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Summary:

Rupert Murdoch built his media empire, News Corp, the old-fashioned way… by vertically and horizontally integrating deep and wide into the layers of the media industry (e.g. from production to distribution). But with his acquisition of MySpace, Murdoch has gone down a new path… a new […]

Rupert Murdoch built his media empire, News Corp, the old-fashioned way… by vertically and horizontally integrating deep and wide into the layers of the media industry (e.g. from production to distribution). But with his acquisition of MySpace, Murdoch has gone down a new path… a new dimension of strategic corporate development that I like to call “social integration”.

Just as the name implies, social integration targets the ownership of critical assets in the social media supply chain (e.g. social networks like MySpace or People Aggregator, socially-programmed video services like YouTube or VideoEgg, social photo services like Photobucket or Flickr, socially-curated news sites like Digg or Newsvine, etc.). But in a radical departure from the old vertical and horizontal integration strategies of traditional media, social integration recognizes the fact that social media, by definition, shifts much of the media supply functions directly into the hands of the audience itself.

In other words, with social media, the consumers are in control of production, programming, and distribution … which is a complete reversal of the traditional media model. This reversal in control leads to some interesting consequences, the most obvious being the impact it has on the translation of core competencies within traditional media organizations (they become largely obsolete in the context of social media). But the greater long-term consequences of social integration involve strategic market development.

As social media continues its stunning incursion into the overall media landscape and usurps valuable mindshare, particularly from the younger demographic, the degree to which a traditional media company socially integrates into its audience is rapidly becoming the proxy for its ability to survive the future. But in order to survive via social integration, the players must first understand the real strategic implications of social media.

Many traditional media companies view social media as sort of a “farm league” and a promotional vehicle for Hollywood, one that will augment but not threaten their existing brands, copyrights, talent, and superior storytelling resources. This is a critically flawed view and it’s reminiscent of the strategic mistake that AOL made during the ‘90s. AOL viewed the Internet at large as a wildly chaotic resource that they needed to tame and manicure behind its walled garden. To some extent, AOL treated the Internet as a subset of its proprietary service, positioning itself as the gatekeeper to what they deemed valuable and worthy. This is precisely the way traditional media (especially Hollywood) views social media today.

But just as the Internet was not a subset of AOL, social media will *not* become a subset of traditional media. In fact, social media will increasingly begin to compete directly with traditional media consumption. Yes, it is true that the media output produced and distributed by the audience itself will generally be of lower production value and quality. Even so, they will prove highly competitive to Hollywood products, as the personal engagement factor inherent in personal media outweighs any loss of production value.

So given the competitive nature of social media and the operational challenges it represents, why should media companies even think of embracing social integration? Because they have no choice… social media will continue to take market share away from traditional media, regardless of whether the media companies participate or not.

And if that’s the case, it’s better to eat your own children… otherwise, Google and Yahoo will gladly oblige. At the end of the day, the media conglomerates should view social media much like they did the rise of cable TV. Cable eventually took half the market away from traditional broadcast TV, so the media conglomerates vertically and horizontally integrated their way into cable in order to buy back market share. They should do the same with social media by pursuing a strategy of social integration. Rupert Murdoch already made his first move, and it looks like NBC is about to take their first baby steps. Welcome to the new world of socially-integrated media empires!
Robert Young is a serial entrepreneur who played a major role in the invention & commercialization of the world’s first consumer ISP, Internet advertising (pay-per-click ads), free email, and digital media superdistribution.

  1. “The new world of socially-integrated media empires”?

    These are the same giant media conglomerates that have been around been around for ages. Most of the top ten media companies 20 years ago are the same top ten today. Granted they are now buying up cultural and social capital in the form of these online communities…but am I the only one that finds it incredibly depressing that no new leader in media has emerged?

    What is emerging is a beautiful new model for media! Is this the best we can do with it? Hand it over to the same incumbents that have homogenized and corporatized creativity and culture for years? Is the highest aspiration for a new media company to become a property of Viacom?

    If there is any meaning to life on Earth, I really hope not.

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  2. Much of what we’re seeing today with social media, are amateurs publishing material for other amateurs, without any intent to monetize or market anything. Without true monetization incentives, in a brand new kind of digital marketplace, the real talent has little motivation to “get out there”. All video sites out there are just “page-real-estate” generators, in very clumsy attempts to monetize eyeballs sifting thru pages and pages of junk content.

    People still buy and collect movies on DVDs. People are still addicted to their TiVo to catch and preserve ever rarifying glimpses of quality content on traditional “broadcast” channels, be they Cable, or Radio waves.

    But that all could easily change. Consider technologies such as DV, H.264, and a slew of affordable post-production platforms, it is now within the realm of possibility to produce professional-grade content, that consumers might actually be interested in purchasing.

    What we need are:

    1) a new digital media marketplace where it is possible for content authors to market and sell content. To generate revenue incentive.

    2) a few talented forward-looking “authors” who have made their mark in the “old world” to show the way by making their mark in the “new world”. They would produce content to be released and sold solely in the new digital market place.

    In this new world, marketing and distribution overheads are dramatically lowered, and, thru online social networks, the word-of-mouth effect becomes more powerful than ever. The cream rises to the top not thru what is dictated by a handful of entrenched distribution chains, but instead thru infinite individual voices, representing infinite individual interests.

