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As fantastic as the Internet is for the consumer, it’s been a nightmare for media companies.Many of the barriers to entry that kept them fat and profitable are now gone, leaving them exposed attacks from various upstarts.
In the face of this new challenge, they need to figure out what their strengths are, what turf to defend, and the best way to charge, where possible.
We spoke with Jonathan Knee, co-author of “The Curse Of The Mogul: What’s Wrong With The World’s Leading Media Companies,” about a few of the companies and strategies for dealing with this period of upheaval.
Silicon Alley Insider: One of the overarching themes of the book is that “content is not king.” But isn’t good content still very important?
Knee: It’s not that content is not valuable, but shareholders of companies in the business of content aren’t likely to do very well. The value of that content, because of nature of the world, accrues to the individual artist or generator of content.
Is there a workable solution to avoid these sorts of headaches?
If someone invests in [a content business], they should have modest expectations of their returns. The businesses that are hit driven are the worst for investment, but unfortunately those are also the most exciting and sexy.
What do you think of NBC’s strategy with Jay Leno? They say it’s a smart move because it saves them money. That seems to fit into themes you discuss.
Efficient operations has two sides to it. It’s cost management and revenue management. Media companies have not done a good job on either. The Leno strategy is on cost management which is critical part of trying to create superior performance.
There is a risk that you get a short term benefit at an overwhelming long term cost. In case of a network there are significant spill over effects from having a huge hit or a big black hole. That is a risk–a ratings black hole–that they run with this strategy.
What do you think of the idea of a Comcast-NBCU deal?
Glenn Britt, who is CEO of other largest cable company, Time Warner, and Brain Roberts, can not both be right. Glenn Britt has just released himself from being connected to a large media conglomerate, and publicly said he will not invest any of his firm’s cash flow or capital into the content business.
The institutional complexities and politics around combining these types of companies usually make them more difficult than what you can have at a third party. If there are benefits from combining these kinds of assets, they have not yet been demonstrated.
It also seems to be contrary to the movement in media to sell off assets.
Despite the fact that the public is perennially afraid that big media is going to take over the world, evidence on the ground suggests everything is going the opposite direction, with increased fragmentation. Major conglomerates are shedding non core assets at a historic clip.
When Rupert Murdoch and Tom Curley talk about charging for content on the web are they right? Or are they missing the point?
Revenue management is critical part of running a business well. The instinctive answer to throw it up for free may have seemed like a good idea when there appeared to be unlimited ad revenue available, but on the face of it, it seems like a mad idea.
The right answer is going to be some mixture of paid and unpaid. The key to effective management is price discrimination, and figuring out who your audience is and what parts can attract a paying clientele.
So, should newspapers have never gone on the web?
First off, the Internet is bad for these businesses and you just need to accept that. It reduces barriers to entry, and anything that reduces barriers to entry is bad. If I was in the newspaper business, I would have protected the parts of my business I could by continuing to charge.
[I would have charged for access to] the intensely local content that only they have the infrastructure to collect. On the other hand, parts of business that were more easily attacked like classifieds, I would have been much more aggressive by supplementing print business with an online business. The resulting classified business is no doubt worse, but it is better than losing share at the rate they did. The problem with their strategy was that it was undifferentiated.
What do you think of Hulu?
The constructive part is that it took way way way too long, but ultimately, a critical mass of industry is cooperating with each other. Historically, it is the insistence on going alone that enhanced the negative impacts.
However, I think it is very important for this joint entity to go slowly and not pursue self destructive strategies, and figure out how to use the joint vehicle to price discriminate with advertisers and viewers.
Why isn’t there bigger cooperation amongst news orgs?
People believe everything they do is special. It turns out only some of it is special. The marketplace is showing what’s special. Local papers don’t need a Washington bureau, but they need local politics, local crime, local sports expert.
Many traditional media companies buy web companies, only to write them down a few years later when they see that they’re not worth what they thought. Do you think it’s in media companies’ best interest to wait until the dust settles on certain web businesses before they dive in?
People sometimes get confused. Just because somebody destroys an existing business model, for all of the emotional satisfaction that may give you, doesn’t imply it is itself, a good business model. The simple fact that you’ve torn down a barrier, leaves you just as naked as it has left them.
Unless you are able to construct something new in its place, which is no mean task, the chances are that you are going to be threatened in the same way they were by the next guy, who will not need to try as hard as you did because there is no wall there in the first place.
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