Documente Academic
Documente Profesional
Documente Cultură
Umair Haque
http://www.bubblegeneration.com
Spring 2005
Media 1.0: Mass Media
Mass Media Value Chain
Infra Publishing/
Production Distribution Retail Attention
structure Marketing
Supply Demand
Demand Supply
Attention
• In fact…
– Attention has remained relatively abundant for many years
• What!? How can we prove this?
• By asking how great the risk of losing audience actually is
– The real problem facing the media industry
• A zero-sum game: media’s grown quantitatively and
qualitatively, but attention hasn’t
• Attention’s about to become relatively scarce (fast)
– Let’s begin by rewinding
• And examining a non-networked world of pure mass media
• In order to understand how attention abundance has shaped
industry dynamics…
• …and led to the creation of core competences and strategies
which become core rigidities and errors in a Media 2.0 world
Attention Abundance
85
93
01
03
9
19
19
20
20
19
19
19
19
19
19
19
19
Media 1.0
Popularity
Quality
Quality drives popularity inefficiently
The Blockbuster Effect
The Blockbuster Effect:
Downstream Scarcity & Strategy
• What’s the dominant strategy in a world driven by
downstream scarcity?
– Reuse the same expensive content across as many media
as you can…
• And price discriminate while you do it
– Film release windows: Cinema, DVD, Video, TV, Ads
– …And across as many market spaces as you can
• Via tie-ins, promotions, etc…
– Think Star Wars: happy meal toys, action figures, books,
posters, t-shirts, breakfast cereal
– Aka: Blockbusters
• Blockbusters are a strategy to maximize returns on content
– By reusing and leveraging it to realize marketing economies
• Most efficient allocation of scarce production resources
Mass Media Returns: The
Blockbuster Effect
Consumer goods tie-ins
Motion picture revenues
Value
Output
DVD, VHS
Cinema
The Blockbuster Effect
Example: Jurassic Park
Merchandising: $50m
Revenues
Value
Syndication: $50m
Demand
Output
Video: $405m
Attention Cost
Attention Cost
Production costs
Output
Why do attention and production costs scale differently? Marketing economies of scale
and scope are the result of leveraging and reusing content across distribution and retail
channels to achieve price discrimination and diversification of risk. Production scale or
scope economies aren’t realized because of high costs of contractual completeness,
which makes risk increase in output, and high technology costs.
Attention & Production Costs
At low levels of output, investing in
attention is dominated… Attention costs
Value
Production costs
Output
Why do some media firms invest in
…And investing in production
production, and others in attention?
is profit-maximizing
Because the scale at which they operate
dictates different profit-maximizing
decisions about which inputs to invest in.
Attention & Production Costs
Production is more
expensive than attention:
invest in attention
Attention costs
Value
Production costs
Output
Media firms producing at different scales Attention is more expensive
will choose different inputs. Small scale than production: invest in
producers will invest in production, and production
large-scale producers will invest in
attention. Hollywood vs Cannes…
Media 1.0 Total Cost Function
The shapes of the attention and
production cost curves…
Cost of all inputs
Value
Output
The S-shaped total cost function means
large-scale producers are naturally more
efficient than small scale producers,
because attention costs diminish due to
marketing economies of scale of scope.
Marketing Spirals Erode Quality
Marketing wars increase the
cost of attention…
Attention costs
Value
Production costs
Output
Marketing spirals act as an entry barrier. They raise attention costs, while
Marketer and
marketing retailer consolidation
economies realizes
of scale and scope are still realized proportionally (the
economies
flattening of scope
of the green andThe
curve). scale in is a shakeout and increased industry
result
marketing. Production
concentration, scale to
because returns or attention
scope remain high only for large-scale
players. Quality
economies
erodes
aren’t
as realized.
production investment is traded for marketing
investment.
Popularity and Quality
…Quality drives popularity hyperefficiently
Media 1.0
Popularity
Quality
Marketing cost spirals mean quality
erodes as relative investment in
production declines, and becomes
even less correlated with popularity
Summary:
Mass Media Value Dynamics
Attention
In a non-networked media world, retail & marketing capture the
most value. Producers and distributors remain fragmented
because production returns don’t scale: they don’t realize Attention
significant economies of scale or scope by consolidating.
Attention
Infra
Production Distribution Marketing Retail Attention
structure
Attention
Marketing and retail returns do scale: by consolidating,
retailers and marketers exert power over downstream
resources by realizing economies of scale and scope in Attention
marketing and retailing, and power over upstream resources by
limiting media supply (and consumption choices).
