The editors at Inside.com (now, alas, basically defunct) asked me to write them a longish piece about new media, copyright and monopolies. As I was preparing to write a note to Senator Hollings about his ridiculous proposed copyright legislation, I kept coming back to the article. Here it is (I told you it was long) and I haven't updated it or edited it. I still think the message to the media companies is right (if I didn't, I'd hide it!).
You're a monopolist.
Not that there's anything wrong with that, of course.
If you're reading this magazine, it's likely that you're a successful member of the profit-seeking entertainment industry. And if you're making money in movies, books, music or TV, it's because you can take advantage of a legacy of monopolistic (or maybe oligopolistic) practices.
Having a monopoly is fun and exciting and fraught with power. It's also intoxicating.
How else to explain the hubris of three of Hollywood's best and brightest launching a well-funded website that managed to go out of business before it even launched? If you're used to being able to corner the market, it's easy to think that another medium is just another medium.
How else to explain the exploits of the RIAA as they valiantly duel with Napster, trying to put the genie of widespread music distribution back into the bottle. They're used to having a monopoly on the distribution of music, and they want it back.
How else to explain the antics of the book industry as they stumble their way through the minefields of Microsoft, Stephen King and free e-books? "Publishers control the distribution, not these weenies, dammit!"
It was great to be a monopolist. Steady profits and no hassles. It would be great if we could stay monopolists forever, wouldn't it?
Before you call the Justice Department, let me explain. The limited supply of content, the few choices of distribution--these practices are all legal... most of them are actually enforced by the government. But understanding where these monopolies came from (and why they're going away-fast(!)) will give you a new way of looking at your business, and it turns out that this sort of analysis can open amazing new markets and new ways of generating profits.
We know that if you offer a smart consumer two products that are absolutely identical (same quality, similar brand attributes, just as convenient), she'll choose the cheaper one. Gasoline stations have price wars-but movie theatres don't. Supermarkets lose money when they sell milk, but TV networks are dedicated to turning a profit on just about everything. The heart of the media business is the prospect of being a monopolist-of getting paid a lot more than our products cost to make. But when the monopoly goes away, there's not a lot of room for obscene profits. In markets where people have a choice between equals, the cheapest and most convenient often win.
Over time, the media business has done everything it can to be sure that consumers don't have a choice. After all, a CD increases in price about 25 times from the time it's made to the time it's purchased by the listener. And a TV ad that costs a network zero to broadcast might end up selling for a million dollars.
There are three things that led to the monopolies we now enjoy:
1. The FCC limited the number of TV and radio stations in every market, allowing three networks to dominate TV and the record companies to dominate radio.
2. Copyright ensures that we can charge a lot for a book or a record... way more than it costs to make it.
3. The limited number of physical distribution outlets (record stores, movie theatres) guarantees that distributors with clout get more shelf space.
This triad is responsible for the profits you're enjoying right now. Imagine a nightmare of a world in which all three legs on this stool disappear. At the same time.
Time to wake up. It just happened.
THE MONOPOLIES ARE DYING...AND THEY'RE GETTING DEADER
The past, the glorious, profit-making, fun past of the media business was based on:
• scarce creators, under long term contracts
• scarce retail outlets, able to be controlled with marketing muscle
• scarce spectrum (few radio stations, few TV stations)
• copyright laws (and a lack of technology) that limited theft of services
• limited power of the creators to compete without a large media company as partner
It's hard to outline a point of view that shows the power of any form of media getting stronger over the next decade. There are going to be more TV channels, not less. More ways for authors to distribute their works, not less. More ways for musicians to connect with listeners, not less. More ways for consumers to sample or take content, not less.
You were a monopolist. You're not anymore.
To succeed in the old days, here's what you needed to do (choose any two!):
1. Grab a piece of the electromagnetic spectrum, hopefully one limited by the government
2. Buy up the supply of actors or writers
3. Establish long term profitable relationships with distributors and retail outlets
Welcome to a new century. In the new century, we all have the same goal:
1. Establish a direct and positive relationship with the end user.
It sounds easy. It's not. It's scary. It's likely to wreck your business before it saves it. Doesn't matter. The truth is: businesses that don't aggressively pursue this tactic will disappear.
