17 June 2009

NBC = "No Bloody Clue"?

So my prior post about Media Dinosaurs drew a fair amount of feedback - particularly around my comment that the state that big media was in is the result of "ignorance and/or arrogance."

Rather than go into any historical rebuttal - I will offer one simple exhibit to justify this statement.

Yesterday, PaidContent.org published an interview with Jeff Zucker, CEO of NBC Universal. The interview focused on what is described as "the digital future."

I think Zucker's statements give fantastic insight into not only the current state of big media but also the causes of the issues (most) big media companies are facing.

So... from the top.

Zucker was asked when he realized that the internet was something that was "going to change the way our industry is." His answer is illuminating.
It was probably when Lazy Sunday exploded on YouTube because I think that was the real recognition that we as a company were not properly set up to exploit something like that and yet the demand for it was intense.
To be clear... Lazy Sunday aired on SNL December 17, 2005 and became a YouTube phenomena in Jan/Feb 2006. So... what Zucker is saying is that NBC didn't realize that the internet was going to impact the business of television until 2006. To put this in context, that's 8 years after Google was founded and 2 years after Google went public. It's 17 years after the "invention" of the web and more than a decade after the introduction of the first commercial web browser. It's 8 years after the IPO of Broadcast.com. It's 7 years after the creation of Napster and 5 years after Napster's offspring effectively ended physical recorded music sales as an industry.

When it's mentioned that, to date, NBC has kind of fumbled around trying to find a strategy for the internet and failed in all efforts, Zucker's response?
Don’t forget. NBC had Snap. Had we not given up on Snap, the fate of the company might have been unbelievably different. Who’s to say that Snap wasn’t Google?
Honestly, I cannot think of a response to do justice to this. "Divorced from reality" is simply insufficient.

When taxed on the perceived lack of direction (historically) and the lack of defined "digital strategy" - Zucker responds:
Our digital strategy is to make our content as available as possible on any platform and to grow it organically rather than by acquisition and to center it around the entertainment side and be as strong on the news and information side as anyone in the business through all of our outlets.
So... I'm starting to get a more clear picture here. Yes - as we can see from the earlier responses, Zucker (and probably NBC leadership in general) not only entirely missed the Internet and the Web (and seem to still not get it at all) -- they also don't understand what "Strategy" is. Jeff.... that is a reasonably clear statement of some of your content and growth tactics - it's not a Strategy and it is most certainly not a "digital strategy" in any way.

But there is more...

When asked if he regrets the acquisition of iVillage ($600MM for a company that had a history of lack of reported financial irregularities and had never had a profitable quarter in its history) Zucker says no, he thinks it's a valuable part of their "strategy" and offers the following "interesting" justification:
It’s like having the flagship store in the mall for women and what we’ve tried to do with women an NBCU is put a lot of great boutiques around that mall with Bravo, Oxygen, Today Show, Biggest Loser, and our ability to reach women on a horizontal basis, rather than just on a vertical sale, but across all of our properties—cable, online, broadcast, entertainment, news—really distinguishes us in the marketplace and gives us an advantage.

And how is that "women love the mall" approach working for you Jeff?
It’s an additional enterprise sell that some of our clients want at this point and some don’t, which is fine because we want to be able to provide opportunities for what our clients want, not to sell them what we want. It’s there all year round, not just for the upfront selling period.
Yeah... not biting, are they?

Then... my favorite part of the interview...

Zucker is asked if digital can be profitable and, in particular (in a follow up) if digital could be profitable if it were a standalone business. This, to be clear, is the big question everyone in media should be asking right now. "If we killed our legacy distribution, production, consumption etc business units and went pure digital - what would our margins look like?" And what was his answer?
That’s the thing. On a standalone basis would it be profitable? We’d have to really look at that.
Let me get this straight.
You'd "have to really look at that"?
In other words... you have no idea if you'd be profitable as a pure digital business? You've never had anyone run the numbers? You've never before asked that question?

In my last post I wrote:
In essence, I think most of us saw a long time ago that print was in trouble.
Then we saw that radio was in trouble.
Now people are seeing that TV could be in trouble.
On the basis of this interview, I'd like to change the "could" in that last sentence to "is".

10 June 2009

Dinosaurs Walk Among Us (aka the big unified theory of many small things)

Fundamentally, I believe that we now have clear indications that many of the large media companies are either fucked (print) or in deep peril (TV). In the case of print, this is largely the result of the steady increase in operating costs since the early '90s (print, paper, postage) and the dramatic decrease in revenues from advertising over the last ten years (largely driven by a combination of fragmentation caused by technology, a change in the control relationship between brands and consumers and demographic shift). In the case of TV this is largely due to fragmentation in TV due to cable etc, technology innovations like VOD, DVRs etc, a dramatic shift in user attention to the internet, the rise of low cost competition for advertising dollars (internet) which can offer measurable ROI, the change in the control relationship between brands and consumers and the collapse of two of the top sources of advertising dollars (financial services and automotive).

