The Impact of Changing Digital Entertainment Channels

A presentation by Spencer Wang at Bear Stearns caught my eye. He talks about why aggregation and context, not content will be “king” in the future of entertainment. He has taken a different view than many out there, but does a good job supporting his theory. I happen to agree with his analysis – it is the reason why the existing media companies must acquire digital assets, and why many of the large digital channels are acquiring radio, TV and print assets. Without them they cannot remain competitive.

There are two points, which I find particularly intriguing – one technical, one social.

The first is Mr. Wang’s reference to needing filters to manage all the content choices. It already takes several minutes to scan through all 600 digital cable channels – how long will it take you or me to “surf” through an unlimited number of Internet channels. Filters that can be personalized for user preferences are an absolute must in this scenario. Since I’m a big fan of personalization (incoming or outgoing) and in the Internet communications space, I’m looking forward to the opportunity that this can create.

The second thing that struck me is his reference to the increasing demand for entertainment. I am curious as to why demand is increasing at such a rapid pace. Could this be an indicator that basic human needs, in most countries, are being met and the world’s population has time to enjoy life vs. simply surviving, or is the populace seeking refuge in entertainment because the complexity of the “flat” world is simply overwhelming? This will likely not be answered for years to come, but presents an intriguing dissertation topic for some enterprising doctoral candidate.

For now, I’m just enjoying the digital ride of my life.

Multiplying the Value of User Generated Content

I’ve done some digging around this recent blog from Tomi Ahomen. It talks about a Nokia sponsored “Every Second Counts” contest for 24 second films that must be created on a mobile phone. The quality of the video will vary widely based upon the sophistication of the phone’s camera and “editing” tools on a mobile are few and far between. If you do a quick search, the top listed tools on Google come from Muvee Technologies, which of course is bundled with Nokia phones, the contest sponsor. It is also one of the only “on phone” editors I found with several searches on multiple engines. How long before we start seeing more (or at least better coverage for those that exist).

The “Every Second Counts” contest, taken in context with recent changes at Fox and Time Warner (see the Zachary Rogers, ClickZ article on changes at Fox Interactive) provides a hearkening of things to come. The chessboard is re-arranging itself for the converged channels. User generated media + consolidated advertising and programming infrastructures should dramatically decrease costs and bolster profits. As smartphones, Pocket PCs and PDAs gain ground over candy bar phones, the screen size becomes large enough for short content viewing and it appears, even content generation.

While I don’t believe the mobile phone will ever become the primary platform for video creation, it’s handy in a pinch, has an intrinsic entertainment factor and provides a convenient medium for creating unique, relevant and personal content. Content that can be used multiple times across multiple channels, supported by multiple advertisements targeted at multiple audiences with multiple devices in multiple locations.

And the big winners of this multiplication contest will be the media companies who embrace both UCG and traditional programming strategies, while leveraging the best location, device and consumer aware, ad-supporting technologies across a converged distribution channel network.

Faster, Cheaper, Easier.

USA Today posted an article this week regarding Sprint’s “Cable’s Cell Phone Service”. Add to that the AT&T television commercials that promote all three screens for program viewing (TV, Laptop, Cell Phone). I am watching these trends with great interest because it signals the commercial beginnings of the interactive media channel consolidation that has been quietly taking place behind the scenes for several years. So now the real question is how long before consumers make the shift and consolidate their services.

I believe the following 4 things must happen to gain widespread adoption:

1. A single point for billing can be compelling. It’s easy to manage and means that I only have one bill to pay – via check or online. – faster & easier
2. With more to lose, service providers may be willing to spend a little more time and effort on customer service - easier
3. A single interface – cable, mobile phone and Internet are all bi-directional, interactive channels. If I can access my content the same way across all three devices, that rocks – faster & easier
4. And if the consolidation of all three includes a common back-end infrastructure, then it should be less expensive for me – cheaper

If you come from a product marketing background - faster, cheaper & easier are three value propositions that win every time in an established market. Now that consolidation has a public face, we’re not going backwards. The game is on. Will a “partnership” strategy such as the Sprint’s be able to achieve the faster/cheaper/ easier consumer benefits we all hope for, or will it require an M&A strategy to get there in a profitable fashion? So far the cable companies have done a much better job of improving service, services, consolidated billing and their user interface. Sprint obviously sees the need for a consolidated channel – can they pull it off?

Advertising OS or Channel Mogul?