Here's what you do: Go to StickyFlicks . David Burke (a successful TV producer of animated wacko content) has assembled a few brilliant scoundrels and put up a site filled with juvenile humor (most of it in bad taste) and really neat animation. And people are flocking to his site. Not because he's spending big money or licensing the interactive rights to Who Wants to Be a Millionaire. People are flocking because of digital word of mouth and the viral nature of the web.
How dare he! He has no big studio money. He has no relationships with CAA and he doesn't exhibit at Cannes or NATWest. Yet he has an audience around the world. Yet he's building characters with real value-characters that will become toys or movies or t-shirts. He has violated every single rule of the old order, and he's still succeeding.
Could you imagine this happening ten or twenty years ago?
Now do this: Send a note to firstname.lastname@example.org. (or visit Publishers Lunch You'll get a free subscription to Publishers Lunch, a daily newsletter chronicling what's going on in the book business. It's free, of course, and it's always interesting and occasionally juicy. It's written and distributed by one guy, who every day increases his power by talking to thousands of people in the book business.
Could you imagine this happening five years ago?
Sorry to remind you, but consider the Drudge Report. Four years ago, nobody had ever heard of Matt Drudge. Today, for many Americans, he's one of their most important sources of news. He paid no dues, didn't work his way through a corporate hierarchy, owes nothing to the head of the network.
Hardly seems fair, does it?
Last experiment. Go to live365 . They currently list more than 17,000 different radio stations. All live, right now. Big question: If one station is playing a lot of ads, how hard is it for you to find one that isn't? If you're a station manager used to competing against one or two stations with similar format, what happens when you have 5,000 nearly identical competitors?
Can you imagine a situation like this happening eighteen months ago?
Okay, I can't resist. One more try. Go to Gnutella . There, you'll see the successor to Napster. This version is the one that the music industry brought upon itself by going after the original. Gnutella has no database, no offices, no centralized server of any kind. There's no one to sue. No one to blame when greedy consumers start sharing music, images, stock photos and soon... movies.
Are all three of these examples perfect businesses, bound to bankrupt you and your peers? No way. They're nits. Chinks in the armor. Little businesses that might get bigger. Sure, there are tons of example of well-financed new media companies that went under. That's not the point. The point is that individuals with little or no money are building real media properties that are attracting the consumers that you want to attract. There will be plenty of carnage and disappointments in this new arena. Who cares? What matters is that there is a new arena. It's mere presence means that the monopolies are dying.
I had coffee with the executive producer of a network news show last week. He told me that every year, in addition to getting smaller in size, his audience, on average, ages almost a year. The people he needs in order to maintain his monopoly are finding something else to do with their time.
Need more proof? Take a look at Tivo and Replay. These digital VCRs have tiny audiences (but expect a bunch to sell this Christmas). It's easy to dismiss them as toys for the digerati. Easy, except for one fact: 80% of the people who use one of these devices skip all of the commercials during the shows they watch. ALL of them! Imagine. So much for the business model of the most powerful medium of all time.
The hackers will hack.
One of the refrains we're hearing from the lawyers who work for the RIAA is that the rule of law will be restored to the Net, that copyright can be reinstated, that they can put the genie back in the bottle. If you've been following the Napster debate, you may have heard the lawyers describe how they can spam the system.
Napster allows anyone to place a file (usually a song) on its database for others to share. Of course, there's nothing to stop you from taking songs by the Captain and Tenille and label them as bootlegs of the new Rolling Stones record. Some even believe that the recording industry is encouraging this as a way to bring down Napster and even Gnutella. After all, if there's a fifty-fifty chance you're going to get a life insurance ad instead of Madonna, that's enough reason to stop right there.
Well, the hackers will hack. New software is now smart enough to listen to files and match the audio "fingerprint" of the file with what it should be. And delete the spam.
The point isn't that this problem is now solved. The point is that anonymous hackers, working around the world, twenty-four-seven, are obsessed with and focused on hacking whatever needs to be hacked. This genie is not going back in the bottle.
