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Summary:

Too many media giants are happy to have a little disruption, provided it doesn’t change the supply-demand equation they have always relied on. But the reality is that this equation has already been blown to smithereens, and they had better figure out how to adapt.

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There are plenty of reasons why the traditional media business — including the advertising industry — is in the shape it is in, including a failure to move quickly enough to adapt to changing market conditions. But one of the primary flaws is a failure to appreciate how the structure of the media industry has been disrupted by the web and the democracy of distribution. As David Pakman of Venrock Capital notes, too many media giants are more than happy to have a little disruption, provided it doesn’t change the supply-demand balance they rely on. This is nonsense, of course; that equation has already been blown to smithereens.

Pakman was commenting on a quote from Irwin Gotlieb, the CEO of GroupM, a unit of WPP Group and one of the world’s largest ad-buying and ad-management agencies: a company with over 30 percent of the global market and more than $73 billion in billings. Gotlieb was speaking about the recent Consumer Electronics Show in Las Vegas and the implications of some of the devices that were displayed there, including connected televisions and other media-display technologies. While he was talking mostly about how this would affect TV advertising, and the “upfront” market for TV shows, his comments were very revealing about his views on media disruption in general:

[I]n the role that we [media buyers] play, we have a responsibility to ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business, doesn’t destroy the content-amortization business, isn’t disruptive simply for the sake of being disruptive.

The traditional supply-demand equation has been obliterated

As Pakman notes in his post, this statement is almost mind-bogglingly obtuse, especially from someone who is supposedly advising the ad industry on the nature of its business. The reality of media disruption — including the disruption of the traditional connections between content and advertising, which agencies like Mr. Gotlieb’s rely on — is that the supply-demand equation has been fundamentally altered. Like Humpty Dumpty, it can’t be put back together again, no matter how much media companies wish it could.

What are the paywalls at newspapers such as the New York Times and the Times of London (not to mention dozens of smaller papers) if not an attempt to hang on to the supply-demand equation as long as possible? When news and entertainment content arrived primarily in print — or through a small number of broadcast channels — media companies didn’t have to worry about supply and demand. The demand was taken for granted, and control over the supply was virtually guaranteed.

That’s over now, or in the process of becoming so. Everyone can become a content producer now, for better or worse. And yes, that means an increase in noise, but it also means that eye-witnesses to news events — and even those involved directly in those events — can publish and broadcast and reach readers or viewers themselves. They no longer need a media company as middleman to handle the distribution for them, and if they do use a middleman, it’s just as likely to be Twitter or YouTube or Facebook. As Pakman notes in his post, Gotlieb and others fail to appreciate this:

[It's] a common mindset for many incumbent business giants in their respective industries; a mistaken belief that they can somehow coax disrupting forces (be they new companies, or larger macro consumer trends) into conforming to their legacy business models and cost structures.

Don’t try to recreate scarcity — embrace the disruption

Instead of trying to manage the disruption, or make it fit into an old box, what do smart media companies and content producers do? They adapt, and take advantage of the disruption, instead of trying to bend it to their will. That’s why The Huffington Post was able to build a giant media entity while the New York Times and others have struggled to grow their audience online — and it’s why traditional media outlets should be paying close attention to the expansion of HuffPo’s cousin Buzzfeed, or the growth of Vox Media (what used to be known as SB Nation) and even the moves that user-generated content entities like the Public Insight Network are making.

As Felix Salmon at Reuters points out, the key to much of the disruption in media is the impact of sharing behavior, whether that takes place through Twitter or Facebook or newer platforms like Tumblr — which recently surpassed 15 billion page views, a number that’s likely higher than the entire traditional newspaper industry combined. So how do you take advantage of that? Make sure your content is worth sharing, then make it easy to do by providing sharing tools, or making it embeddable, or even fundamentally changing your business to focus on being a platform, as The Guardian is trying to do.

The bottom line is that whatever control media companies and advertisers once had over the supply-demand equation is gone (and likely wasn’t as solid or immutable as they thought it was in the first place). The easiest way to move forward is probably to forget that such an equation ever existed — and to focus on figuring out what success looks like in the new media universe, instead of trying to recreate the old one.

Post and thumbnail photos courtesy of Flickr users Sandy Honig and Rosaura Ochoa

  1. Yeah, I’ve been saying for a while that people should package their content up WITH the necessary advertising and distribute it themselves. So if the NYTimes, made each page a PDF with ads already embedded and clickable, it wouldn’t matter how someone got that PDF, the advertisers (and thereby the NYTimes) would still win.

    The same with music, if you distribute your own digital music you can embed your own donation box URLs, brief trailer ads, URLs to your website and how you sell/collect $$$ from digital music.

    Instead you saw a fight against this, corporate world cannot imagine themselves NOT being in full control, and their current problem is their fault.

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  2. Mathew, some of the legacy big media and advertising industry leaders will follow this path of denial — no matter the consequences.

    It reminds me of the airline industry. Nobody could convince the executive leadership of Pan AM Airways and TWA that denial of significant business model changes would likely result in disaster. They viewed the changing world around them through a rear-view mirror of prior accomplishments.

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  3. My blog post today discusses the same subject. Business marketers should focus on becoming the best publishers in their industry.
    http://dominothry.com/2012/01/26/why-your-business-must-become-an-information-company/

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  4. Theere will always be scarcity at the high end. That’s why the NY Times paywall works. The economics of new media rewards specialization: http://tinyurl.com/meyer-vienna-111004

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  5. You know what IS in the hands of the NYT flagship paper? 70 million dollars in paywall cash and more revenues at that paper than last year. And more subscribers.

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  6. As someone said, denial is not a river in Egypt!

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