Archive for the 'Attention economy' Category

The changing dynamics of news

In the recent controversy that has erupted due to the firing of Michael Arrington from TechCrunch, I believe it represents an era in innovation led by TechCrunch that we’re only starting to appreciate.

To start on this thought experiment, consider how four years ago (meaning, things haven’t changed) I wrote about the two kinds of content that exist: data like breaking news or archived news; and culture which includes analysis like editorials and entertainment such as satire.

UnderstandingI argue that each content form has unique characteristics that needs to be exploited in different ways. Think about that before digesting this blog post, because understanding the product (such as news) impacts the way the market will operate.

Some trends of the past
Over the last two decades, we’ve seen the form (and costs) of news be disrupted dramatically.

It started with hypertext systems that helped humans share knowledge (with the most successful hyperterxt implementation, the world wide web 20 years ago forever changing the world); search engines helping us find information easier (with Google transforming the world 10 years ago), and content management systems helping people reduce the costs of publishing to practically zero (with Moveable Type and especially WordPress driving this).

While the sourcing of news still requires unique relationships that journalists can extract to the world, even that’s changed due to social media that’s created a distributed ‘citizen journalism’ world. Related to this is a movement Julian Assange calls “scientific journalism” where the sourcing of news is now democratised and exposed in its raw form.

Some observations of the present
With that, I’ve noticed two interesting things about the tech news ecosystem, who are are helping shape the trends in news more broadly: tech bloggers kill themselves to break stories, to the point where blogs like TechCrunch have become cults for those that work there; separately, the rise of the news aggregators like TechMeme and HackerNews (or Slashdot and Digg before them) have built the audiences who have been overwhelmed by information overload and crave a filter from a quality editorial voice (the latter being why news personalisation technologies cannot work on their own).

The big secret (that’s not particularly secret due to the abundance of ‘share this’ buttons on webpages) about the news ecosystem is that it’s the aggregators who drive traffic to news outlets that report the news. When you understand that point, a lot of other things become clearer.

Content Aggregation infographic

On the other hand, tech entrepreneurs break their backs for the hope of getting written about on the Tech blogs. The reasons vary from getting credibility so they can recruit talent; exposure so they raise money; and a belief that they can acquire customers (the whole point of building a startup).

Which leads me to think despite all these random observations I’ve listed above, there is a fundamental efficiency evolving in news reporting that may give an insight into the future.

Let’s keep thinking. Other things to consider include:

  • The audience starts with the aggregators for news and the articles whereby the better headlines tend to perform better
  • News in its barest form is making awareness of an event (data); anything additional is analysis (cultural) which is to shape understanding around the event
  • The rise of ‘scientific journalism’ and social media allows society to discover and share information without a third party (due to technology tools).
  • Press releases are an invention to communicate a message so reporters can base their writing on, who often just copy and paste the words.

Some thinking about the future
News should be stripped to its barest form: a description of the event. It should be what we consider currently a “headline”, with preferably a link to the source material. Therefore professional journalists, bloggers, and the rest of the world should be competing to break news not on who can write the best prose but who can share a one line summary based on their ability to extract that information (either by being accidentally at the event or having exclusive relationships with the event maker). The cost of breaking the news should be simply a matter of who can share a link the quickest.

News Article - Wichita Falls Record News

Editorial, which is effectively analysis (or entertainment in some cases) and what blogging has become, should be left to what we now consider as “comments”. Readers get to have the “news” coloured, based on a managed curation of the top commentators.

Tying this together: Imagine a world where anyone could submit “news” and anyone could provide “editorial”? A rolling river of news of submitted headlines and links, and discussions roaring underneath the item reflecting the interpretation of the masses.

You could argue Twitter has become the first true example of that where most content is in full public view but with a restricted output (140 characters); people can share links with their comments; and the top stories tend to get retweeted which further gains exposure. Things could be similarly said about Digg, Reddit and Hacker News. But these services, along with Twitter (and Facebook) are simply an insight into a future that’s already begun. I think they are just early pioneers before the real solution comes, similar to how Tim Berners-Lee created a hypertext system in a saturated market that then became the standard; Google created a search engine in a saturated market that then became the standard; and WordPress created a blogging platform in a saturated market that then become the standard. Lots of people have tried to innovate in the news ecosystem, but I still don’t think the nut’s been cracked.

