2010-04-02

"The collapse of complex business models" commentary.

I just read a blog posting titled "The collapse of complex business models" by Clay Shirky. His blog posting succeeds in articulating the underlying, fundamental problems that incumbents in numerous business sectors are experiencing today, and which will only be exacerbated in the forseeable future.

Last year I needed to figure out what I wanted to do over the next years, so I made a list.  I made a list of the business sectors where I firmly believed the incumbents to be, not to put too fine a point on it, screwed.  Mainly this list consisted of the newspaper industry, TV, the movie industry and telcos.

The aforementioned industries didn't end up on the list because I knew a lot about them.  They ended up on the list because I don't think you need to know a whole lot about how they operate to start addressing the issues they have and reason about what needs doing to create a future for them.   In fact, it is probably better if you know as little as possible about these industries if you aspire to be a positive influence in them.  It is only too easy to get sucked into their arcane worlds and actually start to think of the artificial and outdated constraints in the same axiomatic manner as veterans of these industries tend to do.  If you start to take these constraints seriously you have compromised your chances of having a positive influence.

What all of them have in common is that their future is shaped by the Internet -- meaning that these industries are led by people who, by and large,  seem to have no deep intuitive understanding of the technology and the cultures (plural) they are now faced with.

The blog posting starts with a question Clay was asked by TV executives:
When, they asked, would online video generate enough money to cover their current costs?
My immediate reaction was: well, right now the TV industry is in no position to expect revenue simply because they haven't bothered to sort out even the most rudimentary prerequisites for succeeding in peddling their content on the Internet. 

One prerequisite is to get rid of regional licensing.  The Internet is global and immediate.  It has no regions and thus it does not make sense to artificially limit distribution just because the industry is too chicken to rip off the band-aid that is regional licensing.  Regions is an artificial construct that is no longer relevant.   Yes it'll hurt to undo, but regional licensing provides just the sort of demand that is so lovingly satisfied by enterprising pirates. Big and small.

For example, last year there was a veritable cottage industry of people who set up proxying solutions and sold access to the BBC coverage of Formula One (This was, of course, completely illegal). A lot of people all over the world did not have live coverage of the F1 events and so they paid these hucksters in order to watch BBC's excellent live coverage.  
Let me repeat: they were obviously willing to pay, but there was no real alternative available to them.  Other than not watching F1.

Another prerequisite is that the TV industry realizes that consumers want convenience.  This means that they want to be able to consume the content using the device and mode of operation most convenient to them.  The baseline for this has already been established.  By the pirates.  In the form of downloading content.  In high definition.  With no real technical limitations as to where and how the content can be consumed.

Meanwhile content owners try to push their own half-assed solutions and waste time quarreling with companies that offer popular services (such as iTunes) -- leading to a fragmented marketplace.

Just look at how the Blu-Ray vs. HD DVD battle scared consumers away -- and then, when Blu-Ray finally prevailed, the victory was a hollow one because everyone had realized that the future is in downloads anyway.  And that was with only TWO competing systems to choose from.  The download/streaming industry has hundreds of contenders with little or no interoperability -- and if anything, the TV and movie industry is doing their best to contribute to the hopeless fragmentation.

I saw someone running the numbers on online distribution, though I can't remember the details or how well these numbers were grounded in reality, it seemed obvious that if most of what is TV today went to a completely Internet-driven distribution model, their revenues would not increase, they would increase explosively for the studios.

Of course TV stations would have to figure out what value they can bring to the equation.  Studios have nothing to worry about -- TV stations have everything to worry about. (Of course, this could be solved by distingushing between license fee for content and service fee for delivering it, but that is something I've ranted about for a decade now, so I am not going to repeat myself).

Clay finishes by summarizing what most incumbents think, and in some cases, say:
“Web users will have to pay for what they watch and use, or else we will have to stop making content in the costly and complex way we have grown accustomed to making it. And we don’t know how to do that.”
If current incumbents want a future they need to understand that their "years of experience in the sector" is not going to save them.  They also need to understand that the time to execute dramatic changes is while they are still comfortably solvent.

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