Category Archives: Content Models

Bundling, Unbundling, and Rebundling

More from Andreessen.  I am not sure about the first proposition that there is a massive oversupply of content — once you get rid of the distribution constraint — even if one does not adopt the Ari Emanuel position.  There is still a significant place for premium content, even if that premium content starts to be created in new innovative ways.

The second point about rebundling is more interesting, which suggests success on the Internet comes from creating new distribution models.

The challenge I think is that in newspapers, magazines, and television, in particular, and books to a certain extent, you had businesses that looked like they were content businesses but were actually distribution businesses. They had controlled distribution rights on the newsstand, on your front porch, on the cable or broadcast dial.

The problem is, you remove the distribution constraint, all of a sudden you get a massive oversupply of content in each of those categories, and then of course prices come crashing down. And then the adjustment process for an incumbent that’s used to being a monopoly and has a high cost structure, then has a big problem relative to all the new entrants that have tiny cost structures or, you know, user-generated content, like YouTube, with no cost structure. The interesting thing that’s happening right now, though, is what you might call re-intermediation?

Think of it as rebundling. My old boss, Jim Barstow, used to say there’s only two ways to make money in business: One is to bundle; the other is unbundle. Basically media is getting rebundled. And so you’ve got these new models—Spotify in music, Netflix (NFLX) in video, and Amazon (AMZN) in eBooks, right?—that are rebundling media together and, by the way, building very big companies around it, just very different kinds of companies than the ones that used to dominate.

Losing Possession

What holds the current cable system and its uninterrupted inflation together is sports rights.  Something like this actually happening would irreversibly jolt the system and transform it into something new, by finally allowing people to cut the cord to bundled packages:

And it is. Today, according to sources, Google CEO Larry Page, along with YouTube content boss Robert Kyncl, met with a delegation from the NFL led by commissioner Roger Goodell. And the Sunday Ticket package was among the topics of discussion, according to people familiar with the meeting.

A Google rep declined to comment, and I’m still waiting to hear back from an NFL rep.

An informal chat is a very long way from a deal, so there’s no need to invest too much in the conversation quite yet. And I’m told that Goodell and other NFL executives are meeting with multiple Silicon Valley companies on this trip, which is one they make annually.

That said, Google plus the NFL is an intriguing concept. Google could certainly afford the rights, which currently cost DirecTV $1 billion a year.



The Reputation Foundation

More and more, it is clear that reputation — built on reviews and other forms of validation and behavior constraint — is what drives the life and health of a community.  That could be a marketplace as we see with AirBNB, see here and here.

Another example is Quora, both on the site and in the curated list of question and answers sent out weekly.  Quora has worked on rescuing the Q&A site or discussion board from the inevitable trolling and flaming that it descended into.

Adam D’Angelo of Quora touched on how he thought of reputation in an interview with Om Malik in an interview from January:

Om: Do you see a problem with search and the internet?

Adam: Reputation is going to be a lot more important in the future especially as the internet gets bigger. It is clear that the web pages will have to get their quality up. I think there is too much focus on what is first, what is new. It has to be about what is actually worth reading that is going to become important.

I think as more people use the phones to access the internet, they have a lot less patience for trying to find things on the search engines. That is because you need to figure a lot of things out for search to work. In the past, when the web site was fast and didn’t crash, it was a pretty big deal. Now it is normal. Similarly, we will see the focus shift to quality and right information (and not the latest.) And that is why I think sharing of knowledge is going to be a lot more important in the future.

The Dimming of the Stars

From the Economist, the twists and turns of today’s Hollywood:

  • The share of Americans who attend a cinema at least once a month declined from 30% in 2000 to 10% in 2011.
  • Although a movie’s box-office performance is usually what catches headlines, a studio depends on how that film performs later, when it is sold or rented to customers to watch at home. DVD sales peaked in 2004. Since then the sale of movies as VHS tapes, DVDs and Blu-ray discs (ie not downloads) has fallen around 36%, according to IHS Screen Digest. Rental kiosks, like Redbox, which offer cheap disc rentals, and video-streaming services, like Netflix, have exploded in popularity, but are not as lucrative as outright sales. “People are still watching the same amount of movies that they did a few years ago,” says Todd Juenger of Sanford C. Bernstein, a research firm. “They’re just spending $6 billion less a year to do it.”
  • Meanwhile, costs are rising. Everyone had expected technology to make it cheaper to produce films, but the opposite has happened, says Michael Lynton, the boss of Sony Pictures. A move from analogue to digital film enabled perfectionist directors to shoot more takes and touch them up afterward, using up expensive production and editing time. Studios have also started to make more “tent pole” films: big releases that can support the bottom line like a pole holds up a tent. These typically rely on expensive special effects, rather than compelling scripts, to attract a global audience. They often cost $200m to make and another $50m-100m to market.
  • But even though studios are selling more tickets in emerging markets like Russia and China, they are taking home less money for their hits. In America the big studios keep around half of box-office receipts. In China Hollywood studios keep only a quarter.
  • Between 2006 and 2012, the six big studios also cut the number of films they made by 14-54%, according to Nomura.
  • And they started to pay actors and directors far less. Several years ago a big-name actor might receive $20m for a film, and be offered three every 18 months. Today he or she might receive $10m, and get cast in only one every 18 months. Some studios have also started to use first-time directors, because they cost less and it is easier to control their expenses. Talent agencies have felt the pain. Two big ones, William Morris and Endeavor, merged in 2009. “It’s taken time for people to understand that there’s less to go around,” says Brad Grey, the boss of Paramount. “Not only can we not pay the same amount to all the players, we can’t do the same number of projects.”
  • Executives have changed their tune about whether the digital companies that have muscled into Hollywood, such as Netflix, are demons or diamond-mines. “Netflix has been the best thing to happen to Hollywood in a long time,” says Chris Silbermann of ICM Partners, a talent agency. That is because it and other streaming services, such as Amazon’s Prime, are paying billions for the right to stream studios’ content to subscribers online. They are competing for rights with premium-cable channels, such as HBO and Showtime; this is probably pushing up prices. Netflix spent an estimated $4.8 billion buying streaming content in 2011-12. Studio bosses hope these services will expand globally.



