Fast-Forward Dinosaurs

Much has been written in this space bemoaning the failures of traditional broadcasters to try to grow their businesses into New Media opportunities. But there is a flip side to this failure: Well-justified fear. As I write, I just got back from the International Broadcasting Convention in Amsterdam. (Yes, it’s the j
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Much has been written in this space bemoaning the failures of traditional broadcasters to try to grow their businesses into New Media opportunities. But there is a flip side to this failure: Well-justified fear.

As I write, I just got back from the International Broadcasting Convention in Amsterdam. (Yes, it’s the junkets that keep us attached to this industry even when the employer-employee bond fails.) A panel discussion there featured AOL’s Andre Mika (director, current programming and production), who said something shockingly plaintive and thought-provoking: “Don’t think we don’t get it. We get it. We know that what users want is YouTube-like video sharing and MySpace-like community. We know that.”

But they don’t have that. AOL is almost there, almost has it. Certainly they once had it—that is, they had the “it” that was it a few years ago, eons before MySpace and then YouTube became “it.” But they don’t have it now, and their era of dominance has slipped away, and they may never have it again.

AOL has gone from the most successful Internet company to an also-ran in five years. Among other things this may demonstrate, it demonstrates clearly that the market AOL inhabits is brutally tough. AOL has loads of content from Warner Bros. TV and other corporate sisters, and it is going sideways at best while other Internet leaders boom. Anybody that’s got a business plan that leverages Old Media content for a New Media opportunity should be afraid. Very afraid.

New Media evolution is running on a faster time scale than Old Media’s decline. This is, in fact, logical. It is both perfectly Newtonian and Darwinian. We’re talking entropy here, Second Law of Thermodynamics, interpreted by Darwin into evolutionary theory and, most germanely, by many computer scientists into information theory and many economists (very loosely defined as scientists) into theories of business organization. Three hundred years ago, Newton saw that free energy accelerates along with system breakdown and the development of possible microscopic permutations of the system. These possibilities increase along both the time and spatial scales. (How come 300 and 400 years ago we had Newton and Shakespeare and the world had about 550 million people, and now, with 6.5 billion, we’ve got...? That seems to be another corollary of entropy.) In other words, not only do we get ever more possible new businesses as we progress into ever-more-infinite media distribution spaces, we also get ever-shorter business opportunity windows, on average.

Who holds the New Media crown now that AOL has faltered? Of course it’s Google, seemingly on top of the heap forever after. It has just recently arrived on top of that hill, so recently that lots of people still love it, rather than resent its inevitable (and, finally, inevitably failed) drive for world domination mainly out of jealousy, as soon they will. In other words, it still has almost that whole Microsoft and IBM, and old AT&T curve ahead of it.

Look how long it took AT&T to travel that curve. Telephone invented: 1875. Seems to have been figured out first by Italian guy in Staten Island rather than Canadian guy who gets the credit and the patent, but everybody loves the thing once they come to understand it. Then gradually we all realize the medium has taken over our lives, we hate the monopoly that controls us, we struggle to achieve some kind of competition, and, finally, we achieve such competition through a combination of government antitrust action, technological change and the group senescence of the monopolist. Time from birth to AT&T’s creative destruction: 130 years.

We could look at newspapers, radio, theatrical motion pictures and, yes, television, and cars and consumer goods and computers, too, and see the same basic story arc. If an invention is valuable enough, there will always be multiple claimants to it. The winner is decided based on financial, manufacturing and/or market prowess, not on some peculiar fact of who actually thought the thing up. This naturally implies an advance big enough to be decided by such factors, so it also naturally entails mass consumer usage—thus we all become slaves to it and resent our overlord. Meanwhile, the provision of the good or service in question must be monopolized (or oligopolized, or at give its supplier strong pricing power—in other words, a contingent monopoly), because the huge resources attracted to potential monopoly profits never rest until they achieve them. And then they inevitably devote some of those profits into convincing us all that they deserve them, either because they are legitimate heirs of the putative inventor, or because there is some kind of “natural monopoly” in their business, or they really have no monopoly at all though they have 80+% of market.