News has a lot of value, but there is different value based on who breaks it and who interprets it. For example, when I fire up some of my favourite aggregators, I tend to not click on the original headline but on brands I like so as to read their take on the event (though when I’m deeply looking into something, I dig for the source material). But the problem with news now, is there is a fundamental disruption on the cost structures supporting it: the economics favour those who break the news, with those that interpret news suffering as traditionally both these roles were considered the one function. Something’s going on and the answer is cheaper production, faster distribution and more of a decentralised effort across society and not the self-appointed curators.

While the newspaper industry is collapsing, something more fundamental is happening with news and we’re simply in the eye of the storm. Stay tuned.

My media consumption – three years on

I was reflecting on a conversation the other day where I said I no longer read the news, a bizarre fact given as a teenager and young adult I was a newspaper junkie. Certainly, things have changed – even since three years ago when I wrote about my media consumption.

And it’s true – I don’t read newspapers or many news sites anymore. But I’m actually better informed about the world now.

How so?

– My iPhone has improved my productivity. I’m reading things constantly off it. It’s an important distribution tool worth pointing out, which is why I consume information like I do now.
Current homescreen
– Like I did in 2007, Techmeme is something I religiously check every day and increasingly Mediagazer. Both are icons on my iPhones’s homescreen.
Twitter and Facebook are a huge source of how I find out about things or come across interesting content. (Also both on my phone’s homescreen.)
– I am a subscriber to the geopolitical thinktank Stratfor, which tells me where the US navy is on weekly basis, breaks news to me for major political news or dramatic calamities, and gives me essays filled with complete perspective. I don’t have the ability to read all the emails, but like Techmeme, merely reading the headlines is enough to keep me on top of things. And the interesting point to note about this, is that this is premium analysis – the stuff the intelligence community and government policy makers subscribe to. It’s seems like I’ve cut the middleman out (the newspaper journalists) and gone closer to the source of the original analysis. By implication, I’ve chosen the better analyser and that has now become my default news provider.
– I have BNO news and the Associated Press applications on my iPhone, which send me alerts to news items through the day via push notification. I also have the NY Times and WSJ journal apps and which I used to use religiously a year ago, but for some reason I no longer do. (Maybe because they are now buried in my iPhone’s menu.)
– Recently, I changed my homepage from Techmeme to be three homepages: my company’s internal blog, OneRiot which flags the top news shared through Twitter, and Techmeme. The addition of OneRiot has got me hooked these last few weeks: its given me a great source of headline news and useless news, like celebrity gossip that I don’t normally seek. That’s not to say I like celebrity gossip, but it completes my knowledge gaps of what’s happening in the world and that other people are talking about.
– I no longer listen to the radio, the prime reason being I don’t have a car here in San Francisco. If the iPhone had a radio, I probably would – I have my headset in my ears usually every day at work, to help me focus.
– I am a paying subscriber to Pandora, the online music discovery service. (I’m listening to it right now as I write this post!) I prefer it not because my music collection is weak, but because I like being introduced to songs I might not normally know about.
– I have cable TV in my apartment (Comcast), but I never watch it. And when I do, it’s when I want to just switch off for a bit.

My current approach has gaps: for example, I am detached from Australian news. Regardless, its proved an interesting point: I no longer have time to read newspapers like I used to as a teenager. What’s changed is the way I consume information, which allows me to consume more with less effort. I’m one of the busiest guys I know, but thanks to technology, I can be efficient with my time.

A solution for the newspaper industry

Newspaper executives around the world are scrambling at a solution to the new marketplace. NewsCorp’s CEO in Australia remarked a few months ago that they only make 1/10th of the revenue on websites as they do through print – but with declining print circulation due to the popularity of online news – this is really affecting the bottom line of the industry. Unfortunately, they’ve been attacking news aggregators despite the fact that that’s the solution to their problems – it’s now a changed marketplace that they need to embrace.

The market dynamics are different now
Newspapers existed at a time when information was scarce. They performed the role of aggregating news (as well as creating it), and distributing it to the public through expensive channels which could not be easily recreated.

In today’s age, information is in abundance and is drowning out consumers – with a distribution environment that is now cheap. Further, the role of news aggregation can be done more efficiently through online tools. However this has caused a problem – because in the value chain of online news, the aggregators are the ones that are able to monetise the content. Because people don’t have time to read all the news now, they rely on aggregators that pull content from a variety of sources – and then only click on stories that capture their attention. These aggregators can place sponsored posts or advertisements alongside other articles, and so have found a new way to monetise content in the ‘click economy’.

However from the content providers point of view, they’ve invested time and money in creating unique content, only for it to be ignored by consumers because they no longer have a captive audience – and for aggregators who do, to be monetising content they didn’t pay for.

