Is Content Worthless?

“Content is king,” many people believe, meaning that films, television shows, music, news and information are more profitable assets than the technology used to deliver them. But there's an older, cautionary aphorism that applies as well: “Uneasy lies the head that wears the crown.” Content may be king, but, ironically, its perceived value today is being driven towards zero. In the eyes of consumers, content is becoming a commodity – more a commoner than a king.

Everyone focuses on piracy, but there are actually six related reasons for the devaluation of content. The first is supply and demand. Demand – the number of consumers and their available leisure time – is relatively constant, but supply – online content – has grown enormously in the last decade. Some of this is professional content set free from boundaries of time and space, now available worldwide, anytime, and usually at no cost (whether legally or not). Even more is user generated content (UGC) – websites, blogs, YouTube videos – created by non-professionals who don’t care whether they get paid, and who themselves pay little or nothing to create and distribute it.

The second is the loss of physical form. It just seems natural to value a physical thing more highly than something intangible. Physical objects have been with us since the beginning of time; distributable intangible content has not. Perhaps for that reason, we tend to focus on per-unit costs (zero for an intangible such as a movie download), while forgetting about fixed costs (such as the cost of making the movie in the first place). Also, and critically, if you steal something tangible, you deny it to the owner; a purloined DVD is no longer available to the merchant, for instance. But if you misappropriate an intangible, it’s still there for others to use. That’s why, even before the Internet, sneaking into movie theaters – stealing the right to view a movie – seemed a mere rite of passage, whereas shoplifting a video did not.

The third reason is that acquiring content is increasingly frictionless. It’s often easier, particularly for young people, to access content on the Internet than through traditional means. When it’s easier to get something – when transaction costs decline – the thing costs less and loses value.

Fourth is that most new media business models are ad-supported rather than pay per view or subscription. If there’s no cost to the user, why should consumers see the content as valuable, and if some content is free, why not all of it? True, ads impose a cost in the form of user attention, but many online ads are easily ignored, and, today, even television advertisements can be skipped using TiVo.

Fifth is market forces in the technology industry. Computers, web services, and consumer electronic devices are more valuable when more content is available. In turn, these products make content more usable by providing new distribution channels. Traditional media companies are slow to adopt these new technologies, for fear of cannibalizing revenue from existing channels and offending powerful distribution partners. In contrast, non-professionals, long denied access to distribution, rush to use the new technologies, as do pirates of professional content. As a result, technological innovation reduces the market share of paid professional content.

Finally, there’s culture. A generation of users has grown up indifferent or hostile to copyright, particularly in music, movies and software. The reasons for this vary, but in music, for instance, some blame lies at the feet of the music labels, which maintained unrealistically high CD prices and attempted to sue piracy out of existence. Only now, almost ten years after Napster, are the labels offering the non-copy protected MP3’s that consumers demand.

All these developments have led to a migration away from paid media. Why buy music when there's so much free music available, albeit much of it pirated? Buy a movie or watch TV on a conventional set? No need, when YouTube and BitTorrent make videos, and pirated movies and TV, free for the asking. Subscribe to a newspaper or magazine? Don't bother; most are free online, and there are literally millions of other sources for news, ranging from blogs like the Huffington Post to user generated content. (Full disclosure: I’m a blogger, which makes me part of the problem.) The TV news? Also becoming irrelevant. And books, magazines and journals? So much information is available online that whole categories of publications seem less important.

It's true that people still consume media the old-fashioned way – but fewer and fewer do so every day. Most of the content industries are seeing flat or declining revenues and audiences. And these trends are particularly notable among younger people. As a result, the music industry is a shambles; the film and television businesses are running scared; and newspapers are disappearing or instituting cutbacks and layoffs. The handwriting is on the wall, or the laptop screen.

User generated content is often a poor substitute for professional content or traditional media. But that’s little comfort. Alternate goods don’t have to be perfect substitutes in order to acquire market share at the expense of the competition. And, yes, in some cases, new media make money for creators and companies – but the money’s much less than it used to be. As NBC Universal’s Jeff Zucker lamented, the content industries are being forced to “trade today's analog dollars for digital pennies.”

Another effect is that the market for professional content is becoming more concentrated and less diverse. Thus, at least in some media, audiences are shifting more of their spending to hit properties – the most popular movies and books, for instance – to the detriment of specialized content such as art house films and mid-list titles. Similarly, in a trend that predates the Internet but continues today, media businesses are consolidating and becoming conglomerates, as individual companies find it harder and harder to compete.

Some commentators welcome these changes. “Information wants to be free,” they say, and more content is good for users. Persuasively, they point to the variety of viewpoints that new technologies bring. That development is indeed valuable – very much so, in a democracy premised on freedom of speech. But when everyone’s a creator, there’s less room for high-quality professional content. It’s a dilemma with no easy answers. The future of traditional media is murky, but one thing is clear: disruptive change will be with us for many years to come.

