Saturday, November 08, 2008

Peter Chernin, News Corp., on Innovation and Media

Peter Chernin, President and Chief Operating Officer of News Corp., was the keynote interviewee at TelevisionWeek’s Innovation 360: The Game Changers conference last week in Manhattan. These are MediaScrum’s notes of his comments:

Innovation, the topic of the conference, is critically important to the success of all businesses, a sentiment with which hardly anyone would disagree. Successful innovation, however, requires clear insight and discipline, which is often lacking.

First of all, innovation must to be pursued constantly, during both good times and bad. It may be tempting to scale back on innovation, either because things are going well – who needs it? – or things are going poorly – we can’t afford it. Either path, however, will leave companies critically short of necessary innovation when it is most needed during times of major business disruption, which leads to the other element of required discipline.

The second element is to recognize that legacy businesses may well be reaching the end of their lifespan. Old businesses should be maximized, not defended. Only by applying resources to new opportunities, despite the decline of old businesses, can innovation drive the business forward.

Innovation’s critical importance can be seen in three major areas impacting the media business: motion pictures, the ongoing SAG labor dispute, and digital media.


For motion pictures, quantum leaps in high-tech innovation have historically had a corresponding impact on the level of viewer interest in movies. The phenomenal success of “Titanic,” the highest-grossing move of all time, was driven in large part by the astonishing quality of the special effects.

The technologies that have such an impact are those that benefit the story-telling of the movie and the sense of wonder and astonishment of the audience. Technologies whose purpose is cost-cutting or more efficient delivery, such as digital projection, whose impact is transparent to the viewer, are important but not transcendent in the same way.

The next innovation to have a giant impact on moviemaking will be the mainstreaming of 3-D. James Cameron, the director of “Titanic,” together with Fox, has spent the last ten years developing “Avatar,” his showcase 3-D motion picture. While the concept and early efforts at 3-D movies began at least fifty years ago, it is only now that the technologies underlying production, editing and viewing have reached the stage that 3-D can be fully integrated into the storytelling, rather than merely being a interesting gimmick. Not only has it taken Cameron ten years to bring his movie to fruition, but he filmed several 3-D documentaries along the way in order to help perfect the technology.

“Avatar” and its progeny are expected to have a significant impact on the motion picture industry. IMAX’s 3-D movie versions have demonstrated the audience appetite for 3-D. Movies that are produced in native 3-D, with the narrative and other elements developed for that format, will be the next giant leap in movie technology.


The Screen Actors’ Guild (SAG) is the only creative guild that has not reached an agreement with the television and movie production community. To compound matters, internal disputes within SAG, particularly as expressed in a recent election for Guild board members, have been quite prominent in recent news reports.

Comments on this topic have been the most heavily reported in the news media since the conference, often in a much harsher light than viewed by this observer. Whether Chernin’s comments were of the “iron fist in a velvet glove” variety or simply that the news media likes a good fight, was not clear.

In any event, the producers are in quite a strong position, with the solid backing of the business community. Furthermore, the creative community has, in general, made an uneasy peace with the future uncertainty, at least for now, and is probably unwilling to have the last participants – SAG – benefit from their efforts at reaching a entente with the producers – much as drivers don’t appreciate someone who tries to take a shortcut to the exit by bypassing the cars that have been patiently waiting their turn in the exit lane.


MySpace has been key to News Corp.’s efforts in the digital arena, although not in the way that observers had expected. The conventional wisdom at the time of the MySpace purchase by News Corp. was that it would become “Fox-ified.” The true value of MySpace has been, however, to provide News Corp. a window into consumer needs and behavior in the online world.

In a world in which consumers have infinite choices for entertainment, media companies must provide vehicles that allow consumers to exercise that choice, rather than trying to restrict it, but in a profitable way.

Entertainment media is different from music, which has been devastated by the shift to digital distribution and is struggling to find a new business model. One of the underlying problems in the music business model is that it was predicated on the sale of entire albums, even when consumers only wanted to purchase certain songs – a restriction of consumer choice. Given the opportunity – legally or illegally – to obtain only the songs desired, consumers did so – record companies’ business model notwithstanding. Fortunately for movies, people tend to consume the entire product, not merely portions. Technological issues, such as bandwidth needs for bit-heavy video vs. audio and the length of movies vs. music, have prevented piracy from being as much of a problem for movie producers as it has been for the record companies, at least so far.

That being said, the advent of digital distribution of entertainment content has been challenging to other parts of the media business. Hulu, the video portal co-owned by NBC and Fox, for example, has been a reasonable success since its launch earlier this year. Online viewing of full-length episodes of broadcast television programming has apparently been used by consumers to replace viewing of reruns, but not of network first-run programming. Players in the media food chain dependent on rerun viewing, or even off-net syndication, may find themselves being squeezed by the new business model, just as record stores were collateral damage in the woes suffered by the record companies.

Advertising, however, has of course been under pressure from the changes in technology across the media landscape, and this has a direct impact on media companies such as News Corp. Experiments with new ad models for the digital world are still a work in progress.

Fortunately, News Corp. will continue to feed the public interest in consuming media, no matter the distribution channel. For example, News Corp. views MySpace and Hulu as social “media” outlets which encourage peer reviewing and sharing of content. Facebook is seen as more social “networking” with greater emphasis on interpersonal relationships.

Eventually, traditional media will develop the advertising models for digital platforms.

The interview can be seen at: