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.
In Summary
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…
(Read the third post in this series here)
———
*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.
Conversational Media is the revelation of the ROI and intrugue in providing an east outlet for the wisdom of the proactive crowd to interact.
There were hints throughout the past 4 decades of this need.
In the absense of a trackback and in the spirit of conversation, I’ll mention my own post in response (the conversation wants to be free).
Excellent post, John. When do I get my medal?
Isn’t CM just a natural extension of Berners-Lee’s vision of the web? The very nature of PGM has a hierarchical structure that doesn’t leverage basic web concepts and technologies very well.
Also, it’s not only the widom of the proactive crowd to interact but the interest of the mass in observation. For eveyone that posts on a message board or blogs there are dozens of lurkers or readers that simply absorb CM without contributing. The hint here could be the rise of reality television this decade. For me, that is one of the major issues that PGM has to deal with. While this has been embraced on the broadcast side, print media have been loathe to adjust or can’t since their business models simply are not set-up to support it.
Great post. This is certainly where digital media, thus all media, is going. It will be very healthy to watch the transition and watch more and more of the revenue go to the talent and to the media brand and less and less to production and distribution. Of course, exactly how conversational “engagement” will be transferred into commercially-valuable “engagement” with sponsors and marketers is a question yet to be answered. I suspect that it will take lots of experimentation and a fair amoung of time to get it right, but we will get it right over time.
Being one of those people you mention who started having this conversation well over 10 years ago actually, I continue to be ruefully amused at the uncanny lack of (even very recent) historical perspective on the part of PGM purveyors.
What I thought and said back then was that traditional media companies needed to understand the implications of “the means of production are in the hands of the people,” and adjust their business models and particularly their profit expectations accordingly, given hard-stop limits on people’s money and attention.
Well, they didn’t, and it happened to them instead of with them, and now they have to react instead of respond. D-U-M.
With this in mind, I’m not sure I agree that CM is where all media is going. Absolute statements are certainly good for the “size o’ market” slide in the PP presentation and in times of churn they seem like they might actually be true, but they don’t seem to pan out over time.
I suspect that it will take lots of experimentation and a fair amoung of time to get it right, but we will get it right over time.
One thing to note. It is a critical capability of any sufficiently large Conversational Media user forum to moderate content. Else the trolls take over.
IMHO, the site that exemplifies this capability is Slashdot, which uses a fairly elaborate user based moderation scheme to help promote good content.
Packaged Media companies have never had to do content moderation at any scale because the commentators on their content (critics, what have you) were generally themselves Packaged Media. Caution: Dangerous Learning Curve Ahead.
I agree with your summary but not so sure about the conclusions. With the shift of old media to new, from offline to online, the same old media companies that used to dominate in the old world will want to dominate in the new world. Big media (today) is comprised of multi-billion dollar companies, all growing slowly, some even in decline. In order to capture the losses to their core businesses over time, they will need to build/buy new online businesses that can earn back billions in market valuation.
They cannot, IMHO, do this without mastering all three legs of the stool: Content (or platform, as you call it), Audience and Monetization. They not only need to build the next Facebook but they also have to figure out how to turn that traffic into profitable dollars. They may even need to figure our how to monetize as well as Google purports to be able to turn traffic into dollars.
They cannot cede control of one core leg of the stool and, at the same time, generate billions in new value for their shareholders.
Why? For a few reasons:
(1) No large media company, to date, has ever built a multi-billion dollar internet web site.
(2) They cannot, in most cases, buy a successful site. The MySpace.com acquisition was an anomaly. News Corp. happened to catch the market offguard. Myspace.com turned into a cultural phenomenon shortly after it was acquired. Other media companies cannot bank on this happening again.
(3) They cannot bid high enough to win an auction the next time a YouTube.com goes up for sale. Why? It’s simple. They cannot monetize the assets properly therefore their analysis (and the people they have on staff to evaluate) come up short on financial projections and overall vision for the asset. Their bid for YouTube would’ve been $600M if they had been invited to the dance. They weren’t because the CEO of YouTube knew that old media couldn’t afford to buy them.
All of this points to the fact that old media needs all three legs of the stool in order to build real value online and sustain their current market valuations. If they do not figure all this out they will be right-sized over time. Some will decay faster than others, but all will certainly decay.
Thanks for the post. This is great stuff. I now know alot more about media than what I have read in past 10 years.
Thanks John. Well done. No time to thoughtfully respond at the moment, but I want to say that I do enjoy these thorough, expansive posts.
I think there may be a difference between Conversational Media (blogs) and more user-generated media (like Digg). Both have a place, but I would be inclined to separate them, one is decided by a person, the other by a group. I like both, but see them as two, not one. Still, great stuff.
Excellent articulation, John, and I tend to think of this trend as “Channel Me,” as it seems to be all about putting the consumer at the center of the equation and empowering them to connect and converse with like minds on topics and content of interest.
I also tend to believe that its impact will be profound not just on media but also on the way brands are managed, inasmuch as it will blur the lines between advertising and content and put brand managers in the paradoxical role of simultaneously leading, following and getting out of the way of the consumer.
