Monday, January 18, 2010

Notes from the Digital Breakfast: Media Forecast 2010.

I attended the January 14 Digital Breakfast: Media Forecast 2010, moderated by Lisa Davis (LD), partner at Frankfurt Kurnit Klein & Selz, with participants Andrew Edgecliffe-Johnson (AE), media editor, Financial Times, Mike Germano (MG), president and creative director, Carrot Creative, Mike Hudak (MH), co-founder, president & CEO,, Steven Pamon (SP), VP & head of new business development, NFL, and Reed Phillips (RP), managing partner, DeSilva + Phillips. My notes are below, with the caveats that they are my best rendition of the discussion, with no claim to accuracy; much of the discussion has been paraphrased, rather than being a direct quote of the participants; and that I bring my own viewpoint and perspective to this discussion, which influences my perception of the discussion. In other words, I am not contending that my writeup is “Fair & Balanced.”

The panel represented a variety of viewpoints about the media landscape, both as representatives of different facets of the media industry as well as some divergent points of view, as was revealed during the discussion.

LD asked each of the panelists for a quick comment.

• RP said that, while 2009 had been a very difficult year for mergers and acquisitions among media companies, he saw activity picking up as 2010 developed.
• SP pointed out that media was a growing business for the NFL, both with the NFL Network and with
• MH stated that viewed itself as a next-generation television network, with 50,000 independent content producers, for whom provides “services of scale” including distribution online and, increasingly, on television.
• MG described Carrot Creative as a new media marketing agency to whom PR and advertising agencies turn to provide new media and social networking expertise. MG said he had demonstrated the power of social media during a successful run for public office earlier this decade, powered largely by social networks.
• AE pointed out that, contrary to general trends, the Financial Times had been able to grow its circulation recently and charge for its content.

LD kicked off the discussion by asking each panel member to predict a major challenge or opportunity which they expected to materialize in 2010.

• RP said that the challenge for traditional media was in changing their business model. Traditional media players have too much staff and are mired in old processes. He predicted that they will be acquiring digital media companies in order to bring new media expertise in-house.
• SP felt that the focus of the NFL would shift from supporting advertisers to supporting consumers. Interestingly, the question of the right consumer approach would be a significant topic of discussion later this morning.
• MH argued that media is shaped by technology. He contended that CBS, for example, has not changed since it began broadcasting television in 1941. Unfortunately, and perhaps as demonstrated by that example, he felt that it has been difficult for organizations to re-orient themselves to new business models.
• MG addressed that issue by pointing out that the media needs advertisers. While traditional ad agencies have been reluctant to refocus their efforts on new media, he felt that the agencies and media will change when the advertisers demand change. The fact that advertisers are moving portions of their budgets from traditional to new media will reinforce that change.
• AE pointed out that there are many competitors for consumers’ time and attention, and therefore many opportunities for advertising. He also noted that the news is increasingly driven by social media, readers’ commentary, etc. He felt that the emerging tablet computing format was exciting, at least on a long-term basis. With a combination of an attractive device and attractive content, he felt that media companies could be able to charge consumers for their products.

LD next asked who would be the 2010 victim of a revenue decline, with print having suffered a 25% drop in 2009.