Google News - aggregator

Newspapers need to drop advertising and think about the entire value chain
Content can no longer rely on advertising as a revenue model – as I’ve argued before, it’s a broken bubble economy. But premium content can exist as a paid subscriber service. This seems to be the direction newspapers are heading. But I think it’s a mistake to enact paid subscriptions on all newspaper websites – it will kill demand and will not scale across the entire industry, other than for the few globally recognised newspapers and strong national brands where their location gives them a comparative advantage (ie, LA times for entertainment; Washington Post for US politics; Wall Street Journal for the capital markets).

Rather than charge consumers to subscribe to a newspaper, what the newspaper companies should be doing is creating a new type of organisation that can pool their resources. They should do this in the same way they did with the associated presses around the world several decades ago, where they can source expensive overseas content in a cooperative, which can then be distributed by newspapers in their niche markets.

Newspapers should create niche aggregators modeled in the same way Google News, Techmeme and its political cousin memeorandum (shown below) have done. Consumers will pay a subscription fee to these aggregators to get access to certain sources of information. And newspapers will get proportionally remunerated through the co-operatative making money on the aggregators service, but also control the distribution of their premium content which can be monetised further down the value chain (ie, once a consumer visits their website).

memeorandum

The model scales because a consumer has only one organisation to deal with, and can control their content consumption and payments. The aggregators also allow the consumer to define what sources of information they value. Better still, this controlled environment of information distribution puts more onus on the content creators to generate quality product. If people include them in their aggregator subscription but never click on that particular organisations content, no one can be faulted but the content creator themselves for not creating compelling content.

Better still, market dynamics can come into play. Part of the function of an aggregator is to cluster stories. This allows for a fair way of distributing the content – the news source that pays a premium can get a higher weighting in this clustering. So an aggregator may have 50 sources that all get clustered as one headline; based on a sources ability to pay per headline, will determine how much the dominate in weighting. This then puts the onus on the newspaper to create a better sales force that can monetise content later down the value chain, which can subsidise this discovery phase of the value chain.

Is this the answer?
Who really knows but its a step in the right direction. With consumers paying to subscribe to an aggregator, they’re getting better value through diversity of inputs – and newspaper companies will get remunerated on how much content they provided as a proportion of the total attention by a consumer on the aggregator. The future of content will be driven by the subscription model, and this is a way that achieves that with the best value for a consumer.

Newspapers are reliant on the aggregators as a source of traffic and discovery. Rather than trying to kill them – they should copy them, license the technology and control the discovery phase of news consumption now crucial for today’s information-overloaded consumer.

What’s holding back newspapers from going down this path? They are too used to being the aggregators themselves. Instead, they need to realise that they must specialise now. They should focus on creating great content (a discussion in itself), and let technologists drive the discovery phase.

Rethinking copyright and its scope creep

Modern copyright has been influenced by an array of older legal rights that have been recognised throughout history, whose legacy development may be harming our future. It traditionally protected the moral rights of the author who created a work, the economic rights of a benefactor who paid to have a copy made, the property rights of the individual owner of a copy, and a sovereign’s right to censor and to regulate the printing industry. I’m not going to say copyright is dead, but perhaps now irrelevant, given the evolution of media. As I’ve argued before, access to information is more valuable than ownership and modern copyright law doesn’t recognise this fully.
Is copyright a little fuzzy?

Rethinking media
Media, content, and other related words essentially are words that reflect human expression. When you read a book or a newspaper article, it’s another human being expressing something to you. That expression in turn, generates an experience for you – such as (but not limited to) interpretation, entertainment and reflection. You can’t “capture” media and lock it in a jar – you can only remember it. No one can own the individual words in a body of text because no one owns a language. But that power of provoking emotions in other people is powerful and outright scary if you truly realise the power.

We are now seeing a dramatic evolution in the media landscape. The disruptive influence, of what was called “user generated content” yesterday and now called “social media”, is making us rethink the media in our world. The thing is, it’s the same thing as any media – it’s human beings expressing themselves. The only difference now, is that the means of that expression has changed – less so technologically and more so the actual process – to one that is many-to-many.
This image is copyrighted

Rethinking value
Social media is about discussions rather than broadcasts. It’s about the producer and consumer of the information interacting. Everyone has an opportunity to respond to my blog post here, and sometimes I respond. Other times I don’t, but that doesn’t matter because it still impacts me and future readers of my blog post with an alternative perspective.

What we are seeing now is a move way from the mass production of media, and a growth in the mass socialisation of media. It’s not about how many people you can push your content to, but how engaging your content can be. The economic models supporting content are still evolving, but it’s engagement that pays the bills. An engaged reader will be more receptive to advertising (which is increasingly important as advertising performance is now more accountable) and for the subscription model of content, engagement is what retains a customer. To retain a readership, you need compelling content.

