John Gruber from DaringFireball has great article today about the way business models are changing for newspapers. This is something that I have been following very closely recently because I have some good friends who work in the media business, and we have been having an ongoing conversation about this exact topic over the last year or so.
In the article, Gruber describes his own one-man-show, DaringFireball, an operation “where nearly every employee is working on producing actual content”. I think that what he describes here is the inevitable consequence of the end of distribution. When distribution is free, then there is simply no need for whole layers of business operation that have been required in the past. I’m also reading Chris Anderson’s Free right now, which is not a bad read, but I get the same sense as Gruber: some of it feels so obvious, that it’s a little hard to get excited. However, I suspect that the real point is that so much of it is not obvious to the likes of our current generation of newspaper publishers, in particular, Fairfax’s John Hartigan et al.
Newspapers are a great example of this principle: you need to manufacture a wad of paper to hold the news, and you need to manufacture a significantly large wad of paper to make the production economics work. Then if you want to chase more profits, you have to grow, grow, grow to extract scale efficiencies from the various production processes. However, when someone comes along and starts competing against you who does not have these same production burdens, you end up in an entirely different economic battle. One that it is difficult to see the traditional players winning.
I think it’s fascinating how this trend has played out in music, and now newspapers, and I can see it being repeated in books (if it is not already occurring) and also in television and movies over time. One of things that distinguishes these different forms of media is the cost of production and distribution. Arguably, music is the cheapest and easiest to produce (ignoring quality), and so it was first to experience the disintermediating effects of the end of distribution. You could probably also argue that the large music businesses added the least value for consumers, and so ended up being the low hanging fruit of the disintermediating effects of this process.
Newspapers are clearly next. They have taken slightly longer to fall victim than music because whereas music is subjective and personal, news is more expensive to create because it is (supposed to be) objective and correct. This takes time and research to get right. And although we could argue about their relative values, it’s not hard to make the case that news is more expensive than music to produce and distribute. For evidence, look no further than less advanced cultures who make music in abundance, but do not have the resources to create news, at least in the Fourth Estate form that the Western world is used to.
Television and film will follow. I hear all of the same arguments being made today about why this will never happen. In the end, all of the reasons seem to boil down to the same thing: it’s too expensive to produce and distribute. Well, that was true for music and newspapers not too long ago as well, and the end of distribution for them is already upon us. Television and movies are expensive to produce and distribute today, but my strong belief is that precisely the same pressures that have been brought to bear on music and newspapers will also be brought to bear on television and movies. Perhaps not this year or next, but it will happen over the next 5 years or so. YouTube is an obvious example (quality issues aside) but take a look at something like Vimeo, which specialises in hosting very high quality content, and I think you will see in it, at least some of the future of visual media.
Books are probably the odd one out in my list because they have a fascinating dual quality: they are of course the written words they contain, but they are also objects of beauty in and of themselves. People have books just for the sake of having them (I do this!) because there’s something really special about a book. People used to do this with vinyl records, but it’s not done so much with CDs, and not at all with digital music. Interestingly, vinyl is having a resurgence (a friend of mine just bought a USB turntable!) and I would argue that at least some of that resurgence is due to the collectability of vinyl albums.
In economic terms, what is really going on with the end of distribution is that we are seeing a massive increase in efficiency – an efficiency discontinuity. This occurred with agriculture at the turn of the last Century. It happened (and is still happening) with information right now. And here’s a way-out prediction for free: next in line is an efficiency discontinuity in manufacturing. However, this first requires humans to invent nano-technology based desktop manufacturing, which although still sci-fi today, it is certainly on the horizon for my lifetime (I hope).
As Gruber points out, his business has a single person working in it, and there is no room for anything other than highly efficient content generation. Businesses of this type simply cannot support the magnitude of operation of existing news organisations. I think that the ultimate outcome will be a complete reboot of the underlying business model for the entire Fourth Estate. DaringFireball, Crikey and The Eureka Report are great examples of what the new model will look like. Unfortunately, Fairfax is an example of the old model. And I think it has already been checked in for palliative care.
Although I am probably out on a limb, movies and television are equally susceptible to these pressures. Since the end of the Studio Era in film we have seen a reversal of the power structures in Hollywood to the point where a very small number of Stars are paid excessively large (and increasingly larger, it would seem) amounts of money, often without regard for the profits generated by, or the the quality of, the products they are making. This model is unsustainable in the long term, because someone or something will come along and radically change the cost base in precisely the same way that they changed the cost base for newspapers and music: by effectively eliminating the costs of distribution. As soon as scale becomes an unnecessary component of the operating model, it becomes increasingly difficult to sustain large production and distribution costs.
Who knows, perhaps the future of acting is on stage, where actors make YouTube or Vimeo versions of their live performances, and publish them on their own web site, complete with notes and background information on their interpretation of the role. They might even sell T-shirts to subsidise the costs of the performance! This sounds cartoonish, but apart from a very small number of uber-successful music performers who make money through recording contracts, this is the way the vast majority of musicians make money today. They perform live in front of an audience that either pays the band for a ticket, or the venue for their drinks which subsidise the band, as well as by selling merchandise directly to them either at the show or over the Internet.
If you go back into history, this was precisely how artists made their way – by going on tour and getting directly in front of their audiences night after night. If journalists and actors are to continue to be relevant, then they are going to have to get a lot closer to their respective audiences because distribution is disappearing. Unfortunately, this leaves very little room for anyone not directly involved in producing or consuming content.
M@
BTW: if it wasn’t obvious, the end of distribution is really only about the end of distribution for digital goods. As populations grow and environments deteriorate, it will become increasingly difficult to produce enough good quality food and collect clean drinking water for peoples’ requirements. We will also – at some point this is inevitable, even if it occurs too late – have to integrate the true cost of carbon into the production and distribution of food. For example, transport costs will rise, making local production of food the only economic alternative. The consequence of these trends over the next 20 years or so is that there will be a renewed focus on localised food production, and the places that can produce good quality food will be in a position to reap the rewards as prices rise.
Update 2: 21-July-2009: TechDirt is also pushing the boundaries of the new media business model. Check out the CwF+RtB=Business Model post. A brilliant analysis.
Update 1: 21-July-2009 – Here’s a follow-up by John Gruber on yesterday’s piece on newspaper business models. Interestingly, the article that Gruber references (by Mark Bernstein) agrees with his conclusion that newspapers are big, but disagrees with the premise that they are bloated because of management bureaucracy, rather suggesting that newspapers are big because of technology and distribution. Precisely! And if distribution has changed to the point where it is now essentially free, then there’s a whole lot of fat that can come out of these existing businesses, or perhaps more likely, a whole lot of lunch to be eaten by businesses that just don’t have these costs in the first place.