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Raising the a la carte alarm - May 5, 2008

The talk of the digital media blogosphere over the weekend was a report by written by Bernstein Research analyst Craig Moffet headlined, And Now for the News...The Emperor Has No Clothes. It's well worth a read if you can get your hands on it. For those who can't (and even those who can), digital maverick Mark Cuban has a looong post on his blog about the report in which he reproduces many of the juiciest parts.

The first part of the report is an exegesis on why people like Media Wonk--that is, those of us in the news business--are doomed, which of course Media Wonk has assumed all along. The basic problem is that nobody wants to pay for news anymore and that publishers are slowly (or perhaps not so slowly) slitting their own throats by making their stuff available for free online. It's an interesting discussion but I'm too busy trying to avoid doom to get into it right now.

The report then segues into a discussion of what Moffet calls the "ala carting" of online video. Moffet covers a lot of ground but his basic point is two fold:

1. Consumer tolerance of advertising is much lower online than in the traditional TV channel and that it simply is not possible to support the sort of professional production values expected on TV through advertising online. This is essentially the point Shelly Palmer has made in other forums.
2. The web's ability to let users select only the most desirable programs, or only the most desirable portions of programs--the "ala carting" Moffet refers to--means programmers will not be able to leverage popular programs to support less popular programs through bundling. Thus, Disney can't leverage SportsCenter to support the rest of ESPN's 24-hour schedule, and can't use ESPN to support ESPN Classics, etc.

From there, Cuban goes on to wonder whether the networks aren't "making a huge mistake by putting their current schedules online for free?" According to Cuban:

The ala carting of video on the net will benefit those who enable the search for content and can monetize that search. The economics of supporting content will force independently produced Internet content to be dumbed down to levels that create a perfect match for Youtube. There will be SEOs that come up with arbitrage solutions that will drive traffic to parked videos. Content creators will partner with SEOs and create budgets that reflect the CPMs they can earn in and around the video hosted on Youtube against the costs of the SEO driving traffic to the video. SEO support will be the only even marginally effective way to create baseline traffic to a video/show [sic].

Who could have guessed that creating financially succesful video on the net would require the same marketing skills as driving traffic to parked domains?

Well, actually, it's not all that surprising. What Moffet is describing is a process very much like what the record companies went through: a radical reorientation of the dynamic between producer and consumer. You do not "publish" or "distribute" content on the Internet, although publishers and distributors (including Content Agenda's parent company) like to think they do. You make content available on the Internet for others to access and aggregate as they will. The process is fundamentally, always and ineluctably user-driven.

The real shock of Napster, when it first appeared, was that it disaggregated the album. Yes, free was part of it. But the real impact of Napster and peer-to-peer wasn't that it made the content value-less so much as it reconfigured where value was being added for the consumer in a way that businesses could capture. Assembling 15 or so tracks onto a single platter and promoting it to radio no longer added much value for the end user. They didn't need it and they didn't want it, so they wouldn't pay for it.

Napster, on the other hand, created value by making music accessible, shareable, portable and available ala carte. The theoretical problem for the record companies was not that music had become "free," but that they lacked any business model or mechanism (or vision) for capturing the value that was being created by the new technology.

There's no reason to believe that video producers' experience will be any different. Like it or not, the web simply isn't very kind to publishers, packagers and distributors. It rewards enablers. Search is an enabling technology--perhaps the ultimate enabling technology. And as Google shareholders can tell you, it's been rewarded. The challenge for publishers is not to figure out how to force the web to reward them. It's to figure out how to capture the value created by enabling technology.

In that sense, Cuban is right. It may not make sense for the networks simply to make their schedules available for free on the Internet. That doesn't really create any new value; it mostly just drains value from linear platforms.

What the networks need is to figure out how to capture the value created by enabling consumers to access, select, aggregate, transform, embed and share content--in a word, to use it. Anything else is just TV with buffering.
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