And the market-dominant giant must make itself into a giant for another reason, too: Its leaders recognize how lucky they were to profit by one amazing innovation, and so they hire on thousands of minions to create more such innovations. But amazing innovations are always and only the product of the Newton-like guy working alone, or maybe of a couple of little Newtons in a garage or a skunkworks, and they are never the product of giant bureaucracies. Indeed, when little Newtons are actually employed by a giant bureaucracy, it is never able to recognize their genius and inevitably gives their innovations’ exploitation away: Think Xerox PARC and Apple Computer, or Bell Labs and a gazillion businesses. This is because the giant organizations built by great market powers self-defeat innovation, and are part of what inevitably kill the monopolist. Among the other stuff that kills the monopolist is always technology innovation controlled by somebody else, which “disintermediates” or snatches customers away to some other experience that is far less expensive or more convenient or more useful. And thus allows that new provider the chance to start the whole story over again in a new medium.

The bigger the monopolist, the harder the fall.

The issue here is how long this whole process takes. Newspapers, terrestrial radio and TV broadcasting, movies and music have given oligopolists and monopolists nice long runs, but the curtains are being pulled across the stage for all of them by the Internet (and also, for each, by other and differing older techno-competitors). This is not news. The lifespans for the companies that extracted what economists call “monopoly rents” in these old media have been long, but each successive one has had a shorter life than the one before it. Microsoft’s great operating-system monopoly is about 20 years old and is already faltering; this does not compare well with older media. And then, of course, AOL’s oligopolistic market dominance, never nearly a monopoly, lasted far less time.

So if you are charged with setting strategy for a company that has a bunch of TV stations that used to dominate their local markets—and now are relatively wimpy competitors with the cable operators that suck their lifeblood, the satellite TV providers who get enough network feeds that local consumers have forgotten there’s a difference to whether they live in a suburb of Phoenix or a suburb of Atlanta or a suburb of Cincinnati, and, of course, all the other media that viewers can now get on the Internet—where would you take your chances on New Media? Or, say you are one of those cable or satellite operators, or a network company: The issues are basically the same. Wherever you invest, your payoff is unlikely to be anywhere near as good as the original investment in your station group/cable company/satellite broadcaster/ network programmer was, oh those many years ago.

But you do have resources to leverage, making your investment potentially pay off better than that of someone with no programming assets, no transmitters or capabilities to cross-promote. And yet, you know these resources are not really so special anymore. There are lots of other ways to cross promote, lots of other existing Old Media assets. And most of them, yours included, are losing little drips of their value by the day.

The big network owners—News Corp., NBC Universal, CBS and Disney—have been bold New Media investors lately. News Corp. owns “it” company MySpace, is buying lots of other New Media assets, and may yet make money on them. NBCU has announced a strategy centered on women and iVillage. All are selling shows online. All have great program assets and are maximizing new windows for them, even if that means they are shrinking the old windows. This activity does not mean they are investing successfully in New Media; they are merely all drawing the same logical conclusion that their programming and cross-promotional assets now seem pretty strong, they will go down in strength if they are not used, so now is the time to strike deals. We will see, soon enough, which of those deals will have made sense.

Meanwhile, the companies whose chief assets have been possession of windows for others’ programming have been less aggressive in their New Media investments, but their fears may reflect more realism about the risks of buying into media solutions with ever shorter business lifespans. “We’ll just wait until this Internet thing settles out,” they think. But the Internet thing may never settle out. A defining characteristic about Internet media, so far, seems to be that it is more faddish than Old Media, tougher about allowing a business to build walls around itself.

As they wait, however, they know the values of their current assets decline. It is not unthinkable that they decline so low, in a decade or so, that Old Media ownership becomes a matter of penny stocks and low investor attention, traditionally the most volatile business segment of all.

Neal Weinstock is editor-in-chief of Weinstock Media Analysis and can be reached through www.weinstockmedia.com.