I'm no Grateful Dead lyricist suggesting that copyright is dead. No, I dearly love my copyrights, and you should love yours. Instead, I'm boldly proposing that in the face of a worldwide assault on copyright, concocting business models that don't rely on lawyers is an awfully smart policy. In fact, if you could be happy without copyright, because you own a different, more powerful asset, you're destined to trounce the competition if their only asset is a shaky hold on digital intellectual property.
End of sidebar
Face it. The barriers are falling and they're falling fast. If there are limits to how many competitors you were facing, those limits are going away. There used to be room for just a few movies to open over Labor Day. But when movies are shown on DVD players in my house and yours, there's room for hundreds of millions of movies to open on the same day!
Think it's easy to sell banners on the Internet? There are 40 million different sites, with more every day. How much of a premium are you, the advertiser, willing to pay for one thousand impressions on this site instead of that site? That's why the CPM went from $100 a thousand to a buck in less than two years. What happens to the ad sales of your TV network when there are 40 million different TV networks? What happens to the budget for your new arthouse movie when there are millions of people cranking out their own arthouse movies?
You're not going out of business tomorrow. The structures you've built and perfected are going to stick around for a long time. We still want blockbuster movies and the Top 40 and Tom Clancy's next book. But it's not going to get better, more profitable or more fun. It's going to get worse.
As I write this, NBC has flown hundreds of its best people to Sydney. Is it possible to overpay for the Olympics? When the mass market is long gone, and network viewership is at an all time low, probably not. It's a fun way to revisit the glory days of Ed Sullivan and Mary Tyler Moore. Alas, in the long run, the folks who run the Olympics will end up with all the money and NBC (or whatever network is dumb enough to take its place) ends up with two weeks of memories and a black hole where their wallet used to be. People are wringing their hands over NBC's Olympic ratings. They say they're lousy because of the time zone issue. Nonsense. They're lousy because Americans are no longer willing to sit down for two weeks and all watch the same stuff, especially when it's jammed with irrelevant commercials.
The alert reader now interrupts and shouts, "Wait a minute!" After all, Pop.com just went bust. Viacom spent a ton on MTVi, and look where it got them. And Warner Bros. spent years and years with an entertainment portal (lately called Entertaindom) and it tanked as well.
"We're not against new media. We just think it's a bit of a fraud."
And my response is to cry foul. I spent years dealing with many of these organizations, and I was astonished and overwhelmed by the combination of old-media thinking, arrogance and lack of vision they managed to squeeze into just a few very well furnished audiences.
Compare, for example, stickyflicks with pop.com. Stickyflicks is viral. Pop.com was centrally controlled... a broadcast model. Stickyflicks has appropriate overhead (almost none). Pop.com had hundreds of people all around the world, giving up lucrative gigs in old media for lucrative gigs in new media.
Or how about Entertaindom? Busy streaming the trailers for Batman movies when they could have been building a permission asset. Busy trying to gain mindshare among their competitors when, instead, they could have been working hard to invent fundamentally different rules for the new medium.
The key, regardles of whether we're talking wireless or the Net or even automated phone services like TellMe-it's all exactly the same goal: Don't bring the old monopoly-driven mindsets to the non-monopoly marketplaces! Just because you can get away with being a bully ("Do you know who you're talking to!") in your current job doesn't mean that the mindset is going to fly in a world where the rules are different.
Sorry for the rant, but the new media efforts by most old-line media companies get me quite riled. Instead of using the tremendous assets and credibility they have to launch a brand new business model, they get stuck. And now it's happening as Internet companies enter the wireless arena. They don't call it new media for nothing!
So now, the good news:
Oprah Winfrey launched a magazine in the Spring. It has millions of readers, starting from zero. Probably profitable from day 1.
Stephen King wrote a book and more than 150,000 gladly paid him for a chance to read the first chapter.
Jimmy Buffet is one of the most successfully recording artists working today, and he rarely makes a record.
The answer to your monopoly problem is to create a new monopoly. I call it the Permission Monopoly.
