Tuesday, 21 April 2009

The end of (mass) media

After last month's broadband forum in Johannesburg, I did an interview with Karen Van Schalkwyk of  Screenafrica, the leading publication for film and television producers in South Africa. 

1 You mentioned that broadband would be the end of content as we know it, could you elaborate on this and how do you think it will affect conventional media?

As content producers we have developed an industry based on a market -  and that market is the content distributors - film distributors and cinemas, television broadcasters, etc. The problem content producers face is that the business of content distribution is slowly collapsing under the pressure of the broadband  internet. Why? Well some of the (related) reasons are:
  • costs of content distribution on the internet is virtually free, which means anyone who is connected can afford to do it, and also means that its difficult to make a profitable business out of it. 
  • content distribution via the broadband internet  is transnational, so a lot of the business models around division of rights by territory are coming under great pressure
  • digital content is like a renewable resource - you can copy it as many times as you like and its just as good as the first time! 
  • most users of digital content also have the means to produce or reproduce that content - this a unique situation in the modern history of content distribution
  • a scary thought for content distributors - peer to peer file sharing - 'audiences' sharing content amongst each other -  (almost all of which is 'media' - music and video) is estimated to account for something between 30% and 70% of all internet traffic depending on which studies you read. 

If we look at how this is affecting conventional content distribution channels, the music industry is in a structural decline with 7 consecutive years of falling income; free to air television, in markets where cheap broadband is widespread, is steadily loosing share of audience and share of advertising to the internet - the example I gave in my presentation was that Google UK now has a greater share of advertising than ITV1 historically the leading advertising earner in the UK. The CEO of Channel Four in the UK stated over a year ago that he couldn't see how Channel Four could survive the next decade on its existing business model. And remember that over 50% of the financing for feature films in fact comes from television. Pay TV, less reliant on advertising than free to air television is surviving a little better so far, but as broadband penetration and speeds increase they are going to be affected also. Even today, if you have the bandwidth, you can download most of the newest US television series online for free. Of course this is pirating but its exactly the same problem that the music industry has faced for years and is likely to have exactly the same economic effect on even pay tv as it has had in music.

2 What do you think will be the challenges for content producers and how would this affect their income and the way they do business – what should some of their new business strategies embrace?

The challenge for content producers is that the people who have paid them money to make television and film - the content distributors - are unlikely to have money to pay them soon! So content producers are going to need to start looking for new customers. Who will those customers be? Well probably the audience itself. One way of looking at the problem is that we no longer need intermediaries between content producers and those who want to watch, or listen to that content. That sounds attractive but there are three major challenges I can foresee. 

First, cash flow. In the old order business models, distributors often advance some or all of the costs of production  to the producer. The audience is unlikely to be willing to do this - they'll pay cash on delivery! So producers with access to cash flow finance are likely to be a much stronger position than those that do not. Second, many people are sceptical that online audiences will be willing to pay at all when there is so much content available for free. Hence the preponderance of advertising funded models online. I am sceptical that advertising funded models are likely to succeed in financing the kinds of content we have been making to date unless we can make that content for very much less money though, since each audience is likely to be smaller than the 'old' audiences (up until the 1980s in the Europe it was still possible for ONE channel to get audience shares of over 50%. Those days, it seems to me, are probably over for ever). I think there is some hope in micro-payments. On cell phones people pay quite a lot of money for so-called content (R5 for a ringtone). So wouldn't you pay R5 for a movie? itunes has proved this can work. The third challenge is more fundamental - whether 'audiences' as we understand them, will continue to exist. Content producers rely on audiences - that is (lots of ) people who are willing to sit still and watch something that was made by someone else. Some commentators describe these people as the 'former audience' because in fact the evidence is that they are less and less willing to behave in this way, maybe just because now they don't have to. If they can watch online they can participate. This isn't just that professional content producers now have to compete with amateur tom, dick and harriet. The broadband internet allows communication to be content rich (think facebook, youtube and flickr) and it appears that as this happens young people especially spend less of their time passively consuming content.

3 You mentioned that ITV has lost a staggering amount of ad revenue due to broadband  (also that Google does not pay for content) – how will this broadband development affect the broadcast industry and what should they change in terms of business strategy. i.e should they provide downloads of content to audience?

I don't have a suggestion of a business strategy for broadcasters except to accept that they are living through an era of massive (hopefully creative) destruction and that broadcasting as we know it is unlikely to come out the other side of it with much of a role as currently organised and in their current function. Many major broadcasters are investing heavily in various ways of making their content available on line. The BBC iPlayer project is one example. The problem isnt getting the content online. The problem is how are they going to earn a substantial enough income stream from it. The music industry has put its content on line (via itunes, nokia etc) but the ioncome they are receiving is not keeping up with the loss of income from CDs and the record industry estimates that 95% of music downloads are not paid for. One thought that might scare independent producers is that one way broadcasters could think of going is to move to focusing on producing content rather than distributing it. 

4 Why do you think SA has lagged behind in terms of broadband development and what are some of the solutions to speeding up this process and making sure we remain competitive?

Data from the International Telecommunications Union shows that South Africa  has fallen down the global league tables of internet connectivity. We were fist in Africa five years ago. We are now fourth. Common reasons given for this are:
  • lack of competition - the long delays in creating the second network operator  have left telkom in a position where it can keep prices high to maintain their margins. The recent issuing of new licences following Altech's court challenge and the new cables that start landing in South Africa this year should make an impact on competition and prices.
  • lack of government support - in spite of many government initiatives, some of which have worked and some of which haven't, we do not have significant focus on this area of infrastructure. Just look at public investment plans over the next few years in electricity generation and distribution, in railways and ports and compare it to the investment in building internet infrastructure. 
5 How do changes in the broadband world affect intellectual property/ rights and territories?

For content producers this is a very important question to consider. The key change that the broadband internet brings is that it makes the enforcement of rights either incredibly difficult or impossible. Histrocially content producers have been strong defenders of property rights (their main gripe has been they don't have or retain enough of them). But I think it is time to start reconsidering this position. Its not clear that the rights based system has really been beneficial to content producers and its not clear that it is a sustainable model for the future. So we need to start considering if there are alternatives and how these alternative could provide income and payment for content. The open source movement  in the software industry, creative commons and copyleft, these are all new ways of thinking about these issues. So far the film and television industry have not been leaders in this thinking.

6 You mentioned that this development moves us toward something more interesting – what are some of these issues that create a more interesting landscape?

Film and television producers at the beginning of the 21st century may be in a position not so different to scribes - the monks and others who wrote books by hand-  at the time of the spread of the printing press. We have some very impressive skills but some of those skills may become redundant over the next few years or decades.  

If I am right then the prospects for our professions are not looking too bright. But if you look at the change from the point of view of the audience the benefits are obvious. Printed books may not have been as beautiful as the hand written books they replaced. But they were just so much more useful, so much more accessible and, of course, so much cheaper. Printed books extended literacy, empowered the middle classes and made knowledge accessible to a much wider community. Broadband offers the 'former audience' something similar but also something even more powerful - the ability to connect, to converse, to organise, to find and to share information, ideas, and knowledge across the entire planet at very low cost. I do not think we have begun to see what this will bring. 

What none of us know is when and how this is going to happen. Maybe film and television producers have a few years or decades left. Changes on this scale in the past have often involved the old and the new existing in parallel for many years. But if I was just entering the professional world of content production I would want to be on the side of the future, not of the past.

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