The Seller - Unbundling the Medium and the Message
In the network economy, granularity allows unbundling of the medium and the message in the media industry. Delivery of content, distribution of content and creation of content are three separate services. The medium or physical delivery of content is performed by underground cable, satellite or radio waves. Distribution of content is managed by broadcast television networks and platforms that distribute over the Internet, called OTT (over-the-top). Creation of content is by broadcast television networks, HBO, Netflix and many other independent producers.
In the traditional model, large organizations packaged the message and the medium. Broadcast television and the major movie studios, such as Warner Brothers, Universal Pictures and Sony Entertainment, generated the content and controlled the distribution. MGM was even more vertically integrated: it produced movies, marketed or distributed movies and had ownership interests in the delivery via the theatre chain, Regal Entertainment Group. The New York Times hired the journalists, marketed the paper and printed the content. AT&T marketed the telephone devices and owned the copper wires, via its wholly owned subsidiary Western Electric. Sony Entertainment sold albums as well as hired and marketed artists. The sellers effectively bundled the final product along with necessary complementary goods.
In the network economy, the entertainment behemoths, whether they are movie studios or broadcast television, no longer control the flow of content to users who can access similar or identical content via the Internet. Figure 5.1 explains the fragmentation in the industry. Content creators and users flank the central delivery channels, with content on the right and users on the left. Riding astride the central delivery channels are the distributors or OTT platforms. This depiction of the industry makes the unbundling process clear - whereas in the pre-Internet days there were only two players in this diagram, the users and the producers, today we have four: users, creators, OTT distributors and delivery service providers.
Who are these players? Content producers such as app developers, advertisers and Netflix, are creators ofthe Internet value chain (the right segment in Fig. 5.1) and consumers are the ultimate users at the end ofthe chain (the left segment in Fig. 5.1). Internet service providers (ISPs) provide the physical infrastructure or the bottom layer of the intermediary and offer the last mile connection or access to the consumer network.5 On top of these ISPs are the OTT distribution platforms such as Facebook, eBay and Google, who act as intermediaries between users and content producers.
There is further unbundling at the distribution level as product composition, pricing and revenue sharing are untangled. Digitization of media, with both downloadable and streaming content, enables multiple distribution channels (the medium), which are not integrated with
Fig. 5.1 The digital entertainment value chain
producers of this content (the message). Downloaded content is purchased content while streaming is the rental platform. Users can access content via one or both of these formats or multi-home, which suggests that these alternate consumption channels are not substitutes but rather complementary products. Downloadable audio content or Podcasts, previously limited to radio broadcasts, is available on Audible by Amazon, iTunes by Apple and Audioboom in the UK. Downloadable video can be consumed as short clips on YouTube. The rental platform, or streaming video, pioneered by Netflix, is offered by Amazon and Hulu, and streaming audio is offered by Pandora, Spotify, Apple Music, Dweezer, YouTube, Tidal and others.
Multiple distribution channels grant content creators the power to make their product available either exclusively or sequentially on multiple platforms. There is no single digital jukebox. Music platforms such as Spotify, Apple, Pandora, iTunes, SoundCloud, YouTube compete, as artists strategically withhold their music from different apps. For example, in March 2016, the rapper Jay Z removed some of his albums from Spotify and Apple in favor of a streaming service, Tidal, that he owns jointly with Kanye West, who released his latest album The Life of Pablo only on Tidal, making it unavailable for sale. Beyonce, Rihanna and Coldplay, all partners in Tidal, also released music favoring that service. Meanwhile, Adele bypassed streaming her newest album 25 and Taylor Swift removed all her music from Spotify in November 2014, criticizing the business model, which made music freely available. After much public debate, Adele released her only her acclaimed single, “Hello” for streaming and purchase on October 23, 2015; the entire album was released for purchase, not streaming, on November 20, 2015, by Columbia Records, a label owned by Sony Entertainment. If the two channels are complementary, streaming music should increase visibility and demand for the album. In the US the album sold 3.38 million copies in its first week after release, beating the single-week maximum for an album since 1991 . This strong correlation is suggestive of the advertising power of streaming song tracks prior to actual album release.
When consumers access content via multiple channels, news media face the key issue of multi-homing. They must address not only simple issues pertaining to content, but also the intermediary through which it is being accessed. Currently, the New York Times has a digital version, an application for mobile devices and a print version, all offering slightly different content as well as different advertisements. Creating a following on Twitter or Facebook increases traffic to an established media player’s digital or print version, further increasing the reach of the news, but not without its drawbacks. The immediacy created by multi-homing generates side effects. When some event occurs, and before it is fairly reported with accurate facts, social media elicit quick reactions from a general user base and often “the knowable, verifiable truth is left in the dust... why slow down and wait for clarity when there’s an angle to promote, a grievance to air. Damn the torpedoes and full screed ahead,” according to New York Times columnist Frank Bruni .