The Future of Media (continued)

One of my basic assumptions about digital media is that it wants to be free and the consumers want it to be free.

I wrote the following in my initial The Future of Media post:

Leaving aside the rights issues, which I know are large, if I were a television executive right now, I'd take my content, microchunk it, put a couple calls to a video ad server in the middle of it, and let it go whereever it wants to go, safe in the knowledge that whenever the show is viewed, I'll get to run a couple 15 second spots in the middle of it (which I could change whenever I wanted to and which I could measure).

That is not what the TV execs are doing for the most part. What they are doing is putting Desperate Housewives up on iTunes for a $1.99 download or reruns of I Love Lucy on Google for a $1.99 download.

I think that's not a mass market service. I've watched I Love Lucy for years for free in my home, I've Tivo'd it and can go back and watch it anytime, and I am not excited about paying $1.99 to download and watch The Courtroom episode.

What I am excited about is downloading The Courtroom episode for free from Google, Yahoo!, iTunes, and whereever else it may be made available. Then cutting and pasting it to get to the scene I love and then posting it on my blog for others to do the same thing with it.

Free content without rules (DRM) is The Future of Media.  The business model will be advertising and its coming, quickly.  Where we are now is an interim step because nobody is yet willing to make the leap.  But someone will soon and they will be rewarded for it with a advertising market that will compare with and possibly beat the size of the paid search market.

But I have been saying this for a while now based mostly on gut instinct.  Now we have some research to support my thesis.  Yesterday MediaPost published an article about a consumer survey on these exact issues.  The headline quote is:

consumers, almost three to one, would rather see commercials than pay a fee--$1.99 a download

The numbers are even more telling in the all important 18-24 age group (who is the future of media):

Consumers 18-34 prefer free, ad-supported content 68 percent of the time--as compared to 26 percent, who prefer to pay a fee. Five percent of those consumers were undecided.

And the notion that just because you've paid for the content you won't see ads is a false hope.  Just yesterday, Mel Karmazin was quoted as saying that Sirius will sell over $600 million in advertising this year on its PAID sattellite radio service.  If you think you are going to avoid ads by paying for content, you are wrong about that.

But paid content online is a niche business.  Free content online is a mass market business.  How many websites require a subscription?  Very few. Why?  Because content on the web wants to be free.  Links are the essential currency of the web and when you click on a link and get asked to pay, most of the time you move on to something else.

The big media owners don't get this right now.  It will take a while of flailing around with paid content models before someone follows the four rules of The Future of Media.  But when they do, they will end up with a very large business quickly and the others will follow.

That's my prediction.

Comments

[Greg]

There's room for both paid and ad-supported models. I agree with you, but that 25 percent willing to shell out $1.99 is too big a potential revenue stream to ignore. The big guys will really shoot themselves in the foot when they corrupt the former with the latter a la Karmazin. But iTunes has seen, what, like 8 million video downloads in just a couple of months? Wait 'til more people get video enabled players. Now if we can just get open standards...

[Russ Pillar]

Your scenario is a tipping point dilemma for big media companies--a "when," not "if," problem. And I've heard Mel say many times when he was running CBS that he'd be happy to provide CBS commercial free to the world...if only everyone who got it would pay him $2/month. It's just another way to tier content, and it's coming.

[Mo]

Excellent post Fred. I am not that far removed from fiscally frugal days of High School and College and I don't think me or any of my friends would pay for content on the web . That age group is more likely to come up with a non-pay techical solution to fight against the pay model.

[Erin Kaese]

We've just launched a niche web based service (www.athleticmindedtraveler.com) and have received a number of emails from folks suggesting we need to make it 100% free and go for the ad dollars. However, we also have other ideas for the service (such as corporate wellness and work/life), so our revenue model is not based solely on individual paid subscribers. It is a tough question.

In fact, it was with respect to this sort of issue that I first read Fred's blog. He was discussing the effect Zagat's online guide has had on sales of its print copies (sales went up). Our online service is an extension of a book as well, but unlike Zagat we are not trying to up sales of the book with the online service...

[Erin]

We've just launched a niche web based service (www.athleticmindedtraveler.com) and have received a number of emails from folks suggesting we need to make it 100% free and go for the ad dollars. However, we also have other ideas for the service (such as corporate wellness and work/life), so our revenue model is not based solely on individual paid subscribers. It is a tough question.

In fact, it was with respect to this sort of issue that I first read Fred's blog. He was discussing the effect Zagat's online guide has had on sales of its print copies (sales went up). Our online service is an extension of a book as well, but unlike Zagat we are not trying to up sales of the book with the online service...

[Collins]

I would think that it would be a more "natural" move for the media giants to gain revenue through ads, b/c it would be a simple extension of their traditional revenue stream. Perhaps b/c the web seems so foreign to them they feel that they need to reinvent the wheel to be successful. Untrue. With the blossom of the internet, everyone was trying to invent new ways of generating revenue, but the $$$ still come through advertising. It will (eventually) be the same with downloads.

[Collins]

I would think that it would be a more "natural" move for the media giants to gain revenue through ads, b/c it would be a simple extension of their traditional revenue stream. Perhaps b/c the web seems so foreign to them they feel that they need to reinvent the wheel to be successful. Untrue. With the blossom of the internet, everyone was trying to invent new ways of generating revenue, but the $$$ still come through advertising. It will (eventually) be the same with downloads.

[Jim B]

One of the areas that I'm sure television execs and their sponsors area concerned is the amount of shows digitally recorded and then viewed with the ability to speed through the commercials.

