafer, are the people who are willing to come out and tell where they stand before covering a subject.

Citizen media revenue opportunities: Scott Rafer sees it on the same size as Ebay. Jason Calacanis sees it as 20% of traditional media. Craig Forman sees the revenue opportunities as a mediator between creators, advertisers, and audiences.

We, Invest

Brad Burnham, of Union Sq. ventures, sees the real money being in the coordinate of activity, not in the activities themselves.

Brad Feld, of Mobius Venture: “Computers and software suck… from a venture perspective, there doesn’t seem to be a foreseeable end to it… The challenge is… how to find out what people are interested in and how to organize all this. ” He talks about how Google has demonstrated the value of automation.

Brad Burham counters that Google (and also goes into Skype) is partly based on automation but also based on an underlying human network. The next question he has is whether you can sell a network.

Brad follows up in agreement that scalibility is essential to the model. User attention is an essential part of monetizing traffic.

Following on a view from Rafat Ali that content is not an investment play for VCs, Feld follows up that money is in things that are not easily reproducible.

Burnham: “It is so easy to get to market [for a media company] on the net… that is hard to find something that is monetizable.

A lot of the value within the tool is in the community. It’s getting to be very hard to see the difference between a media and a software co. As the cost come down, the price of delivering a service is so low that you can support it with adsense or another ad model. A media business paid for by the person who wants to have a conversation with the person receiving the service. ”

Feld: Pays credit to web 2.0 and the web 2.0 conference as a geek gathering; “On the east coast, we have a conference where people are talking about something that I, as a technologist, really don’t understand. You have a dynamic where you think they’re coming together but culturally, they’re diverging more than ever.”

We, Marketing

Rick Skentra, topix.net CEO, talks about the value of word of mouth and how the message for the blog world must be different than the message for other traditional media.

Henry Copeland, founder of Blogads.com, talks about how there is no more We in the WeMedia. There is now a personal relationship between bloggers and their audience. Marketing messages in that channel are counter-productive.

John Bell, creative director of Ogilvy PR, talks about the challenges of moving away from a control-focus message.“What we’re seeing is an opportunity for companies to be more transparent and there is still a great split within our customer-base… Some clients are nervous but at the same time, they’re seeing things change and want to get there…”

Fernando Espuela, CEO of Voy, is targeting the latino market with community empowerment tools and marketing it through a non-traditional approach by launching the brand before launching the product.

I asked a question on pushing messages instead of working within the message from the customer. Copeland mentioned how jobs are at risk. Skentra looks at using the people out there as a large focus group. Bell likes the idea of companies that will engage in such a way.

Discussion now goes to Dell-Hell and the Jarvis discussion. Skentra looks at it as an opportunity for companies to adopt a human face and responds to markets. Rubel ask whether companies are allergic to this. Bell says size has nothing to do with it. “… and it goes beyond blogs. For example, BP did a good job when they relaunched their brand as beyond petroleum but they made sure they were not only more transparent but were also walking the walk.”

In Us We Trust

This discussion is focusing on trust and how to get it.

Richard Edelman, CEO of Edelman PR, has been talking about how levels of trust in institutions has fallen. However, one has to wonder whether this trust has eroded as a result of greater transparency which showed that the trust in those institutions was based on very thin ice to start with.

Collaboration Cafe

The goal of this session is to foster dialogue (think bloggercon for traditional media types) and discuss the concept of collaboration. Some of the ideas that were covered included active listening, discipline in caring, demonstration of passion, and general engagement, allowing for vulnerability.

Last Thoughts

The conference was very interesting and I got to meet a lot of fascinating people. The most interesting thing to me, sitting here as a media outsider, was that most of the people at the conference still believe they can have full control of the messages distributed online. This, in my view, is a major fallacy in their thinking as it is becoming clearer and clearer as time goes on that there is very little one can control on the Internet. The only way you can impact the direction of a discussion is engaging into it.

See Also

See also the Technorati Tag wemedia, the We Media tag wemedia and the WeMedia blog for more coverage of this conference.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title At WeMedia 2005. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Voice Over IP

VoIP experienced tremendous growth in 2004 but it was just the beginning. This year, much more will happen in that space.

Cable providers will start deploying VoIP services on their networks and phone companies will start bundling VoIP services with their DSL offering as a way to compete. By year end, all major broadband providers, whether they are offering services over cable or DSL lines, will have a VoIP service bundled with their access service.

Unable to compete with the larger telcos, some smaller players in the market will merge on order to lower their cost per subscriber by bringing their infrastructures together. Also, independent VoIP companies will sign peering agreement with each other in order to bypass traditional telcos and lower the cost of connectivity from one independent VoIP company to another.

Further pressure will be put on all players on the American market as overseas companies will start targeting U.S. customers. Before year-end, at least one company will offer an unlimited calling to several countries plan. Other plans will provide unlimited calling to each continent. This will start putting pressure on established government monopolies in several countries, especially in Europe.

VoIP will also experience strong growth within the enterprise, with companies looking to open-source solutions like Asterisk to replace their PBX infrastructure with a lower cost alternative.

As all this happens, equipment will not only become cheaper but will also become much easier to use and install. Along with it, new sets will come out, with cordless VoIP offerings becoming much more common. Competition in this space will be on features available in new handsets.

With substantial portions of the phone network switching to VoIP, video telephony will start taking hold. However, the price of equipment will still be too high for those services to experience the kind of growth other sectors in the VoIP market will experience.

Entertainment Convergence

The convergence of the computer and other entertainment forms (television, radio, gaming, mobile phones) will continue, further blurring the lines in the convergence world.

With broadband now being the major way to access the Internet in the United States, Internet usage for new forms of entertainment will grow. Along with it, however, will be a continuing challenge to the established media order.