• MH felt that the near-term change would be limited. New media, while a beneficiary of a shift in ad budgets, was still a small part of the total ad budget, and would probably remain so since clients and agencies do not really know how to make best use of the new media platforms. He felt that the print business had been impacted primarily by the economy, rather than a shift of ad dollars to new media.
• SP was concerned about the NFL’s customers (advertisers) spending less due to a decline in consumer spending, i.e., reductions in total ad budgets regardless of shifting allocation among media formats. He did feel that print was suffering due to a potential long-term systemic issue that consumers do not value print content.
• MH also argued that the advent of new media causes unit prices to decline, e.g., Gutenberg’s invention of movable type probably generated greater quantities and consequently lower prices for books. He also felt that media consumption was increasing but that consumer attention is finite so that demand has some limits. The solution for content providers, he posited, was for them to bring down costs of goods sold in keeping with the lower revenue potential.
• AE returned to the issue of consumer value: are there media experiences that consumers value? He questioned whether Jay Leno was still funny or whether he was stuck in an earlier decade. He felt that the possible solution was that newspapers, for example, could be made to look better, and argued that a more competitive national market for newspapers in the United Kingdom fostered better products and consequently expanded the market for multiple newspapers. His ABCD assessment of the media landscape: Agencies are dissatisfied by the state of the advertising business; Books are caught in a struggle for allocating their value among the industry participants in an e-reader world, with Amazon seeking 70% of the revenue for its contribution to the value chain; Cable is having difficulty adapting due to its historical monopoly position having caused its competitive muscles to atrophy; and DVDs have found that the market has declined.
• SP also pointed out that movie and television studios are threatened by the decline of the DVD market, which had historically been a major driver for them. Unfortunately, much of that demand had been driven by consumers building their content libraries, and that need has now been largely fulfilled.
• RP agreed that content is under-valued and that producers have suffered as a result. He cited the example of Demand Media, which has helped devalue content by paying low prices to its content providers. He also cited technological influences, such as Eric Schmidt of Google discussing a function that would allow a consumer to upload a picture of a building and thereby receive information about that building – an example where technology would essentially replace content. He agreed that consumers have limited time resources, and felt that would drive consumers to demand quality content.
• MH argued instead that the market sets the value for content. He felt that the means of content production have been democratized via technology, and that small groups have been empowered to participate in the content marketplace. The additional supply should therefore help the market reach the appropriate price.
• SP foresaw continued disruption in the marketplace. His view was that the costs of distribution and those of marketing are inversely correlated, and that “the lines haven’t yet crossed” to provide equilibrium. In the meantime, he felt that a settled marketplace was unlikely in the near term as each sector of the industry seemed to feel free to enter other sectors, viewing such entry as “easier than it is.”
• MG took a somewhat contrary view, arguing that the value is not in the content. Instead, he felt that the user experience is key. Digital formats let people decide how they want to consume the content and how they want it to come to them. He cited as the leader among the sports leagues an example of both providing content in new and different ways, and in standardizing the user experiences at the various team websites through centralized control.
• SP pointed out that media strategies depended on which audience each participant was trying to satisfy. Not everyone in the media food chain viewed themselves as being responsible for the consumer experience.
• MH cited the example of the NHL, which had originally allowed each team to manage its own website but eventually moved to the centralized model under the control of the league, presumably to improve the consumer experience and make it more consistent.
• SP argued that the NFL focused its efforts where it felt the core consumer experience was most critical. For example, he cited the NFL Sunday Ticket program as a successful consumer service and said that the NFL would develop additional products and services as they perceived the development of consumer interest and demand. In keeping with his theme of selective innovation, he also argued that “Just because you can, doesn’t mean you should.” He brought up the example of ESPN, which tried developing new consumer experiences, such as ESPN Mobile, not all of which have been successful.
• AE projected that media companies would have to decide whether they have or can develop the necessary expertise and make the necessary investments in new media. If they cannot, they probably need to find partners.
• MH pointed out a distinction between west coast and east coast startups. He felt that the former viewed technology as the intended end or objective of the business. He argued that New York companies generally consider the user experience and value to be the key. Citing, he said the company thinks of itself as a media company that is using technology, not as a technology company per se.
• MG thinks that the future of media companies will be subject to a generational shift with a greater comfort and facility with new media exhibited by the new generation. In addition, lower capital and other barriers to entry will enable more innovation, with consumers investing their time and attention into the most innovative companies.

LD finished the discussion portion by asking each of the participants for 3 predictions.

• AE expected more business failures to come as numerous weakened companies succumb to economic and other pressures. He also did not expect the tablet to become a mass-market product this year.
• RP predicted more M&A activity. In addition to the acquisition of digital companies by mainstream media, which he had mentioned earlier, he also foresaw consolidation among digital companies themselves.
• MG expected more business partnerships. In addition, he said that there would be significant cultural changes in the workplace environment in order to address the needs and desires of new media employees and to foster additional innovation.
• SP felt that 2010 would be the last year of the PC as the dominant consumer computing device, supplanted by laptops, phones and other powerful and more portable form factors.
• MH agreed that the PC would diminish in importance. He also pointed to the rise of televisions as part of the online experience, with the top 5 television manufacturers having models with Ethernet connectivity. That would also foster “over-the-top” consumer viewing of video from online sources instead of from cable or satellite providers.
• SP pointed out that the shift in video sourcing from cable/satellite to online would depend primarily on the valuation proposition for the consumer.
• MH felt that, in keeping with previous industry developments, independent OTT boxes such as Roku and Boxee would have their functionality eventually incorporated into the cable/satellite set-top boxes, much as at happened with Tivo and DVRs.

A question was raised from the audience – in a world with so much content from so many sources, what will serve as quality filters?

• MG felt that one’s friends would serve that function via social intersections such as the social networking sites. To validate these user-generated filters, users could make their preferences and friends public.
• MH predicted a network of filters, such as Tumblr, which seems to have supplanted the New York Times and Drudge for his news consumption.

Another question was about the opportunity for the monetization of websites in a world of disaggregated audiences.

• MH said that is able to host shows with small audiences since they have essentially unlimited video inventory. The company provides these shows with monetization of their audiences by bundling the shows and creating scale for advertisers, in addition to targeting, which increases the value of even small audiences. He cited such aggregation in other media areas, such as regional networks of publishers.

All in all, it was a lively, engaging discussion. 2010 will both prove and disprove many of these predictions, but the most interesting events will be those that no one foresaw.