Here's how it works:
Everyone has a limited attention span. We can't read all the books we want, listen to all the music we want, go to all the movies. So we filter. We ignore. We procrastinate. And we hide.
Have you heard the new album from Bill Frisell? Read Descarte's Error? Seen Croupier? Didn't think so. No time. Of course, if someone you trusted insisted that you spend the time to try them out, you might. Of course, if they were created by people you'd liked in the past, you'd be more likely to try them out. If you could try them out for free, you'd be more likely to try them out as well.
In the past, Tower Records or The Tattered Cover or WNEW or General Cinema was appointed (by default) as the arbiter of what we'd pay attention to. If it got played on the radio, we heard it. If it was by the cash register, we saw it. If Brandon Tartikoff liked it, we watched it.
In today's million channel universe, though, those arbiters are a lot less powerful. Now, maybe I want Slate to recommend it. Now, maybe the programmer of my internet radio station has to cue it up.
So, without powerful arbiters, it's way harder for powerful media companies to modify the marketing conversation. Way harder for ten well-funded salespeople to get shelf space everywhere that matters. Way harder for a crack PR person to get you a review in just the right publication.
What's a megalomaniac media mogul to do?
The wrong strategy, it seems to me, is to go court and try to stop the leaky bucket. It also seems like a mistake to call the authors and filmmakers and others who abandon you, "crazy" or "short-term focused" or to say, "well, they can get away with that but the others can't."
The defectors know something you don't. The defectors know that if they hurry, they can build a new monopoly, a monopoly you don't control. They know that they can build a direct and long-term relationship with the end user, one that will survive competitive incursions and will last a long time. if they hurry.
And so, learn from these folks. you should hurry. You must hurry. If you understand that the game is radically and permanently being changed, you can go out today and start building mutually beneficial relationships with your listeners/readers/watchers. You can offer these folks something of value in exchange for their attention. You can then build a new monopoly.
Imagine trying to get Bill Clinton to allow you to publish his new autobiography. What happens when you can say, "We have a permission-based relationship with 32 million Americans, all of whom look forward to hearing from us every two weeks with our hot new book offerings. And by the way, our competition doesn't even have 10 names."
What happens when you're trying to break a great new trance band, and you have permission to send the first single, by e-mail, to 600,000 kids who loved the last trance band you broke? Think that helps your career?
PLEASE NOTE: I'm talking about treating consumers the way you and other marketers have been treating them for a century. No churn and burn. No contemptuous, "we'll talk to you when we want to, otherwise keep quiet!" And no renting, buying or selling lists. No, I'm talking about treating this new client the same way you treat your most important retail account or radio station or theater owner. You don't show up at his house in the middle of the night (or if you do, you bring a big box of cubans). You don't send them e-mail spam, or call them on the phone over and over again.
You have a relationship. You understand that every interaction has to benefit BOTH of you or the relationship is over. If you're going to build a monopoly on consumer attention, you'll need to do the same thing.
Here's how I boil it down to as few words as possible:
1. Make it easy for your happy users to tell as many of their friends as possible.
2. Give away free samples early and often.
3. Get permission from anyone who likes what you do to follow up with anticipated, personal and relevant messages that benefit both of you.
4. If this requires changing what you make and what you charge for, fine.
5. If steps 1,2, 3 and 4 mess up your current business model, fine.
You'll notice that the one form of media I haven't talked about very much is magazines. Why's that? Because magazines already get it. They know that a magazine without subscribers is bankrupt. They know that newsstand sales are fine, but subscriptions pay the bills. Editors of magazines have a great time, because they spend all their time finding writers for their readers. Everyone else in media spends their time finding readers for their writers! And when you farm instead of hunt, when you obsess over satisfying happy and loyal customers, your business is more profitable and more stable. You're a satisfied monopolist. Someone call Joel Klein!
The new monopoly of the future is permission. Permission to talk to your customers directly about new stuff. Permission to teach, permission to ask, permission to learn. If you have that monopoly, you profit over and over and over again. Permission Marketing
The Napster Debacle
A lot has been written about Napster, and most of it seems to say, "hey, we know it's against the law to copy stuff wholesale, but the record companies better get used to it, because it's not going to go away." This may, in fact, be true, but I think it's more interesting to come at it a different way: The record companies should want this to happen!
