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Big Media Will Twist Arms of High Tech and Consumers [UPDATE]

It's easy to mistakenly lump all media together when looking at the impact of technology. But the reduction of business dynamics to stop-using-our-stuff-for-free-because-we-want-more-money is too general, as it fails to recognize business models variations that drive how different content producers approach technology companies. I think there's a general break-out by type of medium:
  • Periodicals -- The currency for magazine and newspaper publishers is, ultimately, subscriber information. Knowing who is buying and how to reach them allows the publishers to develop a relationship, sell additional products, pursue subscription renewals, and gain more substantial advertising dollars. That means they will never be truly comfortable with any e-publishing venture that severs the source of information, no matter how much they talk up a partnership with Apple (AAPL), (AMZN), or any other effective retail outlet. Selling a subscription app is one thing, but becoming completely dependent on others to do the subscription selling is another. That might have worked in print, where the publisher ultimately had to mail out the copies, but it's a tender point online. That said, they are all desperate to get a toehold in the new medium for fear of losing the old one and are trying to understand how to adjust their business models.
  • Books -- For years, book publishers have used an indirect form of sales through multi-tier distribution. Copies would go directly to large retailers or through distributors to smaller stores. No information about customers came back. This has been a relatively low-margin business and, so, completely dependent on selling price because there was effectively no back-end money to be made on information and no ads outside of a few disappointing experiments over time. There are additional revenue areas, such as merchandising for popular titles and movie rights, but for the most part the money comes directly from selling copies. That's why price control is everything, because if they can't make money from the activity of publishing itself, they're in trouble. That's why we saw Macmillan make Amazon back down over e-book pricing. Now News Corp. (NWS) CEO Rupert Murdoch, who is ultimately in charge of HarperCollins, is looking to renegotiate the company's e-publishing deal with Amazon. Even though Amazon was asserting, "We don't believe that all of the major publishers will take the same route as Macmillan," of course they will. They can't afford not to, and the retailers can't afford to tick them off too badly. For a dying industry, consumers buy a huge number of books every year. That's why Apple was ready to take less than half of what Amazon makes on e-books and willing to price the way the publishers wanted to.
  • Video -- Whether television or movies, the studios have a problem. They have long made the big bucks off VCR/DVD sales to consumers. But when you can find pretty much anything you want streamed from the web, whether legally or illegally, the big payday stops coming. DVD sales are collapsing. MGM is on the financial edge, largely because "net receipts from DVDs fell from $140 million in its 2007 fiscal year (which ended March 31, 2008) to just $30.4 million by 2010." That meant losing money overall, because of what it owned to rights owners and the costs of distribution. Although this happened because of the particular's of MGM's situation, other studios aren't going to be far off because they don't have the cost structures and business models to let them produce quality material at the prices they must achieve. And news that Google (GOOG) made only $10,709.16 in its first attempt at movie rentals won't be comforting.
  • Music -- The music industry is basically like the video industry, only farther along in the pain cycle. For example, EMI is reportedly looking for more investment money because it allegedly won't be able to meet loan terms. The old trick of selling people albums so they could obtain one track is now gone. Producers also need new business models to find ways to make enough on smaller volumes. [UPDATE: EMI's future is apparently in even greater doubt as its accountants see "significant doubt" about its ongoing viability.]
Ironically, the companies that are starting to look as though they have some strength going forward are the print publishers. I think it's because their backs were so far flattened against the walls that they could start to take what seemed to be big risks but that were actually just recognitions of the real dynamics: tech companies need content as much, if not more, than content companies need technology. How long before video and music producers also start turning off the taps and twisting arms? On the Internet, getting distribution is easy. Getting something worth distributing is much tougher. And, ultimately, consumers are likely to find that they have to pay more than they've become accustomed to, because while distribution is nearly free, creating the content isn't.

Edited Image via Flickr user tomer.gabel, CC 2.0.