I just read a very interesting analysis by Robert Young at GigaOm.

He notes that Google's end-game is to become an Advertising OS. I like his analysis, and it strengthens Google's position even more. However, I'm not convinced that this is Google's goal. As you can see from my previous entry, that it is not Microsoft and Yahoo! that are the "competitors", but rather someone like News Corp. (the Fox/MySpace parent company). They have way more to loose than the online guys. The TV/Print/Radio/Satellite distribution networks & content providers have owned the advertising channel and most content production for years. Along comes Google and they build a more efficient ad processing/management engine AND access to cheaper User Generated Content (UCG). YouTube gives them both additional consumers of advertising AND a really cost-effective way to create content that millions of people want to consume. The beauty is that they paid a one time production fee for it, rather than paying writers, producers, actors & cameramen for every episode of every show. Very smart.

Social networking is about UGC. We are social and creative creatures. We crave interaction, not only consumption. I think Google & News Corp. understand this. In fact, many of the TV network's understand this - American Idol (Fox) and Dancing with Stars (ABC) both depend on people to interact with "unscripted" programming. So the Google/You Tube purchase makes perfect sense. I'd be watching out for News Corp. to buy Yahoo! or Ask. It puts them in the game with Google. The traditional media giants will not "go gently into the night" and they already have ad sales organizations and the human network to cross all but the interactive channel. Don't count them out of the game. There are billions of dollars at stake.

As for mobile - a comment topic to Robert's Ad OS blog - Web content is available to smart phones & Pocket PCs right now. Carriers are scrambling to build an advertising network to play in the game. I don't think they can catch up fast enough. Sprint appears to be the only one who is actually buying into the other channels. Everyone else is doing the marketing partnership thing, which doesn't provide the economies of scale required to compete with the giants. Location, device and user information is now available over the Internet (that's what my company - 509, Inc. does), so the carrier assisted/walled-garden approach to Web access will eventually crumble for all but voice-centric entry phones. When it comes to data (and arguably voice with VOIP) "mobile" is just another content distribution channel.

How we connect to all these channels may require different devices, but content is content - we all just pick our favorite kind and live with the advertising or subscription fees that support it.

Google vs. News Corp?

The balance of power in the media world is shifting. Google is not a search company – it does search. Google is a media distribution company. It is covering all of its bases by building the ad infrastructure to support Web, Radio, Print & soon, TV, utilizing both today’s processes and building tomorrow’s cross-channel advertising tools. Because of its Web/Interactive expertise, and because it is going to own the majority of the Web backbone, it is positioned to control media distribution and ad management as the broadcast, cable print and interactive media channels converge.

Sure, Google & Microsoft compete, but I’m not convinced they are the fierce direct competitors that many suggest they are. In fact, when you speak with Microsoft employees, they are not gunning for Google. Well perhaps the Microsoft Live group is, but the rest of the company is focused on selling software products, not search and advertising. With all the brain power in Google, it’s hard to believe that the crap they deliver on the application side is their best effort. I think it’s a bunch of noise to keep the spotlight off their real focus.

No one but a handful of Googleites really knows for sure, but here’s my guess. We hear a lot about Google’s personalization efforts as they automate location awareness, demographic and psychographic profiling. Yeah, yeah, it may improve search, but those are the building blocks of effective advertising. Now, if you put some of those PhDs to work building tools that can integrate marketing across TV, radio, print and the Web – watch out! Now you’ve got something that makes their current market cap look small.

Like Microsoft, Google is embedding itself into the global infrastructure. Search is just the tip of the iceberg. The real power comes from what’s underneath – the infrastructure. What Microsoft has done better than anyone else on the software side is become part of the global infrastructure – communications, entertainment, business, and with Windows embedded and mobile products, that reach is extending into areas such as automotive and household goods. Google, with this latest move is extending the depth of its reach to compete against media giants like News Corp., betting that channel convergence is not too far away. And with today’s Red Herring article about You Tube deals with Verizon & Comcast a lot of other media distribution companies want to make sure they can profit from that convergence.

He who controls the distribution network controls the billions of advertising dollars which must flow through it. So even though companies such as Riya, Like and Ask.com may have better, or at least alternative methods for searching or ad delivery, the time and money required to build an advertising infrastructure is enormous and beyond most company's means. Now should one of these guys just happen to pair up with someone who already has this infrastructure, then things could get really interesting!

Mr. Murdoch, are you watching?