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Summary:

The media like nothing more than to cover the media. For that reason, there has been near-endless coverage of the struggles of “old media” companies trying to succeed online. Pundits debate the possible return of “pay walls” to the web, the prospects for “freemium” products that […]

AUERBACH-JoshuaThe media like nothing more than to cover the media. For that reason, there has been near-endless coverage of the struggles of “old media” companies trying to succeed online. Pundits debate the possible return of “pay walls” to the web, the prospects for “freemium” products that coax some subscription revenue from a larger pool of non-paying users, and the like. All of these are appropriate and necessary discussions of media products and business models. But it’s time to start talking more about the media companies themselves — not what products they should offer or how much they should charge, but how they should be organized and managed.

The barriers to entry in media have fallen. That means successful media companies will start many more ventures than they have in the past. New opportunities arise all the time, and the capital requirements are typically minimal. Fortunately, the barriers to exit have fallen, too. Without sound stages, broadcasting facilities, or printing presses, a new media company can shut its doors with minimal asset losses. The diversified media company of the future will enter (through startup and acquisition) and exit (through shutdown or sale) businesses very rapidly. The line between an operating company and an investment vehicle blurs, but shareholders can benefit despite, or because, of this rapidity of business creation and destruction.

The evidence of disruption in the U.S. media business is hard to miss. It’s worst in print, of course, with newspaper and magazine circulation and advertising revenue continuing to plunge. In Hollywood, this year’s rise in box-office receipts can’t undo the damage of years of soft DVD sales and the failure of Blu-ray (subscription required) to move beyond a niche product. Even the television business, supported by continued increases in viewing hours, is struggling to adapt as advertisers lose interest in the up-front sales model that propelled the industry for years. Meanwhile, the display ad market online remains soft. (Ironically, the only secure business seems to be the newest: the sale of sponsored links on Google.) Lately, yet another trend has left media strategists puzzled: “Social distribution” — most visible in the increasing roles of Twitter, Facebook, and other media as ways for users to share links and discover interesting content in real time — may well become more important than search as a driver of traffic. While social distribution won’t threaten Google’s revenue for some time, if ever, it complicates media companies’ efforts to build traffic through search-engine marketing and optimization techniques.

Economies of Scope

Modern media conglomerates — News Corp., Disney, Time Warner, and the like — succeed when they have economies of scope. Television production does exist at independent companies, but production companies owned by conglomerates (like Twentieth Century Fox Television and ABC Studios) benefit from predictable demand from TV networks owned by the same company. Similar arguments hold across the range of media companies and explain why so many once-independent media businesses (such as home video distribution) are now the province of the conglomerates. Disney’s planned acquisition of Marvel (40 years after Warner Bros. acquired DC Comics) is just one more attempt to maximize the value of media assets (in this case, comic-book characters).

But online, the story has been different. Successful online companies have had little incentive to acquire adjacent businesses or become part of traditional conglomerates. Google’s YouTube should not acquire a video-production company — it’s one (good) thing to control television production when you need to fill just 21 prime-time hours per week, but it’s clearly mistaken to think that Google could benefit materially if it owned full rights to a few of the ten of the thousands of videos uploaded to YouTube every day.

Why doesn’t the traditional model work online? In short, the web is too fragmented (millions of videos, millions of web sites), too loosely coupled (countless hyperlinks, embed codes, APIs), and too nascent (too few revenue models, too little clarity about the future) to fit comfortably into a media conglomerate as they exist today.

But many of the same economic forces that drove consolidation in 20th-century media still exist. Small companies still need access to resources. Content producers still seek privileged access to distribution. The challenge is that the scarce resources are different: while the media business continues to rely on “talent,” today’s talent may be writing code rather than screenplays. Distribution still creates value, but it can mean a quickly passed link on Twitter or Facebook instead of an 8 p.m. slot on a broadcast network.

What’s the Answer?

How should new-media companies address these forces? Is there a way for these companies to get the benefits of belonging to a media conglomerate without falling into traps? If the conglomerate structure does not work in new media, what will? In the near term, diversified new-media companies should and will be smaller than the conglomerates, if only because the revenues and profits online are still small compared with those in traditional media. But there are ways that small media companies can get the very real benefits of being in multiple adjacent businesses online. One model is to build a network of focused media businesses. Building good online businesses is hard, and the entire industry is still in its adolescence. Simplicity, focus, clarity — these are core principles for success.

But these focused companies need to cooperate and work together. Businesses should encourage cooperation through publicly accessible application programming interfaces (APIs) and publicly accessible data. Every time a business creates such an API, it enables others (including, perhaps most importantly, its corporate siblings) to work with it. It cements its position as a company that matters to others, and it does so without executive mandates or endless licensing negotiations.

Cooperation within the enterprise is only half the battle. Successful businesses need to work with other companies to succeed. The diversified company can help, building links between its constituent businesses and critical partners (large potential corporate customers, venture capital firms, business partners, etc.). Larger companies have more connections and more clout, and so belonging to a larger group provides a direct benefit to small media companies. Traditional media conglomerates own 100 percent of their core businesses. They reward talent (actors, directors, producers, etc.) with contractually determined compensation. But that model fails when the talent are writing code. The best alternative is for the key talent to own equity in their venture. Perhaps this structure is an interim step toward a day when star engineers take home $10 million paychecks, or a “share of the gross.” In any event, the most valuable company in the near term is one that will own less than 100 percent of its constituent businesses.