However this old media adage about compelling content is changing. The socialisation of content isn’t just about pushing content, as insomuch discussing it. It’s about building a community of people that are passionate and interested: an expertise network where value comes from being in the same place as others that are like-minded. An example of this can be see with Read Write Web, who have created an exclusive community manager community. GigaOM, another innovator in the media space, has done the same thing for premium content that runs in parallel with its popular (free) blogs. Compelling content is now about building compelling communities. Copyright works well for static objects – but not so much for people interacting freely.
RWW aggregator

Rethinking copyright
This is a complex subject and I by no means am being definitive here. But I simply want to raise a question of what really is the value of copyright? If content is an expression that generates an experience in a human, then specific types of expression need specific treatment. And if compelling communities are now a new form of engaging with content, requiring a lock down on the content produced may actually hurt value. As another form of content, news has value in its immediacy and is useless a day later as the news is constantly evolving. There’s no value of copyright there as ‘time’ is where news derives its value from – not long-term protection.

Should copyright be dead? No, that’s not what I am arguing – rather, it needs a rethink of what exactly it’s protecting, with its scope reduced. Like a parent protecting a child, if you protect them too much, they might never actually experience life, be happy and potentially ignorant to future dangers – which is what a parent is ultimately responsible for. The aggressive remarks of newspaper executives I’ve heard in the last month about being more aggressive in their copyright may not be the right solution. Protection of assets is valuable only when it enhances future value.

Let’s be careful we not lose sight of what we are protecting and why.
Copyright is for losers

Can the newspaper industry please stop their damn whining

Google is not a blood sucking vampire. In fact, the newspaper industry is a spoilt little brat.

Search engines such as Google and aggregators (like the constantly criticised techmeme) provide a huge amount of economic value for the newspaper industry. They enable discovery by people that are not regular subscribers to their content. They provide traffic, which drive up the page views, that enable them to sell inflated prices for perceived access to an audience.

Newspapers put their content on the web for free by their own choice. They have plenty of ways of excluding their content from being freely accessible, either through a paid wall or technology conventions like the robots.txt…But they don’t want to completely do that, because they lose the traffic.

Subscription models will be the future revenue model for content. One where people will pay for constant access to a particular information provider (as fresh access – not static objects – is where the real value comes from in information and especially in news). Of course, this means people with established brands can only do this as people will not pay unless they know what to expect. However despite their current lead in this game due to their century-old mastheads, the newspaper industry is refusing to solely go down this route. And the reason for this, is because they still rely on advertising for the majority of their revenue mix – and advertising is driven by traffic.

Newspaper executives want the economic value provided by search engines and aggregators in discovery and traffic – but they whine consistently because these innovative new businesses in the information age have found a way to monetise this function in the value chain.

The solution is simple: cut public access, and put all content behind a paid wall. And only participate in exclusive aggregators. The search engines and free aggregators no longer have your content to add to their mix – and yes, you Mr newspaper executive no longer get as much traffic. But that’s what you get for being a whining little kid.

I am sick and tired of hearing industrial age executives refuse to compromise with information age business models.

The ‘always-beta’ culture is affecting more than just journalism

always in betaMichael Arrington, one if the world’s most successful bloggers, writes about the latest battle he’s had against the mainstream media. He quotes the progressive journalism thinker Jeff Jarvis who identifies the conflict as a difference between “process” and “product” journalism. This is a brilliant step forward in understanding the evolution of the news media (highly recommend you read both posts), and to validate it, I will share how this very fact is true in other domains (specifically, web2.0 in the enterprise).

How I sold the idea of a wiki at PwC
In 2006, I pitched to senior management at my firm – the world’s largest knowledge firm – that we were failing at how we did knowledge. More specifically, I argued that the systems in place was creating opportunity cost, because the way we viewed “knowledge” was wrong – and the systems we had only supported one type. As a solution, I proposed we implement Web2.0 tools as a way of changing this.

What I want to share more of however, is the actual problem I identified. It was a problem that senior management knew existed but in different words. What I did was give the intellectual justification that created the “ah-ha” moment.

Soft knowledge versus hard knowledge
Central to my thesis was that knowledge had a continuum, and that we have traditionally said knowledge was a product only. The physical output of knowledge in the industrial society has been some published form like a book or a magazine. This output therefore defined the perspective of this product – multiple reviews of the content, close scrutiny of what was being said, and careful consideration of what made the final cut. It was expensive to create a book, and so quite reasonably, we’ve aimed at making it perfect.