Attention
Summary:
Mass Media Value Dynamics
Blockbuster strategies emerge due to the natural economics of
Attention
mass media: production is costlier than attention, so the
dominant strategy is to invest in attention (marketing cost
wars), and economize on production (quality erosion). The Attention
result is a smaller and smaller number of concentrated players,
who are forced to invest more and more heavily in marketing
as attention becomes scarcer. Attention
Infra
Production Distribution Marketing Retail Attention
structure
• Micromedia is…
– Media that can be consumed in unbundled microchunks…
• Microchunks of media unbundled from traditional media goods
• Blogs vs newspaper articles
• Tracks vs albums
• Vlogs vs network news
– ..and aggregated and reconstructed in hyperefficient ways
• Blogs, vlogs, podcasts, mp3 tracks, RSS feeds
• Micromedia can be unbundled and rebundled for consumers…
– EG Blog entries can be aggregated and reconstructed by topic
• …to create orders of magnitude more value than mass media
– Micromedia explodes media supply
• The total quantity of media goods explodes
– …And atomizes it
• The average size of media goods shrinks
Micromedia Drivers
Media 2.0
Production and attention are
equally costly
Attention Cost
Production costs
Output
Value shift: in a Media 2.0 world, producers realize production economies of scale
and scope in production, and marketing diseconomies of scale and scope. Attention
becomes more expensive than production, because technology vaporizes production
(distribution, and retail) costs, exploding media supply (relative to a mass media
world, where media supply is fixed), which creates intense rivalry for attention.
Strategy Decay: The
Consequences of Hyperdeflation
• What are the consequences of these economics?
• Media 1.0 strategy decay…
– The blockbuster and all other dominant Media 1.0 strategies fail in a
Media 2.0 world
• Why?
– Blockbusters are a strategy to realize marketing scale & scope
economies
– Which is dominant because cheap attention makes marginal
returns to marketing more attractive than marginal returns to
production
– But blockbuster marketing costs increase in rivalry, because rivalry
accelerates attention scarcity
– Attention becomes more expensive than production, and returns to
marketing erode
– Implication: marketing costs for blockbusters will explode and
returns will implode, as micromedia explodes media supply and
accelerates rivalry
The Blockbuster Effect & Media
Hyperdeflation
Consumer goods tie-ins
Mass media revenues
Value
Output
DVD, VHS
Cinema
Value Shift and
Strategy Decay
• More simply…
• As competition explodes for attention from newer, cooler, hotter
content, attention becomes relatively scarcer, so marginal marketing
costs don’t diminish in scale, but begin to increase in scale instead
• Or: price of media falls in a hyperdeflationary environment, which
means costs must fall or margins must erode
• Even more simply…
• As attention becomes scarcer, it becomes more costly …
• …and so economies of scale and scope in marketing erode because
returns fall
• …while production becomes more abundant and less costly, and so
can realize greater returns
• Value shift:
• Media 2.0 dominant strategies are based on economies of scale and
scope in production, distribution, and search
• Which can realize superior returns to relatively abundant and cheap
production resources by efficiently allocating scarce attention
A Quick Review
Media 1.0 Supply & Demand
Inelastic demand…
Demand
Price
Supply
Quantity
Demand
Price
Supply
Quantity
Pixar
Clear Channel
Quantity
Attention costs
Production costs
Quantity
Because attention costs are
relatively low, returns to …production costs dominate attention costs,
marketing are economical, because content, production, and retail
and marketing wars occur resources are scarce, and attention is abundant
Understanding Media 2.0 Supply
bloggers podcasters
Price
Pixar
Quantity
Quantity
Attention costs
Quantity
Micromedia
Blog
Playlist
Podcast
• What is aggregation?
– ‘Rebundling of content from fragmented platforms & formats,
repurposing, & delivery across new platforms & standards’
• Does this create value in terms of allocating scarce
attention?
– No!
• Dumb aggregation is a value destroyer
– The economics of dumb aggregation are about achieving market
power via scale economies in syndication
– …Scale economies in syndication will become less and less
valuable
• Due to open standards (eg: RSS, Ogg)…
• Exploding the size of the mediaverse…
• Massively raising search and transaction costs
– How do I find cool new music? Google doesn’t help…Bloglines helps a lil bit
– Value captured is a function of efficiently allocating scarce
attention…
• …dumb aggregation is inefficient at attention allocation
Smart Aggregators
• Broadcatching…
– ‘People will consume the media they like best’
• Of course they will – in a perfect world
• In the real world…
– there are search costs, transaction costs, coordination costs, etc
• A simplistic model of a complex reality
– Not a useful concept for strategists, because it ignores costs and
benefits
• Instead, think about the economics behind it
– Smart Aggregators, Micromedia Platforms, and Reconstructors
• Are ways to broadcatch economically
• They operate at different levels…
• …and have different dynamics…
– (The key point)
• …and realize different kinds of economies
– Micromedia platforms exploit peer production: coordination economies
– Smart Aggregators exploit cheap information: search economies
– Reconstructors exploit open standards: distributed economies of scale
Understanding
Micromedia Platforms
Blog
Link
Citation
Trackback
Understanding
Smart Aggregators
Blog Blog Blog
Smart Aggregator
Selected Micromedia
Blog Blog
Entry Entry
Reconstructor
Personal ‘Cast
Entry
Entry
Entry
Understanding
The Media 2.0 Ecosystem
Microplatform
Comment Comment
Reconstructor
Smart Aggregator
Micro Re
Production Aggregation Attention
platform construction
Production
A B C D E Z
Preference Continuum
A B C D E Z
Preference Continuum
A B C D E Z
Preference Continuum
Micromedia producers can efficiently target content to each niche’s
utility function by realizing production economies, which allow the
cheap production of targeted content. The dominant strategy is a
range of goods that satisfies niches with similar utility functions –
snowballs within each niche. Since each niche values targeted content
most, marginal disutility is minimized and value creation is maximized
– attention is efficiently allocated.
