I started my last missive on Packaged Goods Media (PGM) v. Conversational Media (CM) with an overview of the tectonic changes in leadership at the digital units of major media companies. One day later, Yahoo announced its own radical reorganization – COO Dan Rosensweig is leaving, and media unit chief Llyod Braun, a master of PGM (Desperate Housewives, HBO), also saw the writing on the wall. Rosensweig left, in my estimation, because while he bought into the new Yahoo organization overall, he realized that his place within it was diminished by CFO Susan Decker’s anointment as Semel’s #2 (watch where he goes, I am sure it will be interesting.).
Braun left, on the other hand, because there wasn’t a place for him to begin with. Yahoo has always struggled with its true role as a media company – should it create its own media, or should it be a platform to aggregate the media of others? Braun’s departure indicates that Yahoo will not pursue the vision of itself as a creator of traditional Packaged Goods Media – Braun struggled to figure out how to make “hits” in a platform-driven world of YouTube, MySpace, and Flickr. So what kind of media might best be made in such an environment?
Yes, that was a straw man for this next meditation: the answer is Conversational Media.
But what, exactly, does that mean?
Toward the end of my last riff, I wrote:
It seems clear to me that the folks now charged with running the interactive assets of NBC, Viacom, Time Warner, and Newscorp – four of the largest Packaged Goods media companies in the world – are charged not only with growing their own Conversational Media assets, but also with protecting the Packaged Goods Media assets of their bosses. And those assets are based on several heretofore unassailable pillars:
1. Ownership or control of Intellectual Property by the corporation.
2. Ownership or control of expensive distribution networks.
3. Established business models based on highly evolved approaches to advertising and subscription models.
Each of these three pillars – and I may stumble upon others as I keep thinking out loud – seem to be either irrelevant or significantly shifted in the world of Conversational Media.
A few commentators took this as me dismissing the value of each of these three pillars overall, but that’s an incorrect reading of my intent. In fact, these three pillars are essential to PGM assets and PGM-based companies. My argument is simply that in Conversational Media-based companies, these pillars are not central. Therein lies the conflict between the models: If you have a major company based on PGM, succeeding in the world of CM is going to be exceedingly difficult, because it forces you to embrace entirely unnatural acts. Not owning or controlling the content? Not owning or controlling the audience? Not having total control of your advertising and subscription revenue? Impossible!
The Economics of Packaged Goods Media
Why? This has been explained better in other places, I am sure, but it’s worth a quick review nonetheless. The reason media companies must own or control their content, distribution and advertising relationships comes down to simple economics – it’s extremely expensive to build or buy access to audiences in the PGM world. When you spend tons of capital to create and distribute intellectual property, you must control that property in order to justify your capital expenses.
Take a look at the economics of nearly every traditional media business, and you will see that the majority of its operating costs have to do with either consumer marketing (acquiring audience), or manufacturing and distribution (creating the package – not the content, mind you, but the package the content is in – and delivering that package to the audience). Content creation – the actual product – represents a minority of operating costs.*
In the publishing business, for example, editorial costs are rarely more than 15-20% of operating expenses. Consumer marketing costs – the expense of acquiring and maintaining an audience – can run from 20% to 75% of operating expenses, depending on the life cycle of the product (circulation costs are highest in the first few years of a product’s lifecycle). Manufacturing and distribution costs run another 20% to 35% of total expenses.
In other words, marketing, manufacturing and distribution of Packaged Goods Media usually swallows around 70 to 85% of total expenses. And those expenses are large – at Wired and the Industry Standard, for example, our budgets for these line items were in the tens of millions each. For traditional newspapers like The New York Times, it’s in the hundreds of millions of dollars. With those kinds of investments, one needs necessarily to control the intellectual property at the heart of it all. To not do so would be economic suicide.
But Conversational Media assets demonstrate a very different economic pattern. First of all, finding massively scaled Conversational Media companies is a rather difficult search (pun somewhat intended). Given that conversational media has been around only a decade or so, it’s unclear whether CM companies will mature into massive conglomerates like Time Warner. But for now, let’s examine the characteristics of Conversational Media.
Attributes of Conversational Media
1. Conversation over Dictation.
Not surprisingly, conversational media is driven largely by the give and take between the author and the audience – and oftentimes, the
audience is the principle author (we often hear this called “User Generated Content” or “Social Media”). The conversation is the content. In addition, I would posit that the advertiser can also be part of this conversation, but that is the subject of another post. Packaged Goods Media, on the other hand, is driven by the creator’s dictation of a highly produced package of content meant for consumption. In CM businesses, the “editors” are never really sure what might be on the home page (see Digg, for example). In PGM, the very idea of not dictating what’s in your product is anathema. In Conversational Media, it is central.