However most knowledge within a firm doesn’t exist in a published form. When we talk about sharing knowledge within organisations, we are actually actually referring to having people talk to each other. Human conversation is the most established type of human knowledge transfer, and until the alphabet was adopted by various cultures, was the only way knowledge could be transmitted. This is called “soft knowledge”, and it’s not better or worse than “hard” knowledge, but just a different state on the continuum.

tree roots

Soft knowledge rapidly evolves. It never has a fixed state. Sometimes, it never ever makes it up the line to become “hard” knowledge, or solidified – but this doesn’t make it useless. In fact, when it comes to doing our work, this tacit knowledge doesn’t need a fixed state – it’s a fluid piece of knowledge that will never justify it being published in a hard-bound book. Like a dynamic conversation between a group of people, the ideas are rapidly evolving so fast that trying to lock it down actually ruins the process. Soft knowledge is not so much a product but a process – like rapidly firing electrons remixing towards the goal of a more solid state.

The ‘always-beta’ culture
Technology is enabling us to evolve our ability to communicate. Its gone beyond a one-to-one and one-to-many model that we’ve traditionally been accustomed to, but now allowing a many-to-many model. This new form of communication is allowing knowledge to get better captured in this ‘soft’ state. Categories are no longer useful, even though as a society hierarchies and linearity is how we are accustomed to the world. We need to now become more adapt at analysing knowledge through a network.

When it comes to information (including the news), the value comes not from its accuracy but its availability. If I have an emergency situation on a client, I want all the available options for me to assist in my decision making. As a professional, I can then assess what route to take. Although pre-certification of knowledge has value in accuracy, sometimes full accuracy results in a bigger opportunity cost: inaction.

crushing waves

There will always be a place for news as a product. But what we need right now is to understand blogs do news differently, and potentially for news itself, might be a better model. And whether you like it or not, it’s worked before- after all, we’ve been doing conversation now for close to a 100,000 years. If we never did it, we’d never end up to where we are now.

Why we should support movie piracy

Across the entire developed world, you will see piracy warnings from the entertainment industry. They usually make some emotive video about piracy costing jobs (because of six billion dollars in lost revenue) and that you as a consumer should join the fight. But is this really the case? I think laziness is what is costing jobs. Executives are clinging onto an old way of doing things in a new world, and instead of exploring alternative mechanisms, they fight for the past. I think if the industry lets go a bit, they might actually improve the status quo.

Let’s have a look at the movie industry and see the difference.

Piracy: it's a crime
Currently
Hollywood studio invests in the production of “The man with a Blog”. They have an all star cast, filled with James Bond action scenes and circus freaks.

Movie theatres around the world premier the movie, after months of publicity. Box office sales smash the predictions in that weekend – millions of dollars are spent by people buying movie tickets. Several months later, a DVD version is distributed, giving a second hit at having consumers spend their cash on experiencing this masterpiece. Television networks several years after that will license the movie and play it on TV.

Money continues to stream in – it’s a model that’s worked for decades.

Pause: two important things to note
Unlike reading a blog, for example – where your attention can wander and not be fully engaged – a movie has the full engagement of the consumer. They’re absorbing every sound and image being presented to them. So engaged are the consumers that people will rewind the movie to rehear a line they missed. They will pause the movie if they need to go to the bathroom, for fear of missing out on a scene.

Another thing to note is that the consumer is having an experience. Even if they “own” a copy of the movie, all they are truly buying is a license to replay the movie in the convenience of their homes. When a consumer buys tickets or a DVD to a movie, what they are really buying is access to an experience that can provoke them intellectually and stimulate them emotionally. Beyond stimulating an individual, it also serves as a cultural tool in our society, allowing people to have shared experiences that can then allow them to relate to each other – like how two strangers laughing over a movie will create a bond.

Replay
So why can’t movies be free? And if they were, who are they hurting? Let’s now replay the blockbuster described above and see the difference.

Hollywood studio invests in the production of “The man with a Blog”. They have an all star cast, filled with James Bond action scenes and circus freaks.

Movie theatres around the world premier the movie, after months of publicity. Box office sales smash the predictions in that weekend – millions of dollars are spent by people buying movie tickets who are paying for the experience of being in a room of people laughing with premium surround sound, a premium screen, and an excuse to snuggle up with their first date. Several months later, a DVD version is distributed, giving a second hit at having consumers spend their cash on experiencing this masterpiece – consumers will pay for the DVD because they like to store their movies on a shelf for reuse. Downloading the movie over the computer eats their bandwidth and storage space, and while some will do it, the value proposition of a physical storage item still exists. Because although they can download a medium-quality movie over their connection – they might want to one night experience a high quality version on their big plasma TV. So they will willingly pay for that DVD, which in bandwidth terms, is a hell of a lot cheaper.