Barely Reality

Curiously, the *data* process that drives the hundreds of billions in the television advertising market is run by a company nearly 100 years old.
With its root in quainter times, it depends on what most people believe is an inadequate sample size.  And even more problematic is that “television” viewing now must be aggregated both in terms of time and non-television devices.  As the Economist describes:
There are two separate problems with counting couch potatoes, one more pressing than the other. The first has to do with “time-shifted” viewing, which means that people are watching fewer programmes live. When the DVR became mainstream, advertisers and networks agreed to count eyeballs only if they watched live or within three days of the programme airing. If adverts are skipped by DVR (as around 72% are, according to Bernstein Research), then they are not counted. However, because viewers sometimes watch recorded shows long after they air, media networks protest that three days is too narrow a window. They want to move to “live plus seven” days. Advertisers, especially those with time-sensitive messages, are not keen.

The second, bigger problem is how to track fragmented audiences. This is a particular worry in America, where people watch TV on countless websites and on multiple devices. Nielsen, a 90-year-old company, had revenues of $5.5 billion in 2011 from measuring the viewing and buying habits of consumers around the world. The largest content companies pay Nielsen $100m-200m a year for its services; advertisers pay it, too.

Yet, the company makes a lot of money.  The perfect conditions for entry: big market, inadequate solutions, changing technologies.

Amazon’s Prime Time

I wrote earlier this week of Netflix’s realization that it has to be HBO not Blockbuster as I had predicted a couple of years ago.

Amazon, as we know has bundled streaming into its Prime shipping fee.  As I wrote a couple of years ago, when discussing Netflix’s issues with just straight streaming of existing content:

Perhaps most importantly, on the streaming side, Google, Amazon, Apple, Dish/Blockbuster among others, are in the market.  They have other ways to make market from streaming.  For example, Amazon can bundle the price into its Amazon prime delivery fee. Google will find a way to monetize its content through its core business of ads.  Apple obviously makes huge profits by selling high-margin hardware like iPads. These other companies also have other carrots and sticks to play with the studios because of their other businesses than Netflix has.

On its website now, Amazon announces it has signed an exclusive to stream Downton Abbey.

Jeff Bezos writes a note about how streaming plays into the other businesses, including in driving digital sales and making Prime a better value.

Dear Customers,

Good news for Prime members. We’ve just completed a deal with PBS to make Prime Instant Video the exclusive subscription home for streaming Downton Abbey‘s Season 3 starting in June, and all new seasons for years to come. Prior Seasons 1 and 2, already the most popular TV seasons on Prime Instant Video, are available now for catch up viewing—and will also become exclusive to Prime Instant Video later this year.

If you can’t wait until June for Season 3, you can also buy each episode at Amazon Instant Video the day after it airs. And starting now, we’re also making the last three weeks of this season’s episodes available to purchase before they air on TV in the US. When you buy a TV Pass to Downton Abbey‘s Season 3, or if you already have one, you will receive all remaining episodes instantly.

Amazon Prime continues to be an unusual value at just $79/year, and includes unlimited streaming of over 35,000 movies and TV episodes, Free Two-Day Shipping, and a free Kindle book to borrow every month from the Kindle Owners’ Lending Library. Learn more about Amazon Prime and get to know the Crawleys of Downton today.

Thanks for being a customer,



Moving On From Red Envelopes

Two years ago, in one of my first posts on this blog, I wrote that Netflix was moving from a Blockbuster model to a HBO model.