But in both cases - the real and direct cause was arrogance and ignorance. The media companies have had more than a decade's warning that this was coming. They even had an early warning (dot-com) which they ignored after the bubble burst. In fact, they've seen two prior illustrations of what could happen (ESPN taking out Sports Illustrated and digital distribution taking out the recording industry). None the less - they either didn't want to believe that this was coming, couldn't imagine that it applied to them or simply didn't understand it. Nothing is static. Nothing is monolithic. Change is inevitable -- regardless of whether or not you want it. And these businesses have waited so long that now it's likely too late for many of them.

These large media companies came to exist through consolidation and expansion at a time when there was a concentration of ad dollars, increase in ad costs, a control relationship which enabled "rinse and repeat" advertising forced upon consumers and limited media options for these consumers. In this environment, these large media companies made sense. Now that ad dollars are not concentrated, spends have decreased (and efficiencies and measurability increased), the control relationship has reversed and options for consumers are near limitless -- very large media companies don't make sense. And not only do consumers have more choice - worse yet for these companies, consumers are choosing to maximize these options. They are in fact demanding more choice and are getting it.

This massive change has been at least partially masked by demographics. The change has occurred largely in the youngest audience segments and has occurred very little if at all in the oldest (until recently). As a result, it has taken years for it to start to show impact on the aggregate and as such not only have the companies been able to ignore it - so have analysts. But as the trend slowly rises through the age segments and as the market overall ages - we start to see an exponential wave.

With the introduction of affordable and efficient methods of reaching consumers - methods that are measurable and most of all are performance based - large media budgets have finally begun to shrink. with fewer reasonable venues to spend your money (print going away - prime time broadcast not making sense for all but a few brands - radio gone) total ad budgets will go down on a per client basis. To be competitive in the current market, media companies are having to cut their CPMs. This is also going to decrease total ad budgets per client. In addition, many of the large media companies long ago lost sight of who their "audience" is. Many of them began to act as if they were in the business of serving advertisers - rather than consumers. Their offerings, as a result, became less and less focused on giving consumers what they want -- and consumers figured this out.

To make matters worse - as mentioned above, the control relationship between Brands and Consumers has changed. Brands once owned the relationship and used this dominance to force messaging upon consumers. This lead to the large, national, untargeted, mass media "rinse and repeat" advertising campaigns. These campaigns were effective and expensive. With the control relationship flip-flopped, consumers are rejecting this sort of relationship and not only are often uninterested in having a "conversation" or relationship with a Brand - they are having these conversations more often between each other (with the Brand not invited). This means that this style of advertising and marketing is now just expensive (and in no way effective). In an ROI-driven and efficiency driven marketing world - that's a fail. As these campaigns once represented a huge percentage of total advertising dollars - we are seeing further shrinkage in spend.

Beyond that - the change in control relationship actually calls into question the effectiveness of traditional advertising - period. You could make the case that there are two kinds of "traditional" advertising - advertising for awareness and advertising for sales. The argument can be made that advertising for sales is a solution for a failure to establish a relationship between a Brand and the consumer. If the control relationship is flip-flopped, then advertising is no longer an effective solution for that problem. And if media no longer has effective reach or brand affinity, then traditional media advertising (as opposed to "word of mouth" or even PR) is no longer efficient or effective for awareness.

The error in the thinking of many of us (including me) has been "the money has to go somewhere." We've assumed that as TV ad spends decrease (for example) the money will go to Internet, or in-Game or out of home. But it doesn't have to. It can simply go away. It can be spent on things other than advertising. This isn't going to happen over-night. But it's going to happen. In fact, it IS happening.

Large advertising and media agencies arose during the time of the growth of large media companies. The ad agencies grew in the same manner - and grew to capture the maximum ad budgets and justified their existence based on the size of those budgets and the complexity of advertising across so many programs and media types. The problem is that, while the complexity will still likely exist, the budgets won't. And more than that - if the large media companies collapse - the relationships between the agencies and the media companies go away. Efficiency becomes more important. Most of all -- the money goes away. Agencies make their money (when you get right down to it) as a percentage of media budgets. As total money spent on advertising goes down.... the money the agencies makes goes down.

Large agencies are inefficient. More than that - agencies' revenues are basically directly tied to headcount. In order to get efficient - agencies will have to get small. In order to be profitable with decreased revenues - agencies will have to get small. In many cases - clients have realized this. They've realized that smaller, more efficient firms are not only better companies but they are more likely to be innovative and be able to adjust to the changing market (offering "word of mouth" marketing services, guerilla promotions marketing, etc). And, of course, they're cheaper...