Net Neutrality Nice

As I previously blogged, the major Hollywood studios recently came out against net neutrality. Now the Independent Film & Television Alliance (IFTA), which represents independent producers and distributors, has taken a position - and they're for it. In a letter to the MPAA (organization of the six major studios), IFTA head Jean Prewitt says her org "strongly disagrees" with the MPAA position, and even that she was "astounded" by the MPAA stance.

Why? Net neutrality, remember, is the principle that that ISPs should not discriminate against small users when providing network bandwidth. Independents are smaller, and they need all the distribution options they can get; as Prewitt points out, "The Internet offers the only truly open opportunity for independents (whether or not commercially oriented) to reach consumers because both free and cable television have been foreclosed in the wake of massive industry consolidation."

Her letter is so well written that I reproduce the remainder of it it here (with a couple extra paragraph breaks for clarity). 'Nuff said.

The Internet offers a new system of distribution as well as new ways of communicating ideas to audiences. It is vital that this channel remain open and competitively accessible to all users.

That openness is threatened by the power of a small number of broadband providers to discriminate unilaterally against some categories of users or types of traffic or to accord preferential treatment to certain content providers over others, all under the ambiguous claim of "network management".

While these providers may have some legitimate issues related to the technical management of their networks, there have already been cases of different treatment of users and it is clear that there must be transparency, equal treatment and an avenue of redress when the providers' private decisions trespass fair rights of others and the public interest.

Thus, the issue is not whether government should regulate the Internet but whether there will be effective oversight to prevent a handful of corporate giants from imposing their own version of private regulation to the public's detriment.

Your ShoWest speech suggests that efforts to regulate or legislate "net neutrality" will interfere with the fight against online copyright infringement of films and programs. Comcast's recent throttling of peer to peer traffic illustrates how easily piracy concerns and network needs can become excuses for private vigilantism to the detriment of legitimate users and innovative service providers. Copyright enforcement is crucial to our industry but that cannot be the rationale for abandoning the principles of open and competitive access, which are critical to ensuring a vibrant film industry and a diversity of programming. It is the appropriate role of government to strike the balance between competing needs in such a circumstance.

IFTA's members have experienced the steady erosion of opportunity in the traditional distribution channels despite producing and distributing most of the awardwinning films. This has been the result of massive deregulation of the broadcast and cable industries and the resultant substitution of corporate decisions for ones previously overseen by government in the public interest. Allowing the Internet to become an exclusive province of a small number of giant companies would inevitably harm the future of independent art and commerce.

From its outset, the Internet was designed to be the ultimate open and democratic network. Maintaining that and ensuring that there are no private chokepoints over content and use is the goal of net neutrality. This is in everyone's interest, including your members. Accordingly, IFTA will support public policy efforts to ensure open and competitive access to the Internet and to foster the innovation and creativity that is so vital to our future.

Net Neutrality Naughty?

Hollywood studios are taking a position on net neutrality – the principle that ISPs should not discriminate against small users when providing network bandwidth – and they’re against it. In reported remarks at the annual movie exhibitors conference ShoWest, MPAA chief Dan Glickman claimed that net neutrality would inhibit industry efforts to combat piracy – presumably because it would ensure that even pirate sites receive sufficient bandwidth for efficient uploads and downloads. (Glickman’s reported comments don’t include this, or any other, explanation, however.)

The argument in favor of net neutrality, let’s remember, is that it enables new websites – potential new businesses – the opportunity to innovate, and possibly become the next Google. That’s one way of maintaining the level playing field that has enabled the Internet’s phenomenal growth. Net neutrality also maintains the net’s role as history’s most dramatic bastion of free speech and citizen access to (virtual) printing presses.

Glickman’s remarks, in my opinion, are just one recent attack on non-MSM (mainstream media) websites. The other was a judge’s decision several weeks ago, to shut down an entire website (WikiLeaks) because of one document a plaintiff objected to. That decision resulted in a barrage of criticism, leading the judge to overturn his ruling two weeks later. Meanwhile, legislation regarding net neutrality sits in Congress, but has little chance of moving during an election year.

A related threat, though, is that telco and cable co. investment in last-mile infrastructure to homes and businesses is lagging demand, leading to Internet speeds in the U.S. far slower than in other countries. As traffic increases, U.S. ability to accommodate video sites, videoconferencing and other apps may not keep pace. Congress may have to weigh in here as well.

The MPAA, by the way, is the movie industry trade association that takes positions on public policy issues, as well as issues movie ratings. It’s not to be confused with the AMPTP, which negotiates Hollywood labor contracts such as the recently concluded writers and directors deals, or with AMPAS (the movie Academy), which awards the Oscars, or, for that matter, with ATAS (the TV Academy), which awards the primetime Emmys. Hollywood’s not only a jungle, it’s an alphabet soup.