Sometimes, cultivation and enablement of the conversation will be the ticket (think: providing kindling wood and matches for conversations to spark).
Other times, following the lead of consumers will be the ticket (think: product-izing consumer aspirations that arise from conversational threads).
Still others, knowing when to get out of the way will be the right answer (think: allowing consumer generated production tools that blur the lines between the producer’s brand and the consumer’s brand).
Will times are ahead.
Regards,
Mark Sigal
vSocial – Say it with Video!
http://www.vsocial.com
Regarding #4…iteration and speed. I believe you are correct and the explanation strikes me as another long tail phenomenon…now that the tyranny of shelf space has disappeared, an artist needn’t worry about having a perfect product…fearing the cd production would be wasted if the music isn’t perfect. Now, the artist had better get something up there quick…and worry about the next version after that.
With dramatically reduced costs of digital goods, iteration, imperfection, and betas become economically feasible.
At the end of the day, there will be some people who understand and embrace CM for what it is worth and others who will renounce it, or, through a lack of understanding, attempt to embrace it and miss the mark all together. (mycoke.com)
Much like every other movement of the media to democratized platforms, those who currently think they are in control will continue to attempt to maintain what they think is control.
They will never see users and consumers as resources but always as walking talking wallets good only for their lifetime consumer value.
Even with the NewsCorp purchase of MySpace. They are using the platform to push the goals of PGM into the space rather than focusing on new ways to extract the maximum value of the content and resources of the users within MySpace.
The MySpace users are seen as an audience, not as the largest group of energized, dynamic, interesting and diverse content generators ever to populate the same domain.
Equip and incent this group with the ability to more easily share of them selves, invent of them selves and project themselves into this medium and who knows what they can do.
Still others, knowing when to get out of the way will be the right answer
Regarding #4…iteration and speed. I believe you are correct and the explanation strikes me as another long tail phenomenon…now that the tyranny of shelf space has disappeared, an artist needn’t worry about having a perfect product…fearing the cd production would be wasted if the music isn’t perfect. Now, the artist had better get something up there quick…and worry about the next version after that.
I read your blog in a feed reader, and have never bothered to read the comments before. I read you because you’re a knowledgeable expert – not because of the “conversational” format.
You make the analogy between blogs and talk radio, and it’s a good one.
But you, and Mikey TechCrunch, and Longtail Anderson, and Tim “Web 2.0” O’Reilly and the rest of the “big-thinkers” frequently go to far with the “Us” (smart Bay Area-based Web people) vs. “Them” (New York and LA-based old media) mentality.
It’s not really that black and white, and you guys know it. I sometimes think you do it to sell books, or look smart.
I also tend to believe that its impact will be profound not just on media but also on the way brands are managed, inasmuch as it will blur the lines between advertising and content and put brand managers in the paradoxical role of simultaneously leading, following and getting out of the way of the consumer.
Some thoughts about your stool:
1. “Ownership or control of Intellectual Property by the corporation.” Hm, the richer the media, the harder it has been for traditional media to secure full IP control. (Remember Art Buchwald?) The notion of ‘conversation vs dictation’ works fine with text data but as we get further into rich media I think all sorts of rights holders will crawl out of the woodworks, potentially chilling certain forms of interaction.
2. “Ownership or control of expensive distribution networks.” MSO types have tended to think of these things as distribution windows; i.e., make it once, distribute it over as many distribution windows (cinema, HBO, DVD, etc.) as possible. John Malone never tried to own/control every distribution network. He focused on only one distribution network and leveraged the holy bejeezus out of it. I know that the concept of walled gardens is a bit out of favor in the current environment but I think it’s only a matter of time before the pendulum starts to swing the other way, if only because not every network is created equal. If you’re JibJab you think of YouTube for one purpose; Yahoo for another; and home video distributor Razor & Tie for yet another.
3. “Established business models based on highly evolved approaches to advertising and subscription models.” I do think people still underestimate the value of versioning. Some of these comments remind me of Netscape. In a meeting back in 1995 they claimed they could get something along the order of 25+ iterations of Mozilla done in the time that it took Microsoft to release the next version of Word. They slowed down real fast after Netscape 3.0 came out, if I recall correctly.
I suspect versioning will have the same role in development that promotional calendars do in marketing: they act as a roadmap that help keep complex enterprises coordinated. With more moving pieces in the Internet space and in enterprises, I expect versioning to be of greater value.
Still others, knowing when to get out of the way will be the right answer
Hi John,
Some prescient thinking in this post. It was a good read with a Coning Index of 79% (low level background/high level analysis/mid level judgement), quite a hike from part one. The only weakness was accessing the majority of the premium thinking for time poor readers. This thinking sits in the final third of the post, so the post gets a rating of 3 (part one rated at 2).
There’s a little more explanation at http://www.oracep.com
Thanks for your thoughts. Have a great Christmas.
till others, knowing when to get out of the way will be the right answer