A long time ago, radio was a threat to the recorded music business. The logic was that once people had a radio-and could hear the music for free-they'd stop buying records. Obviously, this wasn't true. A few decades later, the record business was so obsessed with radio airplay that they actually started paying radio stations to play their music for free.
When MTV came along, the same cycle repeated itself. The labels were aghast that they were expected to pay to make expensive videos, which MTV then got to play for free. Wrong again, they learned their lesson and now compete heavily for airplay.
Napster offers yet another sampling mechanism. Yet another chance to spread the music. This time, though, it takes advantage of peer networks. It isn't the Program Director who gets to decide what's going to be a hit. It's the kids. They'll spread it from person to person if it's good, regardless of how much or how little promotion is behind it.
What a boon for musicians! What a headache for the labels. Problem number one is that money (and a navel-exposing video) is going to be a tricky substitute for a great riff or intense lyrics. You can't buy your way to success on a peer network. Problem number two is that once the fidelity and user interface get a little better, the computer will probably eliminate the need for a compact disc player!
Now, if you're a record label and you realize that 90% of your income comes from selling polycarbonate discs in jewel boxes, you better be pretty nervous about a future where I don't need to pay money to buy your plastic.
But instead of fighting this sampling device (the way you've fought every other sampling device), maybe it's a way to redefine your business so that you make more money and have more fun.
What happens if you cut a deal with Napster that makes it easy for listeners to subscribe to groups they like. To create a communication bridge between users and musicians (and their label.)
Here's a bridge that's never existed before. Now, suddenly, you know everyone who loved Rickie Lee Jones' new album, AND you have permission to contact them. What's that worth?
Well, let's see:
• You can sell way more copies of her next album (assuming people are still buying CDs). Drop a note to all her fans with a link to Amazon in it and bam bestseller status in one day.
• You can sell digital versions of new songs to people who want to hear them first. No need to wait for albums any more. Rickie Lee Jones says, "If I can find 50,000 fans willing to pay me $10 to go to the recording studio and do an album with Willie Nelson, I'm in." Now, the listeners can choose to pay, to get first dibs on the new record.
• You can sell t-shirts and other souvenirs (don't smirk. My $40 book was a souvenir of the digital version, and it sells just fine!)
• You can alert people (by zip code) of when Rickie Lee Jones will be in their town. Imagine being able to tell the 97,000 Rickie Lee Jones fans in the New York area that Rickie's coming to do a gig at Roseland. Think it will be hard to sell 3,000 tickets?
• You can start custom digital radio stations that play new and unique music from artists I'm sure to like. Suddenly, instead of finding listeners for your label's music, you're busy finding music for your labels listeners!
Is this going to be as certain and as comfortable and as predictable a business as you have now? No way. But your monopoly is gone, my friend, and it seems like you have two choices-be the first to embrace the new monopoly (permission to talk to fans) or lose.
Think about the dynamic from the musician's point of view. Wealthy, successful musicians (your bread and butter) have an incentive to be like the Grateful Dead, to put their music out to ever more people (stokes their ego) and to profit from backlist or tours or souvenirs or incremental record sales. Not all of them will do this, of course, but do you even want to lose a few?
At the same time, the great unwashed, the unsigned bands, have nothing at all to lose! They can build a real following, generate listeners and audiences just by using these new sampling techniques. Then, when they're hot, some of them will sell out and sign a deal with you. But soon, many will realize that they'll make more money and have more fun just hiring a firm that helps them do that.
And once these new bands have a monopoly on the attention and permission of their fans, they can leverage that monopoly over and over again. They can use to introduce new songs or new records or new tours. Or-sit down for this one-they can use it to introduce new bands!
The power is certainly moving. It's moving from five oligopolistic status quo gatekeepers that controlled money and promotion and retail to a much messier, faster-moving, more interesting amalgamation of database keepers, musicians and fans. Today, there's a chance to co-op parts of that system. Tomorrow, that chance will be gone.