Movie theatre

Television networks several years after that will license the movie and play it on TV. Because at the end of the day, if other people are going to generate revenue on your assets, they should continue to seek licenses to do so. Sharing a movie to other consumers should not be a crime, but showing it to mass audiences where you take the full sales, is.

Money continues to stream in – it’s a tweaked model that honestly don’t affect the world that much. Or jobs in the industry, other than the lawyers.

Fast forward
The movie industry is under-exploiting two essential characteristics I mentioned above: the undivided attention of the consumer and the fact they generate an experience for consumers. In the old world, that’s what advertising agencies were paid for to achieve!

I’ve previously argued that online advertising is a bubble economy, but that’s not to say advertising is dead. If fact, brand advertising is something I expect to thrive, and something like a movie is the best opportunity to take advantage of it.

Movies are replaying our lives, in a real or fantasy way. They are a replication of life, with consumer products filling the screen just like they do in our lives. When I watch my favourite actor talking in a scene, I am taking in the visual experience – and allowing product exposure to my attention. If I see a funky piece of furniture in that room, I should be able to interact with that – like clicking on it for more information and perhaps even create a direct order to buy. Television networks have spent decades monetising movies by showing advertisements in between regularly scheduled breaks (which disrupt the experience). Why not make advertising an embedded experience during the movie? It’s non intrusive and it’s relevant – a much better way of doing it.

Every time someone clicks on a table in a movie, the movie studio gets a cut out of the sale. Indeed, the supply of the table in the movie could also come as a form of premium sponsorship, as the studio is promising the supplier guaranteed exposure to an audience. The exact reason why people advertise: exposure to an audience.

Taking it a step further, we haven’t even got to explaining brand advertising opportunities. Imagine if your favourite actor is wearing a new style of jeans – isn’t that going to influence your thinking? Even if we consciously don’t think much of the jeans, the experience of being in a happy state watching our favourite actor, generates an emotional bond with that consumer product. It’s doing what advertisers have spent decades trying to master: building an emotional connection and a need with a new product.

The scenes that have been cut out
What I’ve just done here, is made you realise that movies can still be sold despite being free – but people will happily pay for it as they are really buying a unique experience. The actual movie itself should be free for consumers and there is untapped opportunity to innovate in this sphere.

There is an Israeli startup that allows you to embed advertising in a movie. What’s the big deal about that? Well every time someone downloads the movie, they will get an updated ad. So the original publisher can actually control the content for an entire lifetime: once an ad has been inserted, it can simply be replaced with the newest advertiser to sign up.

Imagine if movie studios distributed free versions of their movies, with commercial breaks like TV – and an option to pay to remove those ads for those willing to do so. And imagine, if with a bit more research, technology could be evolved so that scenes within a movie showcasing consumer products, could be updated with a new product. The painting on a wall can now be replaced with another painting. It’s already being done for computer games – why not movies, that themselves now rely on computer generated graphics?

When thinking of the opportunity in that way, restricting access to that movie is no longer in the studio’s incentive. With an audience, you monetise more by having a bigger audience. And so making something free, actually could make more money because demand will not be affected by price elasticity.

Illegal movies

La Fine
Once you think about things in this light, you realise the enormous opportunity available. And hopefully, you too also realise that what’s holding us back from this innovative, less-obtrusive, higher-value-generating future – is outdated thinking. Because as long as we cling onto the past, we are preventing bold strides into new models that potentially will make more money, if done right.

It’s a bold statement to say that you should support movie piracy, but it’s actually forcing the industry to adapt to this new world. Piracy has made us reevaluate the value of movies when the distribution line can no longer be fully controlled, and continuing to do it forces our legislators to reconsider public policy on intellectual property that was made for another age.

Using pirated material isn’t costing jobs in the entertainment industry – it’s doing something much better. It’s getting some media company executives in trouble, as they haven’t got the guts to innovate.

The WSJ nails it with their iPhone app

For years, people who have bothered to think, have known the newspaper industry was going on a downward spiral. But now that everyone is fretting that this industry is collapsing due to sudden events, it’s time people joined the thinkers about the future of the newspaper industry because there is hope. Having spent a few days with the Wall Street Journals iPhone app, I think I see a light in the tunnel for them.