So, I was taken by last Monday's segment of Las Vegas where an ad for Chevrolet was blended into the show. They introduced the main characters at the beginning of the show and then later morphed the characters into a full blown ad without breaking. It took me a bit to understand what was happening. I was watching a recorded version and habitually fast forward through the commercials, but have to admit I watched since I did not realize it was, in fact, a commercial. Very clever.

[Nicholas]

If you're using the internet as a secondary window for TV-style content that's already available for free on other platforms, then you're right, Fred -- it "wants" to be free, and In2TV (AOL/WB effort) model makes the most sense.

But what if you're using the internet as your primary distribution window for high-quality video content?

Ad revenues simply aren't enough to offset production costs. Yes, production costs are falling, but not to zero: great video content generally requires a team of people, and that's inherently expensive.

So pay-per-view will play a role - especially for portable, non-drm'd content (where the cost of purchase is lower than the opportunity cost of piracy).

And subscriptions are a very, very powerful model. One subscriber at $5 per month equates to 250 ad impressions at a $20 CPM. For original content, it's a far better model.

But the truth is that it's far too early to say that one model will defeat all the others. And the most likely scenario is that content owners will continue to pursue multiple simultaneous models -- some ad-supported content, some PPV, and some subscriptions.

That isn't necessarily "flailing". It might be smart -- especially if it provides a basis to create great content that wouldn't be created otherwise.

The future of media on the internet is NOT just using the medium to repurpose old tv shows.

It's in creating orginal content.

And there's going to be room for several models, operating at once, to support that.

(by the way - do you also expect services like Vongo and Rhapsody to become free and ad-supported? I'm curious...)

[miming]

If you want to see future of Media, go to South Korea, right now. EV-DO is so past. Check out their DMB TV and Wi-Bro technology. You can search web in a car speeding 60 miles per hour and it's faster than speed of cable internet here in the states. Interactive TV on your cell phone, how's that sounds? You gotta go visit South Korea. Do not just read article, but go there feel it.

[steve]

Fred, why limit your vision to content? You seem to have some beef with content creators that you don't have with other similar business models? Place tongue in cheek and consider...

Why not extend the vision to bandwidth? Why should anyone pay for internet access or telephone connectivity when we can all just consume a few ads?

And why stop there? How about food? I'd much rather get free bread, and I don't care if there are paid messages on the wrapper, even printed onto the dough? And there are plenty of restaurants I'd gladly patronize if entrees were free, in exchange for, say, hearing sales pitches for wine and cocktails and desserts?

But that's just the beginning. I'd happily drive a free car in exchange for having to listen to jingles while driving, or watch an ad or two before I can start the engine.

And I'm no snob -- I'd be OK with putting corporate logos on all my clothes if the threads were free. (Ooops, we all do that already but like morons we all still pay for the stuff!)

And could this solve the healthcare crisis? Free health care and drugs if you agree to have a phramaceutical company brand tatooed on your forehead (e.g. "Another healthy Lipitor user! Ask me how low my number is!)

Silly? Ads are marketing messages designed to induce people to pay for things. If we somehow convince ourselves that paying for things is an unworkable business model just because some media make distribution a snap, the logical conclusion you get to, is then why pay for anything? Eventually all distribution models are made easier and easier by the web (eBay Motors, anyone?). So eventually we will decide we shouldn't pay for anything... but at that point the ads themselves are worthless!!!

;)

[Bill]

"Mel Karmazin was quoted as saying that Sirius will sell over $600 million in advertising this year"

Excuse me, but this is completely wrong. Sirius may have revenue of $600 million dollars for all of 06 and Karmazin has stated that he sees advertising revenue trending up to 10% of total revenue.

[Nicholas]

the source, Ad Age, actually says Karmazin talked about a _$60_ million ad market on Sirius -- at least, that's the current headline to the story (which, sadly, is not as free as it wants to be!)

http://adage.com/news.cms?newsId=47406

[Pete Cashmore]

Fred,

Mindmeld!

I totally agree - take a look at my post from December 2005 expressing the exact same sentiment:

"I’ve always thought that all online media should be free and ad-supported...It seems to me that whenever you lock content away behind a pay barrier (or even just a free signup form) you simply encourage people to go elsewhere. Why have a book printed with the opportunity to sell a few thousand copies when you could put it online and potentially reach millions of readers? Once the content is free, you can opt for an ad-supported model and sell print-on-demand copies through sites like Lulu. And once it’s freely available, your content becomes an ad for you and your services, justifying your ludicrously expensive consulting fees. Media is not scarce any more - attention is the scarce resource. The danger is not that people will “steal” your content, it’s that they’ll never be exposed to it at all."

I also suggested that we could limit the damage caused by splogs by properly monetizing the microchunk. The full post is here: Why Online Media Should Be Free (And Why We Should Embrace the Splogosphere).

You might also want to check out the follow-up from earlier this week, where I discuss how DRM could go the same way as the walled gardens of yesteryear - ie. they crumble because DRM will prevent the consumption of ads: Why Online Media Should Be Free (continued).

[New West Living]

"If you think you are going to avoid ads by paying for content, you are wrong about that."

Absolutely. That's exactly why I am not going to Sirius hype.

Excellent post Fred, thanks!

[Chaim Indig]

Fred- In your 4 rules you are missing a key component. People are willing to pay for convenience. There are thousand of companies such as 7-11, Netflix and FedEx that have become huge and profitable because people want some level of convenience. I pay for XM but it is because I like have the convenience of knowing the New York traffic long before I get within range of 1010 wins and because when I drive I hate searching for a decent radio station...

[buy butalbital]

hi