Value Creation and Plasticity
Utility
A B C D E Z
Preference Continuum
How small can your niches get? Niche size is a function of media
plasticity – how costly it is to unbundle media elements. The more
plastic media is, the less costly it is to build Smart Aggregators and
Reconstructors to filter and remix it. For example, reconstructors for
Hollywood flicks are costly, because unbundling them is difficult. What
increases plasticity? Lightweight, open standards, like RSS; and
modular architectures, like blog entries.
Disconnected Consumption
• Disconnected consumption
– Media 1.0 goods are disconnected in consumption…
– …centralized mechanisms inform expectations about utility derived
from consumption
• Your local paper reviews books, movies, music
• Bestseller lists, Top 40 charts
– Information distortion: these mechanisms are easily gamed
• EG Top 40 charts gamed by radio payola
• Bestseller lists gamed by publishers buying own books
• True aggregate preferences are never revealed
– Short term gains have long term costs
• Value creation is minimized because attention allocation is inefficient
• Consumer skepticism grows: search and transaction costs rise and
expected utility falls
Centralized & Decentralized
Information
• Centralized preference information
– is uneconomical for micromedia
• Siskel & Ebert can review 10,000 movies, but not 1,000,000 blogs
• Search and transaction costs are too high
• Micromedia goods require connected consumption…
– For efficient attention allocation
• …because it informs expectations economically
– By decentralizing information transmission and processing
– How?
• Consumers can explicitly share expectations, preferences, and
satisfaction…
• …Or share complementary goods which implicitly reveal expectations,
preferences, and satisfaction
• Attention allocation is efficient because transparent info sharing
removes information distortion
• Decentralized trading of cheap information reveals most valued goods
Connected Consumption
Output
DVD, VHS
Cinema
Micromedia Returns: The
Snowball Effect
Syndicated by hi-traffic site
Micromedia revenues
Value
Demand
Output
Aggregated by aggregator
Published personally
Snowball Example: Blog
Syndicated by Yahoo News
Micromedia revenues
Value
Syndicated by Slashdot
Demand
Output
Micromedia revenues
Value
Syndicated by BoingBoing
Demand
Output
Published on website
Snowballs and
Increasing Returns
• The more a high-quality microchunk is consumed
– the more value is added by consumers
– …the more that microchunk is consumed
• Because Smart aggregators collect and filter preference info…
• …or Micromedia platforms allow complement production
• Value snowballs via increasing returns to adoption
– Positive feedback: if a product Is high-quality, it’s popularity in the niche will
grow as it’s consumed
– Quality drives popularity hyperefficiently
– The downside
• Decentralized info also allows transparency in quality
• Aggregate satisfaction for microchunks is visible
• Implication: only high quality microchunks can become snowballs
– And…
• Not all high quality microchunks will become snowballs
• Snowballs are high quality microchunks that also maximize utility
derived within the niche
Popularity and Quality
…Quality drives popularity hyperefficiently
Media 1.0
Media 2.0
Quality
Quality drives popularity inefficiently
Snowball Economics
Micromedia returns
Output
Traditional media realizes
higher returns
PP is a More Efficient Producer
Snowball Strategy
Demand
Price
Supply
Quantity
…And a growing number of …Create new value, which raises
snowballs the equilibrium price of media, and
also increase demand elasticity
Snowball Effect Implications
• Popularity
– …is driven hyperefficiently by quality…
• Not marketing
– …high-quality content will realize increasing returns (fast)
– Conversely, low-quality content will realize significantly poorer returns than
in a Media 1.0 world
• …because each niche is a winner-take-all market
– Invest in production, not in attention
• Protection
– The micromedia explosion does not mean you should rigidly protect your
goods
– …instead, use leverage to make micromedia work for you…
– …by opening up your goods to realize new economies
An Instructive Case Study
• Why aliases?
– Consumers are DJs – niche, not mass market
– DJs are Smart Aggregators who arose because of a micromedia
explosion and provide specialized knowledge about different genres
to listeners
– Successful producers release tracks under aliases on their own
record labels: labels are important, individual tracks not
– Why?
• Labels are like tags
– They lay the infrastructure for snowballs by allocating scarce
attention according to expected utility
• Just like tags lay the infrastructure than Smart Aggregators
– …allowing DJs to cheaply find tracks they’ll probably like…
– …and then play them, remix them, and sample them…
– Increasing their attractiveness to other DJs and listeners
• This should sound familiar…
An Instructive Case Study
Supply Demand
Producer DJ Clubbers
Demand Supply
Some Recommendations