I don’t read newspapers for a simple reason: I don’t have the time to. During the day, I’m out at client sites under the pump that I barely even read the online news. After hours, I am either out or working on one of the many projects I am involved in. I might be only in my twenties and still early in my career, but my workaholism has made me busier than you think. Did you hear that newspaper exec who’s spent a decade worrying how you’d catch my generation?

WSJ iPhone app - main screen

Which is why the iPhone is a God-send for me. My attention is limited, and information creators need to work on my schedule if they expect me to consume – hence why the WSJ app that was released a few days ago, hits the spot for me. I am able to read the news and my emails on the go, whenever I have down time (like catching a train to work).

Just look at the screen shots. You’ll notice it’s easy for me to scan the news -like a newspaper. It allows me to mark and share the news, which is a feature that draws me to using it. In fact, it’s just plain enjoyable reading the news – the same sense of enjoyment you get from putting your feet up and reading the weekend broadsheet. Newspapers are an experience, and this application is the first time I’ve felt a digital newspaper experience reawaken that feeling.

WSJ iPhone app - article screen

But forget about me for a bit, because that’s not why the application has nailed it. Have another look at the screenshots, and tell me who is the #1 business software company?

As you may have heard me before, I believe advertising is a bubble economy. It’s going down, down, down – and that is the real problem with the newspaper industry, which has relied on it as it’s revenue model. However, just because I think it’s a bubble, doesn’t mean I think all advertising is dead – just some types.

The reason why advertising is not really working on the Internet, is because the traditional media relied on the assumption their audience was captured (on the Internet, they’re not). When an ad plays on the TV or the radio, there is little you can do but put up with it. Most people change the channel, but no one could prove that. Unlike the Internet, where people genuinely can ignore ads (either through banner blindness or block-out technologies)…and which can be proven because online advertising is more measureable.

The thing about mobile and why it’s so promising, is because the audience is once again captured. Because the screen real estate is so precious, any advertising that gets shown, is genuinely noticed by the consumer. The phone user has less control on manipulating their viewing experience, which they do on a desktop computer.

I actually clicked on that Oracle ad three times, which is amazing considering I rarely click on ads. The first time was because I genuinely was interested to see what was behind the link. But the other two times were because my tapping on the screen to read an article was mistaken thanks to my fat fingers. It might have been accidental, but as far as Oracle and the WSJ is concerned – I’ve just shown them engagement. And even if I don’t want to follow through on the ad, I sure as hell noticed it.

The music industry and a glimpse into its future

Before I share this insight, I want to explain how I met the guy which just validates the uniqueness of SXSW. Otherwise, skip to the subheading below the first image to get to the meat of this post.

sxsw2009

At 6pm, I went to my first social event at SXSW, and walked around a pub (“divebar” in America – I’m learning!). I was alone, didn’t know anyone, and so sat down on a couch near the pool tables sipping my beer.

Some dude was sitting there, and we got into conversation. We had absolutely nothing in common – he was a project manager from Virginia, and I was an accountant from Sydney. The conversation was strained, and was injected with occasional remarks where this fairly camp guy was trying to find out if I was gay. When it was clear I wasn’t, he got up to get another drink, and that’s when the man of the hour sat down.

Again – I introduce myself. I’m the accountant from Sydney, but this guy was a product manager at a music company. After realising that he effectively drives strategy in one of the world’s biggest music companies, I couldn’t help myself and started prodding him with questions about the new music model.

And so that’s my story. I randomly came across one of the more influential people in the music industry. I also finally found someone that thinks about the same problems I do, which is how to monetise content. And after I revealed later on I was the vice-chair of the DataPortability Project, I floored him and so ensued hours of conversation where I got to test some of my unpublished thoughts about business models.

The fact this conference is the intersection between interactive, music, and film – is the reason why we know each other and could challenge each other on ideas. Austin is for this week a city with the worlds best minds in New Media. SXSW – we are both thanking you for creating this relationship!

So now to the insight I got, which was before I corrupted his views with what I think!

Artist

A view where the music industry is going
The record label model is actually going to work (as I was told). What’s happening is a change, and the crisis the industry has faced is actually a good thing, because its forced them to rethink and renegotiate their value proposition.

Record labels have realised that the value they provide to artists is that of a talent management agency. In fact, an almost complete parallel can be made with the venture capital industry. A new internet startup, like a new musician, is fresh and not able realise their potential. Venture Capitalists discover this talent, and invest in them for a future return. The VC’s will give them money and access to their exclusive networks – and the startup in return, gets to grow in ways they never thought possible.

