The Return of Compensating the Creative Mind
Wed, Feb 3, 3:36 PM ET, by Kenneth C. Bateman, The Brookside Letter
This originally appeared in The Brookside Letter on January 6, 2010. Once upon a time, the creators controlled the distribution. It sort of harkens back to the days of the investigative reporter, who worked for the New York Times or Wall Street Journal. They would write stories, and the story would be available via that content platform, the newspaper. If you wanted the story, you had to buy a Wall Street Journal, and thereby, the Wall Street Journal was profitable. The internet was supposed to change all of this, making that content available to everyone. And it has. But somewhere along the way, people decided the best way to make themselves profitable was to piggyback on the productive effort of the creators. A current example is Associated Press (AP) stories, where content is made available to regional and city newspapers for distribution. But the AP newspapers paid for the privilege to publish those stories, as well as contributing their own stories into the pool of the cooperative, and then sold advertising around those stories in local newspapers. Again, content creators were paid because of the platform; the newspaper, had to be bought by the consumer. More recently, news aggregation sites are a classic example of this phenomenon, with a notable exception. When it comes to news – the actual product – they produce nothing. Nothing whatsoever. But they take the effort of those content creators and then sell advertising around it. It works well for them, because the cost of that advertising is microscopic and infinitely scalable on the internet. Unlike the AP relationship, news aggregators don’t actually have to pay for anything or create anything. Cable networks are the same way, but they do pay for it. However, their task is singular: they only deliver the product of someone else, and then make money on the subscriptions for doing so. It can be profitable when the choices for consumers are limited (and too often local politics ensure that there are limits on cable TV choices.) So I find what Rupert Murdoch has been doing to be fascinating – especially with the Time Warner/Fox battle. I suppose media executives have always known it, but Murdoch actually did something about it on a grand scale. He basically upped the ante on his content, in a way previous actors in the space could not, most notably NFL Network. No one pays Time Warner for Time Warner’s sake – they pay Time Warner for the content of Fox and others. So Time Warner should have to pay to have access to the content. With relatively few content creators, the creators are in position to dictate terms. Right now, Time Warner is complaining about how they will have to raise prices. And if consumer prices get too high, people will find other ways to access the content that they want, and cut the distributor out all together. Some networks, like NBC with their Hulu.com product, offer complete episodes – so they can get content to the consumers, capitalize on the advertiser dollars, and not have to pay the intermediary cable network. The cable network isn’t entitled to any level of profitability; essentially they are just a toll taker, and it is up to the content creators to get as much out of them as they can. These distributors know this – and they are trying right now to jump in front of it. Comcast wants to buy a controlling stake in NBC. Literally as I am writing this I see on the news wires that the CFO of DirecTV making a statement about selectively looking at content acquisitions. They know what they are beholden to. As far as news, the internet has generally destroyed the local newspaper industry since no one needs to buy the local newspaper to read the world stories, only the local stories. (There is a burgeoning business on the internet exclusively dedicated to local stories, believe it or not.) Regardless, the web is the “new” distribution platform for news. So, why should search engines get to access to news without paying for it? Mark Cuban hits on this point, suggesting that websites such as Google or Microsoft’s Bing, engage in exclusivity deals with premium content providers; essentially pay money to the content providers to exclude other search engines. “Want to read what is in the Wall Street Journal? Get it only on Bing.” News Corp, parent of the Wall Street Journal, gets a certain amount of money to exclude others, and Bing sells advertising on the web around those stories as they are searched for. Why would this be important? Because the content creators are being paid for their content, which provides a greater incentive for them to produce quality work. If people are paid well for doing a good job, they will strive to do even better, and the customer wins. But let people free ride on the content of the creators, and quality deteriorates. Note: The reference to Mark Cuban comes from his weblog, located here.
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