2. Platform over Distribution.
Conversational Media are driven by their platforms – the architecture of their platforms are key to differentiation and success. These platforms are by their very nature ignorant of distribution – they need not be concerned with it because it’s close to free (save hosting costs**). Hence, economic differentiation based on the control of distribution – the very heart of PGM-based business models – is irrelevant in CM-based services. They key in CM is to create a killer platform, not to control distribution. PGM products, on the other hand, are driven by distribution, and their platforms – television studios, printing presses – are expensive, but not very differentiated.
3. Service over Product.
Conversational Media is best viewed as a service, rather than a product. This plays into the shift of other types of packaged goods products – like computer software – from shrink wrapped units (“Office 2000”) to ongoing software-as-service models (“Office Live”). The New York Times on paper is a product, but the New York Times online is increasingly a service – albeit still one bounded by the constraints of its larger, PGM-based economic models. Yahoo is far more of a service than a packaged product, and Google is clearly a primary example of a conversational media company as service. Google, in fact, takes every pain it can to deny that it is in the content business (though one can reasonably argue that Google makes these claims to appease its pals over in the PGM world…). I see conflict coming down the pike as large CM-based platforms are consolidated by large PGM companies (think MySpace, YouTube via Google’s deals with PGM companies, and others). The Terms of Services for these platforms make PGM claims over the CM-based intellectual property, and that strikes me as a train wreck in the making. Again, the subject of another post.
4. Iteration and Speed Over Perfection and Deliberation
Conversational media values speed and iteration over process and deliberation. By its nature, Packaged Goods Media is all about the process of creating and shipping a highly produced package of media. In CM, the key is to create, launch, and then constantly iterate your service, which is the platform for the content – the conversation. This plays into Tim O’Reilly’s Web 2 idea of “perpetual beta“: CM services are always in beta. But PGM products are always shipping product, one after the other. The idea of beta is alien to PGM companies – it’s either ready to ship, or it’s not.
5. Engagement over Consumption
Related to #1, it strikes me that the model of interaction with audiences in CM is one of engagement – what early models of “new media” called “lean forward media” as opposed to “sit back media” meant to be consumed. Even if you are consuming this blog, you are consuming it in the spirit of engagement – it’s rather like talk radio – you want to hear what the callers are going to say as well. On this site, for example, there are far more comments than posts, by a ratio of about five to one.
As I read back over this, I realize a few things. First, I’m at nearly 1500 words and anyone who’s made it to this point deserves some kind of a medal (thank you!). Second, much of this feels obvious – I’m restating stuff that many of us have been discussing and debating for nearly ten years. But for whatever reason I feel compelled to try to keep restating it till it feels…more right.
When I read traditional media interpretations of “user generated content” (last weeks New York Times piece proclaiming 2006 the year of “You Media” comes to mind), I feel extremely dissatisfied. These pieces focus on the wrong thing – they judge Conversational Media by the standards of Packaged Goods Media, then find themselves smugly satisfied that CM doesn’t measure up. However, it’s clear that CM is here to stay, so writers from the PGM world struggle to make it fit their worldview. “Now we have to figure out what to do with it,” The Times piece sniffs. “Ignore it? Sort it? Add more of our own?”
A line clearly written by someone who doesn’t engage much in the world of Conversational Media. But that’s OK. I’d never argue that CM makes PGM irrelevant or that folks who don’t participate in CM are somehow better or worse than folks who do. But that’s not the point. The point is that people find the process of engaging in Conversational Media fulfilling in its own right. Tens of millions of us love following the conversations on our favorite blogs, reading and participating in community-driven sites or social networking services. And where tens of millions of people go, profitable business models follow. In my next post, I hope to explore those models. And a caveat – I probably won’t be able to avoid talking about FM, at least in theory….
As always, your responses and thoughts encouraged. This feels like the first draft of what will be a very long conversation piece…
*There are significant exceptions to this rule – the filmed entertainment business comes to mind – and those exceptions are worth exploring at a later date. In fact, I am speaking to various folks in that business over the next few weeks.
**Clearly with massively scaled platforms like Google this is not the case, but still, the costs as a percentage of operating expenses are lower and scale well behind profits for successful platforms.