The record label is now evolving into a similar model. Overnight, they can make a new star by giving them exposure to foreign markets, the capital they need to record music and distribute it to the masses, and all the other costs that are needed to become a big star. In return, rather than deriving 90% of their revenue from CD sales as record labels used to, they instead ask to get a 50% stake in the artist.

I raised this is effectively like slave labour, but when you think about it, a five year contract is completely reasonable given the amount of investment the label puts in. The labels are finding they can generate a lot of money on the merchandise and live concerts sales, as opposed to just the distribution sales. By taking a more diversified revenue mix, and taking more of a partnership approach to an artists career, what we are seeing is a more robust music model.

Records

Will that mean music can now be free? Well this company makes several billion dollars a year on music sales still, of which 75% are due to CD sales (and just the fact they make 25% in digital amazes me in itself). If music going free is the trend, my friend doesn’t see it happening for at least another decade.

And by that time, they’ll be ok. It appears the music industry is experimenting with a new approach to monetising artists based on the “experience” and is more about creating a connection with their fans. It’s still early days, but after our very long chat, I’ve now come to realise the record label isn’t dead – it’s just evolving. And they are well onto that path of a future model that works in this new world.

The change brought by the Internet is a correction

I was sitting at a restaurant with Mick Liubinskas of Pollenizer the other week, who I regard as one of the best minds in the Australian tech scene. Mick in a previous life used to run marketing at Kazaa, which was the music-industry’s anti-Christ during the early 2000s. Kazaa was one of the higher profile peer-to-peer technologies that made the distribution of music so widespread on the Internet.

I said to Mick how one of the things that plagues my thinking is trying to work out the future business models for content. Naturally, we ended up talking about the music industry and he explained to me the concept of Soft DRM which he thought was one avenue for the future but which the record labels rejected at the time.

DRM

DRM or Digital Rights Management is the attempt by companies to control the distribution of digital content. Hard DRM places control over access, copying and distribution Рwhile soft DRM does not prohibit unauthorised actions but merely monitors a user’s interaction with the content.

The basic difference, is that Hard DRM protects copyrights by preventing unauthorised actions before the fact, while Soft DRM protects copyrights by giving copyright owners information about infringing uses after the fact.

As I questioned Mick on this, he compared it to us sitting in that restaurant. What’s stopping either of us from getting up and not paying the bill? The restaurant let’s us sit, serves us food – and only at the end do we pay for the service.

Hard DRM is not congruent with our society
Part of the music industry’s problem is that they’ve focused too much on Hard DRM. And that’s wrong. They could get away with it in the past because that’s how the world worked with controlled distribution lines, but now that world no longer exists with the uncontrollable Internet.

In a restaurant, like any other service industry, the risk that you don’t get paid is real but not big enough to prevent it from operating. Our social conventions are what make us pay that bill, even though we have the ability to avoid it.

To insist on the Hard DRM approach, is going against how the rest of the western world works. Our society is philosophically based on the principle of innocent until proven guilty. Likewise, you pay after a service has been rendered – and you pay for something that has unique value (only scarcity is rewarded). What existed with the media world was unique over any other industry, but unique purely due to technological limitations, not because it was genuinely better.

The record companies (not the artists) are hurting
Artists practically sell their soul to get a record deal, and make little money from the actual albums themselves. This change for music is really a threat to the century-old record company model, of which the Internet has broken their distribution power and their marketing ability is now dwarfed by the potential of social media.

Instead of reinventing themselves, they wasted time by persisting with an old model that worked in the industrial age. They should have been reflecting on what value people will pay for, and working out the things that are better than free. Unfortunately, the entire content business – movies, television, radio, magazines, newspapers, books and the rest – have made similar mistakes.

The Internet is transforming our world and every object in our lives one day will be connected. In some ways, the great change brought about by the Internet is actually a step back to how things used to be (like it is for music where the record model was an anomaly in our history). Even the concept of a “nation state” is a 20th century experiment pushed after the first world war, where for our entire history prior to that, our world was governed by independent cities or empires that governed multiple ethnic nations – the Internet is breaking down the nation-state concept and good riddance because its complicated our lives.

Future

We need to clear the white board and start fresh. The Internet is only going to get more entrenched in our world, so we must re-engineer our views of the world to embrace it. With content, distribution was one of the biggest barriers to those industries to get into, and now it has been obliterated. Business models can no longer rely on that.

We should not let the old world drive our strategies for business because the dynamics have changed completely. If you are looking to defend yourself against an oncoming army – stop polishing the sword and start looking for the bullets to put in the machine gun.