That same year, I summarized why this move was necessary:

HBO is an appropriate role model for Netflix, and it appears that Netflix has molded itself in that way.  Selling a service for $10-20/monthly both distributing non-original content and producing groundbreaking original content has proven to be incredibly profitable.  HBO is sui generis, but the advantage that Netflix potentially has is that HBO is “tied to the cord” and is hurt by the constantly escalating prices of basic packages which consumers are increasingly unable to pay, since consumers cannot access HBO without buying the bloated basic package.  As the Economist put it, “imagine a supermarket where, in order to buy the item you really want, you first have to buy almost everything else in the shop. Now imagine the price of all those other items is constantly rising.”  In contrast, Netflix can position itself as a cable alternative.  There is tremendous opportunity in this model and positioning.

This month, the Chief Content Officer of Netflix defined the mission statement of Netflix as:

“The goal is to become HBO faster than HBO can become us.”

Doggedly Chasing Down the Peloton

Sure, there is junk produced when everyone has a voice.

But one of the great thing about empowering everyone with a soapbox is that there is more of a likelihood that there will be some people who will not be co-opted, instead choosing to find and report the truth, however inconvenient.

The Lance Armstrong story is an example.  The New York Times reports about those that doubted the heroic mainstream story, and chased the truth for years.  An excerpt from the story:

Besides, there was a heroic narrative to be nurtured, and mainstream reporters pretty much stuck to the script — either because they were invested in the legend or were worried about maintaining access to one of the most important figures in sports. There were early and vocal dissenters, including Paul Kimmage, an Irish journalist and veteran of cycling coverage, David Walsh, and Juliet Macur of The New York Times. But for the most part, the journalists who seemed to know the most about professional cycling told us the least. To doubt Armstrong was to doubt the American dream, to effectively be “for cancer,” as his legion of defenders would claim.

But amid the conspiracy of silence, often enforced by Armstrong or his lawyers, according to the report, a small group of dedicated cycling enthusiasts took to blogs and Twitter. His otherworldly accomplishments, they wrote, were a monument not to the power of human spirit, but to the remarkable effectiveness of EPO, an oxygen-enhancing hormone. On Twitter, critics behind handles like@TheRaceRadio@UCI_Overlord and @FestinaGirl jabbed at Armstrong’s denials and the sport’s leadership.

More important, NYVelocity, a tiny hobby blog that mostly covered the New York bike racing scene, helped pull back the blankets on the Armstrong legend…

“Bike racing is a niche sport, and then suddenly someone like Armstrong comes along and makes it 10 times bigger and no one wanted to be the one who went after him,” Mr. Shen said over lunch last week. “Everyone in the industry depended on him or was afraid of him.”

B-School Guerrilla Style

A nice post on the Times website — demonstrating the more generally applicable principle that giving access to the basics can be as important as addressing the quality at the top — in the context of business schools:

[Non-elite business schools] may lack Nobel Laureate professors and ivy-covered buildings, but they have managed to make business education more affordable for the people who need it the most. “There are hundreds of millions of small farmers, shopkeepers and potential entrepreneurs,” Davidson writes, “for whom mass business-educational tools could be transformational in ways that make a handful of top schools seem utterly irrelevant.”

Take, for instance, the University of California Irvine’s online courses, which anyone can download from its Web site, free of charge. Larry Cooperman, director of U.C. Irvine’s OpenCourseWare, said he started the program “guerrilla-style.” He persuaded professors to tape their lectures, post them online and see what happened next.

Their reach was instantly global. One-third of the Web traffic came from abroad. Testimonials poured in from users in India, Kenya and Poland. At an education conference in Africa, a professor from Malawi thanked Cooperman for the curriculum. “What are you talking about?” Cooperman asked in surprise. “We’ve implemented it,” the professor replied.

This effort and result is very reminiscent of Professor Christensen’s dictate that when starting the disruption of an area one should address the “simple” needs of the “less sophisticated” or unserved users rather than the more complex needs of the most advanced users.

Taxing Knowledge

Recently, I wrote about my decision to just post my legal articles online, bypassing the journal system, and the quite dramatic decline of law journal circulation.

In a nutshell, the decision came down to the realization that the system was no longer necessary or optimal for providing access to your work, and the gatekeeping function was of limited utility, certainly to me as an author.

The scientific journal system is similarly stuck in time.  The further outrage is that the research is often taxpayer funded, with the publishing companies taking the copyright of these papers for free, selling it back to the academic community at monopoly margins.  As the Economist describes:

Criticism of journal publishers usually boils down to two things. One is that their processes take months, when the internet could allow them to take days. The other is that because each paper is like a mini-monopoly, which workers in the field have to read if they are to advance their own research, there is no incentive to keep the price down. The publishers thus have scientists—or, more accurately, their universities, which pay the subscriptions—in an armlock. That, combined with the fact that the raw material (manuscripts of papers) is free, leads to generous returns.

In an Internet world, the old journal system — where the knowledge is transferred to a middle-man and then sold back to the community at outrageous prices — reeks of an artificial restraint on the flow of knowledge, and it is heartening that there are various attempts to take back the system.