The problem is... agencies have morphed into non-diversified conglomerates owned by publicly traded holding companies. And simply saying "we'll get small, have lower sales, but still be profitable" isn't going to work for this kind of company. As such... we can expect a brutal fight for dominance for a shrinking market among these titans - and I think we can expect that the winner will still, eventually, lose.

Now... some caveats.... First of all - this is going to take a while. It's not an overnight thing. There is going to be enormous conflict and fight that is going to delay this. I think it's likely going to involve attempted legislative actions at a federal level (multiple ones). I'd expect things like the cable companies pushing back hard on the content providers to put premium content in gated (either metered or subscription based) online offerings that cable companies at least partially control.

And in addition - there are some exceptions. The more diversified a company is (especially if the company is agile and ruthless and flexible) the better its odds are. If News Corp or Disney are willing to quickly cut loose assets that are going to fail and are willing to quickly shed business models and partnerships that are going to underperform and are willing to use the tremendous leverage they have NOT against consumers but against partners and vendors... they'll survive. The more a company is Entertainment (rather than Media) the better the odds.

There are some complexities and additional issues beyond or underlying all of this. I think that economies of production scale still matter - but that these economies of scale do not actually imply large companies. I believe that for all of this to work content creators must get paid - but this doesn't mean that the only way for content creators to get paid is for their to be large companies. This is a commonly assumed myth - but the reality is that distributed "collective" entities coupled with effective aggregation and paid syndication would (in theory and for example) be more effective and efficient. More than that, every point of value creation should get paid - and in the current model this is not happening.

The problem is that right now an enormous amount of the money goes to points where there is no value creation. And there are big pieces of the current process (smashing trees to make books, most activities of the record companies, all sorts of legacy crap) that make no sense anymore. Consumers pirate music not because they hate the artist and don't think they should get paid. They steal it because they know that the money never gets to the artist. The steal it because they hate The Man - not the Artist.

In general, consumers over the last 10 years have become a lot smarter about what they're paying for and they've learned that they can unbundle costs - so they will. This is obviously making some folks very unhappy. I think it's important to understand that consumers are largely not looking for things to be free - but instead to pay for value and pay for what they want and pay in a manner that they think is ethical and fair.

It's the unbundling that is the crux of the issue. And the more a company's business model is dependent upon bundling - the more pain they're going to feel and the more danger they are in. This is why, fundamentally, I think cable companies are in the most trouble in the short(er) term.

I think there is going to be (as a result of the danger to cable companies) a push for metered bandwidth. I'm going to go out on a limb and say that this is going to be the catalyst for the start of the end game. The consumer backlash is going to be enormous - and the opportunity for new services to get into the game and grow quickly will not only exist but will be exploited. This is going to be ugly.

And all of this doesn't apply just to media/ad agencies and the big media companies. Something important is going on at a fundamental level on a few key dimensions. First of all scale used to be considered the end all be all - and it looks like it doesn't matter as much as it used to and it may in fact be a negative soon. In fact, I think it may already be a negative. I can think of few if any companies of more that 100 people that are not dysfunctional. Given the coming pace of change and flexibility that will be required - and given the issues with the huge fluctuations in revenue we've been seeing - I don't think large, cash consuming dysfunctional organizations have good odds. Secondly, consumer consumption is changing dramatically. I think we're seeing a regression to the mean -- rich countries are regressing to spend less while undeveloped are regressing to spend more. This has societal implications, cultural implications, financial implications (think stock market) and massive implications for organizations. I would also hypothesize that the "true mean" is in fact coming down as well - I think that "target normal" consumption per-capita 30 years from now will be less than it is today. This, of course, is largely driven by the regression in the rich countries which spend a disproportionate percentage of money but also is driven by the globalized economy and a new found lack of faith in long term economic prospects for growth (worldwide). Finally, the combination of connectivity, portability and real-time communications has profound implications across all of this.

In essence, I think most of us saw a long time ago that print was in trouble.
Then we saw that radio was in trouble.
Now people are seeing that TV could be in trouble.

I think what should be clear is actually that large media companies (over all) are in trouble.

And as a result - large agencies are in trouble.

I think we could see the collapse of some large companies in two entire industries - Media and Advertising. And I think that the companies that don't collapse are either going be incredibly agile and well diversified or are going to end up splintering into many, new, smaller companies.
It's not going to happen over-night.
But I think it's going to happen.

I simply think these companies have become so large that, when the seas drop, their bones won't be able to support them any more.