The challenges faced by the music industry with the introduction of Napster will now be the new reality for the movie and television industry. Five years ago, I started seeing the phenomenon emerge and believe the four step process of the digital asset dance will be full blown for the MPAA this year. The MPAA will spend part of the year suing companies and users for downloading movies. However, they are also better prepared that the music industry in that they are already offering legal download services like MovieLink.

While litigation will be one of the ways convergence appears on the front page, many providers will find a way to mine this new world for new dollars. Expect some companies to start offering legal download of television programs for a fee. As the Internet becomes the standard telecommunication infrastructure, content will start getting carried more heavily. Phone companies will start using this to offer bundle TV services with their DSL offering as a way to compete with the cable TV companies that have invaded the telecom turf. Before year end, at least one traditional telco will offer TV over IP. All that content will be protected by DRM systems, getting people more and more used to having less and less rights over the content they receive.

Meanwhile, on the wireless end, the introduction of more powerful mobile phones and the introduction of faster mobile phone networks will also play out in the favor of content producers. As voice traffic revenues continue to decrease, expect mobile phone companies to push data services such as downloadable movies and downloadable music more heavily. By year, MP3 will be the standard format for cellphones and Apple will offer a mobile phone version of the iTunes music store, allowing users to download music from the store and customize their phone with the latest hits.

On the non-Internet end of things, video on demand will continue the strong growth it experienced in 2004 and more programming will be offered in HDTV format, prompting an increase in sales of televisions and tuners that can receive those signals. Meanwhile, radio will follow the path taken by cable television in the early 80s. As satellite radio takes hold as the new “edgier” alternative to traditional radio, people will get more used to the idea of paying for radio. However, they will also require that those services be offered over the Internet as well as over the proprietary networks like XM and Sirius.

But not all content will be coming from big corporations. The grassroots will also play a key role in the distribution of online media in 2005. While podcasting has been the domain of a few geeks in 2004, easier to use tool will bring the phenomenon to the forefront and expect more audio services to be available from regular users. Following on the tail of this phenomenon will be an increase in videocasting from individuals. Much of it will be disappointing but a few gems will emerge, creating new stars who will emerge from the Internet and move on to more traditional media, based on the fame of their online offerings.

Business

Mergers and acquisitions will dominate the software world this year, as more companies realize that the only way into the enterprise is through a complete set of offerings. Expect several multi-billion dollar mergers and/or acquisition. In my mind, McAfee will be acquired or merge with either Symantec or CA; SAP will be acquired by Microsoft; Business Objects will be acquired by Oracle. As holds true for such precise predictions, none of this will actually happen the way I predicted it.

In late 2004, IBM left the personal computer business, selling its unit to Lenovo, a Chinese manufacturer. Expect the same to happen to at least one other PC vendor this year as the margins on personal computers continue to decrease, turning them into commodities.

Apple

Apple, which to date has resisted the price pressures other computer manufacturers have experienced, will introduce a cheaper version of their Macintosh. This, however, will not stem the continuing loss of market share they are experiencing. As Linux continues to grow, the Apple story in the computer business becomes more and more difficult and the company will increasingly rely on the consumer device business as its savior, building a new economy around the success of the iPod and iTunes music store.

The company will not, however, release a video player this year. Among some of the new features I would envision coming from Apple are:

• A flash-based iPod, which will be even smaller than the iPod mini and will be in the $100-$150 price range
• A partnership with a phone company to create a phone that will be able to download music from a special version of the iTunes music store and play MP3 ringtones
• An iPod with audio recording built-in
• A portable camera with iPod-like features
• A new way to send pictures from the iPod directly to printer via Airport express

While it focuses on the music business, Apple will not spend much time updating its laptop business. Adoption will drop in that part of the business as PC vendors start selling sub-$500 laptop PCs, making the iBook look expensive by comparison. Apple will try to enter the low cost market but not with a laptop: they will introduce a mac without monitor for under $500, offering integration with the iPod, and plugs to attach the computer to a television as its major features.

On the software end, the company will introduce a Word Processor and Spreadsheet program. They will release them, along with Keynote, as a complete package named iWork which will be aimed at students and small businesses. The package will be available for free on new computers.

Development

Blogs and RSS will continue their growth and will move strongly within the enterprise space. Adoption of RSS will continue its explosive growth but crest in 2005 as users start trying to find ways to cope with the information overload. New components in RSS readers will attempt to help organize RSS feeds but those basic efforts will initially fail and discussions will be set towards the end of the year as to the effective way to organize large amounts of data.

Weblogs and content management systems will start covering some of the same ground and enterprise will start using weblogs internally at the departmental level. Meanwhile, external employee weblogs will start becoming the focus of more litigations as corporation try to retain their intellectual property and fight the kind of transparency that comes from having employees talk openly on the web. Internal rules and regulations will be set in how employees can use blogs.

Meanwhile, in the development world, Service Oriented Architectures will continue being the approach to delivering next generation services. SOA will grow largely internally but some companies will start exposing some web services via XML to their partners. A new set of interesting new applications will come out as a result of those exposures.

Security and trust will continue to be big subjects and I suspect that trust will become an even bigger one with new standards emerging around the concept but no general agreement as to the best implementation.

Open source software will continue its strong growth, getting into more and more specialized fields. With the delays in delivery of Microsoft’s next operating system, Linux will continue to grow but complaints about price will start to arise. While the open source movement has offered free software, there will continue to be an increase in the price of supported version of the software.

Personal

I’ll promise to update the blog more often, will do OK for a little while and will then fall back into my regular pattern of a couple of updates a week. Or not… Either way, only the new year 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 2005 Predictions. 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.