2007 will be the year digital content companies lose billions of dollars.
I know...it’s a buzz kill, especially in the midst of this digital content revolution. But the undeniable fact is that many companies have taken a “damn the torpedoes” approach to monetizing their audio and video content in order to capture their slice of the pie as quickly as possible. But in the rush they’re making costly errors.
The appeal is obvious. With companies like Fox reporting that 24 will yield higher revenue from direct to consumer initiatives then from international licensing and syndication combined, companies are realizing that their digital assets represent a veritable gold mine. And they’re right. To not leverage audio and video content is to miss out on a tremendous market opportunity. The problems arise, however, when companies don’t think through the long-term ramifications of their go-to-market strategy. What are the threats associated with content theft? How easy will it be to move from broadband to IPTV platforms in the coming months? Is it important to enable ad-supported content, or will a pay-per-view model suffice?
The downhill slide begins with this line of reasoning: “Our competitors are selling content to consumers online. We need to be doing the same thing to reach those consumers. Let’s just get our content on the Web now so we can begin monetizing our content today. We can migrate our on-demand services to handhelds, cellphones and IPTV in a few months.”
The reality is that underlying technologies and standards that drive the content distribution revolution are evolving at a maddening pace and companies that don’t think longer-term may have to lose millions when migrating or evolving their distribution model even slightly.
Following are the five greatest hazards that threaten to derail content companies that are investing heavily in video and audio content distribution:
- Not Thinking Cross-Platform: Companies that are not thinking “cross-platform” (i.e., building-out a single content infrastructure for broadband, IPTV and mobile) will not realize the full potential of the market, but will spend millions trying.
- Inferior Content Protection: Security breaches, password trading and lack of control of video assets by not having a centralized view of content protection is costing distributors real money in terms of bandwidth charges and lost revenue.
- Fear of Losing Market Share: Companies are rushing to market based upon the fear of losing immediate market share, at the expense of building a long-term content distribution strategy that can accommodate a variety of business models.
- Not Anticipating Emerging Standards: Technologies and standards continue to emerge. If a company’s existing deployment does not accommodate for these changes, today’s digital content will become the Betamax and 8-track tapes of the modern era.
- Market Inflexibility: Jumping into a subscription model, for example, without a view towards testing pay-per-view and/or an advertising model is fraught with dangers. Content distributors must be able to test and change pricing, promotional offers and business models in response to their learning curve.
NOT THINKING CROSS-PLATFORM
The technology and protocols involved in distributing content over broadband do not need to be completely different from that of IPTV or even wireless devices. Many companies today are making the mistake of investing in content distribution programs with their eyes solely fixed on broadband initiatives when alternative opportunities for the same content loom just as large.
Distributors must have a view towards centralizing and integrating their distribution across these new platforms to take advantage of people and technology cost savings, and also to increase the likelihood of an improved customer experience and improved customer insights. By not doing this, they will find it tremendously difficult and costly to integrate separate broadband, IPTV and wireless businesses in the future, and once wireless technologies become more pervasive, their content distribution program will go from state-of-the-art to legacy overnight, requiring a major overhaul and financial reinvestment.
INFERIOR CONTENT PROTECTION
Digital Rights Management (DRM) is often seen as the ideal way to encrypt and protect content, but poorly implemented it can be the equivalent of locking a box and leaving the key on top. Whereas well implemented, DRM can be a powerful tool for marketing and monetizing content. It can enable the transfer of content to multiple devices and empower different usage models.
This is not opinion; the analysts are saying the same thing. According to the research firm Frost & Sullivan, a lack of effective DRM over mobile channels will cost Europe 2.7 billion Euros (about $3.44 billion U.S.) in 2006 alone. They also report that around 80% of mobile phone content has been hacked or downloaded to date.
Ian Brown, a senior research manager at the Cambridge-MIT Institute in England, says that DRM will not protect the music and film industries’ content, as it is easily circumvented by adept hackers. What is needed most urgently is 100% elimination of revenue loss due to fraudulent practices such as password sharing. A superior content protection and access control system that has added security layers on top of DRM can achieve this.
FEAR OF LOSING MARKET SHARE
Today, both traditional and new media companies are in a frantic rush to distribute content over newer platforms, or at least have a strategy in place for doing so. For example, in an effort to usurp Apple’s download dominance in the U.S., CBS and NBC have formed partnerships with Comcast and DirectTV respectively to offer a downloadable selection of their best shows at 99¢ each. Jessica Reif Cohen, a media analyst at Merrill Lynch, states that profits from online advertising and paid content could represent up to 8-9% of total earnings for Disney, Viacom and News Corporation within the next 3-5 years.
Clearly, this market is moving very quickly and therein lays the danger. Too many media companies, both big and small, are experimenting at this moment without having a long-term plan in place. Many of the technologies being used in these experiments are very sticky and may involve enormous future efforts to support or migrate away from. The audio and video content market promises large gains but misjudgments can also result in major setbacks.
NOT ANTICAPATING EMERGING STANDARDS
Technology platforms emerge and some become industry standards. The future is not clear in terms of which technologies will be embraced and become the industry standards for digital content distribution. Having standards will present the content distributor with the enormous opportunity to present one media across all mediums. Content distributors need to start planning for the day in the near future when one encoded file can be published and optimized for viewing on any platform whether it’s a mobile phone or device, a personal computer or through a set top box to a television.
Content distributors can be preparing for this day now by working with partners who have demonstrated expertise in servicing multiple technology platforms and have proven that they can adapt to changing technologies and have a track record of successful deployment.
Business models are still emerging in new media markets. The distributors who will win are those who take an approach to market that allows them to experiment and determine their most effective model. It may be subscription, pay-per-view or advertising supported, or it could very well be a combination of all three. Billing and authentication systems must be flexible enough to support a wide variety of promotional offers to determine the ideal combination of pricing and packaging.
Companies must invest in technology solutions that will future-proof them in every way. Inadequate technologies introduced now into the new media distribution pipeline may be a thorn for years to come.
Jan Steenkamp is Chief Executive Officer of Entriq (www.entriq.com) and an expert in the area of pay media.
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