04 June 2009

Twitter -- Illustrated and Illustrative

Obviously I'm as shocked as anyone that this article appears in Time Magazine.

But it's not only the best article on Twitter that I've read - it's also one of the best descriptions I've ever seen on the massive changes that are occurring right now on the internet, in technology and communications and in consumer behavior.

Honestly, this could (and should) be turned into something that explores these topics in far more depth as there are some incredibly important details that are simply hinted at which are in and of themselves worthy of exploration in depth. But... that would be book length probably in that case.

You should read the whole thing - but following are some thoughts that I think are worth covering (in brief).
In short, the most fascinating thing about Twitter is not what it's doing to us. It's what we're doing to it.
People say "Twitter is a platform" a lot - but I feel like the vast majority still think of it as a website. It's not. Twitter is far more than a website. It's far more than a website plus a bunch of APIs. I'd argue that the website is in fact nothing more than a short-term valuable customer acquisition tool. By common definition - Twitter is in fact a true Platform.
Injecting Twitter into that conversation fundamentally changed the rules of engagement. It added a second layer of discussion and brought a wider audience into what would have been a private exchange. And it gave the event an afterlife on the Web. Yes, it was built entirely out of 140-character messages, but the sum total of those tweets added up to something truly substantive, like a suspension bridge made of pebbles.
You could argue that the invention of hyper-text brought contextualization and reach and exploration to the formerly static experience of reading.

I would argue that Twitter is doing the same thing to conversation.

By adding a layer of conversation not only about a topic, but about the conversation about the topic - and by doing so in real-time (and on a global scale) -- and by leveraging the asynchronous nature of the "follow" model -- Twitter not only opens conversations wide, it provides for a huge number of new ways to debate, understand, explore, share and learn.
But watch a live mass-media event with Twitter open on your laptop and you'll see that the futurists had it wrong. We still have national events, but now when we have them, we're actually having a genuine, public conversation with a group that extends far beyond our nuclear family and our next-door neighbors.
It's not just the real-time nature of Twitter (a current focus of attention) that is so vital. It is the combination of it being a platform, it being real time, it having a massive audience, it being used contextually - and it having multi-variant communications (one to many, one to one, many to one, many to many).

This is truly revolutionary -- not just at a technology level. Not just in terms of media, or the web. This is revolutionary on a human and global scale. This changes behavior.
This is what the naysayers fail to understand: it's just as easy to use Twitter to spread the word about a brilliant 10,000-word New Yorker article as it is to spread the word about your Lucky Charms habit
The social distribution network is going to profoundly impact marketing world wide over the next 12 to 18 months. I've written about this before - but I cannot express my belief strongly enough.

This is why Bing is pointless - and why Wave has incredible potential.
This is why traditional Ad Agencies are going to find that the pain is just beginning.
This is why companies like Bit.ly are so amazingly well-positioned.
The history of the Web followed a similar pattern.
I would, in fact, argue that the best way to look at Twitter as if it were the second coming of The Web. Seriously. It and Facebook. In fact, you would not be far off if you were to say that the two of them are battling for the future dominance at a platform level (while companies like TweetDeck and Seesmic battle in the next coming of the Browser Wars).
How could the forecasts have been so wrong? The answer is that we've been tracking only part of the innovation story.
This is the part of this article that I love the most.

For too long we have looked at "Innovation" through a skewed lens and measured innovation by arbitrary metrics.

From Umair Haque's belief that Innovation must create financial returns to IBM's measuring Innovation through patents granted - we've missed the point.
In the race to innovate, most organizations forget a simple but fundamental economic truth. A new process, product, service, business design, or strategy can only be described as an innovation if it results in (or is the result of) authentic, durable economic gains.
This incredibly myopic perspective would (for example) result in us saying that Netscape created nothing Innovative. CERN (in fact) created nothing Innovative. Mozilla... no Innovation there. Xerox PARC... move right along, no Innovations to see.

The thing is - Haque's perspective is in fact something that is held as an unstated belief by a huge number of people in the business. And this belief (for it is not factual, merely faith) has crippled us in too many cases and blinded us far too often.

This has resulted in us not understanding what Innovation truly is - and thus not understanding where it is truly occurring.

It's meant we have failed to even understand how Innovation happens.

And it means that we've valued innovation entirely incorrectly. We've looked at phenomena like Twitter and said "they will fail because they don't have a business model" - have mocked them for their lack of focus on revenue streams - and have thus failed to see not only their Innovation but more importantly the enormous potential they have created -- not just for themselves and their future business model(s) but more importantly for the potentially tens of thousands of businesses that are and will be built on top of this platform (and the potential billions of dollars of revenues those businesses will generate).

Twitter.... it's important.