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  3. “a new digital media marketplace where it is possible for content authors to market and sell content. To generate revenue incentive.”

    The motivation of social publishers in this new world is personal expression not money. This is also what makes social content so appealing to the viewers (it’s real), and is why it will continue to take market share away from traditional media. Reality television was the first step is this transition. Lower quality production will still attract viewers if the story and characters are engaging. Human beings are inherently voyeuristic while at the same time have the need to express themselves. These two characteristics ensure that regardless of quality social media will continue to grow.

    As far as monetization, it is true that this new world must make money, but it is unlikely that viewers will willingly pay for content when so much can be accessed for free. This will be especially true if social media can move toward being ad supported rather than rely on a transactional monetization method. Social media is a way for individuals to project an image to the masses which may eventually make it an ideal platform for brand advertising. This new world will thrive when brands find a way to become part of that image. This isn’t an easy task and we will have to wait and see if brands can figure out how to participate.

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  4. lawrence coburn Tuesday, July 11, 2006

    < This is a critically flawed view and it’s reminiscent of the strategic mistake that AOL made during the ‘90s. AOL viewed the Internet at large as a wildly chaotic resource that they needed to tame and manicure behind its walled garden.

    Yes… very nicely put. And then Google came along to help (regular) people find good stuff in that wildly chaotic resource, and suddenly AOL was obselete.

    I wonder if there will be a comparable breakthrough in the world of social media?

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  5. Robert,

    There’s just one problem with this thesis — you’re assuming media companies can effectively “own” social media. There’s a reason why News Corp is struggling to monetize MySpace — most people who visit MySpace are not visiting Myspace the News Corp media property — they are visiting EACH OTHER.

    Social connections and peer production are indeed extremely powerful — but can they really be “vertically and horizontally” intergtated? You can’t really have it both ways — you can’t cede control to the audience and yet still own and monetize what they produce.

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  6. Scott,

    I agree with most everything you stated… since the digital assets that comprise social media cannot be completely owned by the media companies per usual (e.g. the recent brouhaha over Billy Braggs’ music and MySpace’s subsequently clarification of copyright licensing), the classic definitions of vertical and horizontal integration becomes obsolete. Hence my attempt to define via a new phrase and a new concept… “social integration”.

    I do take issue, however, with your last sentence. Monetization engines of social media will likely reside with the owner of the platforms simply because it’s far more efficient to aggregate the management of such controls (even in light of the fact that most of content itself is owned by the users). That said, sharing such dollars with the user-rightsholders seems to be a rising tide… much in the spirit of Google Adsense.

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  7. Robert,

    I agree with the intent of coining “social integration” — this definitely requires a new way of thinking.

    Let’s take your AdSense reference. AdSense has been successful because it does attempt to own either the platform or the content — note that Google never ran ads on Blogger per se — they simply gave bloggers a platform to run the ads themselves, and then took a piece of the action. But they didn’t have to own Blogger to do it — owning blogger simply allowed them to provide the blogging platform for free, and thus drive more content creation that feeds AdSense.

    News Corp needs to stop thinking in terms of “owning” MySpace’s page views — advertisers don’t want to advertise on those pages because News Corp doesn’t control the content. And MySpace users don’t want the ads on the pages uninvited.

    It would seem the real opportunity is for someone, News Corp or a third party, to offer MySpace users a platform like AdSense to monetize their content. In this scenario, MySpace is no more than a free host, like Blogger — it gives them no advantage in providing this platform.

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  8. Scott, I agree with the finer points you put forth.

    For instance, let’s assume a new third-party ad network emerges… one that’s able to monetize MySpace pages far better than even MySpace can. Currently, if users place those ads on their pages, they would be in technical violation of MySpace’s TOS. It would be very interesting to see how they deal with such a situation.

    News Corp could simply buy the new ad network, of course. But that wouldn’t really resolve the core issue.

    Thanks again for advancing the scenario.

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  9. People who create content, in a social media context, still need to put food on their plates, so I don’t fully buy into Dave Levy’s comment that … “The motivation of social publishers in this new world is personal expression not money.”

    It may be true that a great many people want to express themselves and are at the same time “inherently voyeuristic”, but I would argue that this is mostly a youth-oriented phase of life (as Robert Young stated, “particularly from the younger demographic”). Will the youth of today on MySpace continue to expend significant amount of time expressing themselves and creating their own video content when, years later, they start having families and by golly they have things like expensive college tuitions to pay in an increasingly globally competitive market where jobs are being outsourced left and right?

    I’m willing to bet that when it comes to money making and survival, the very hyper youth demographic of today will easily forgo putting large amounts of their time and attention into MySpace-like pages when they shift into different aspects of their life such as when the tax man comes, the oil prices continue to rise, wedding ceremonies show up, babies are born, home mortgages are desired, college tuitions appear, and oh yes, retirement money needs to be saved.

    Murdoch of course understands demographics quite well and realizes that as long as new babies are born, there will always be a fresh supply of ingress of youth into MySpace while the older youth egress and move on to something else.

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  10. [...] the long tail and others, they all contribute to a shift from old to new media. However, the recent purchase of the social networking hit MySpace by Rupert Murdoch and the acquisition of iVillage by NBC show [...]

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