It’s clearly early days for diversified digital media companies, and they may never be as big as the traditional conglomerates. But the economic forces that drive cooperation among media businesses are going to continue to exist, and it’s up to the entrepreneurs and investors in new media to figure out how best to benefit from those forces.

Josh Auerbach is senior vice president at betaworks, a media company focused on the real-time web and social distribution of content.

  1. your perspective on this is right on joshua (good seeing you recently btw)…

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  2. great post.

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  3. “Social distribution”. News doesn’t want to be free, it’s like a Virus. It spreads by any communication it can, and mutates on the way. Good luck to the old media and try to contain it.

    I say it gain:
    Business Value = Eyeballs * intent

    Google proofed this, and Microsoft it trying to advance this with visual search, for example. Building something based on eyeballs only, link economy, is just a setup for failure.

    The old way of:
    Business Value = Subscribers * Demographics

    won’t cut it online for most advertisers.

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  4. [...] features an article by Joshua Auerbach “New Media Demands a News Media Company“. His conclusions mirror what we’ve been [...]

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  5. [...] a blog discussing entertainment distribution. It looks at the current business models for broadcast [...]

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  6. [...] company focused on the real-time web and social distribution of content. He published a post called New Media Demands a New Kind of Media Company, in which he touches on many [...]

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  7. [...] New Media Demands a New Kind of Media Company | GigaOM 〈新しいメディアの要求に応えるには新しいメディア会社が必要〉 [...]

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  8. [...] New Media Demands a New Kind of Media Company (tags: socialmedia media)   [...]

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  9. i disagree with most of this.

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    1. a personal anecdote.

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  10. I’m baffled that you can write about all of this without addressing a core tenet of historical news gathering and distribution — the professional journalist.

    No matter how good a writer you are, or even how compelling your content might be, if your facts are incorrect, if your thinking is incomplete, and your sources are unverified, then you are most emphatically not socializing the “news”…you are –in essence– sharing gossip.

    The average person out there, like myself, has no intimage knowledge of the political machine or corporate machinations or anything else that happends outside their own personal sphere. And for those things that DO happen inside one’s personal space, how likely is it that you are relating the information in an objective manner.

    This is a quandry for me personally. I love the NY Times, but I cancelled my subscription long ago. Nor do I watch network news programs. LIke most people, I gather “news” from the internet. The only difference is that I’m old enough and have enough life experience to recognize that unfiltered information is often speculative and incorrect.

    I despair of the idea that “news” reporters will go “in and out of business” quickly. To me that sounds like a lack of accountability and huge potential for manipulation. Not that news corporations are perfect or unbiased, of course. But at least under the old model you had some notion that the people in charge knew what they were talking about.

    Just one quick “for instance”…when my husband and I had our wedding announcement in the NY Times, the reporter in charge required us to be able to verify every data point we provided him, and he left out any information that couldn’t be corroborated.

    You think they do that on Youtube, Yelp, or Google? I don’t think so!

    -Jonathan Streeter

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    1. One of the challenges has been proven since Wikipedia information often has produced conflicts, to abide by professional journalism.
      The point made is very important, but likewise interesting is if social media will run down those constraints over the time.

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    2. One of the challenges has been proven since Wikipedia information often has produced conflicts, to abide by professional journalism.
      The point made is very important, but likewise interesting is if social media will run down those constraints over the time.

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  11. Excellent. Thanks for sharing!

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  12. [...] Posted in Online Media, prediction by markpeak on 22 กันยายน 2009 New Media Demands a New Kind of Media Company บทความจาก Joshua [...]

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  13. [...] really did set a solid standard for reporting the news.  But the old advertising-funded-news model is dead.  While blognoscenti have come to rely on Twitter as their most trusted news source, the inherent [...]

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  14. [...] Source: Giga Om – New Media Demands a New Kind of Media Company [...]

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  15. Writer needed to declare his obvious bias towards social media. His bio at end of piece reads, “Josh Auerbach is senior vice president at betaworks, a media company focused on the real-time web and social distribution of content.” My conclusion is that we are in a Zen Buddhist “don’t-know” moment. And anyone who claims to “know” what’s in store is not paying close enough attention. I see a hybrid of all existing media, but that’s about it. I can’t see beyond that. And, historically, “so-called “old media have shown an amazing ability to adapt to release of new media, so tales of their demise may be premature in the extreme.

    – Crotty
    http://www.monk.com

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  16. [...] want to get a better idea of how Betaworks thinks about the world of Internet and digital media, check out this  post from Betaworks’ Josh Auerbach. : betaworks, bit.ly, Chartbeat, RRE Ventures, Summize, Tweetdeck         [...]

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  17. [...] Continue reading on GigaOm Possibly related posts: (automatically generated)Media in the maelstrom (part 1)Key WordsStudy: More Companies Ditching Old Media Habits for NewDebate: Will People Pay For Online Content? Posted in Business and Technology, SELECT | Leave a Comment » [...]

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  18. [...] Joshua Auerbach of Betaworks had earlier pointed out: Why doesn’t the traditional model work online? In short, the web is too fragmented (millions [...]

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