media strategy
Convergence: Why Businesses Fail and How They Can Succeed.
By AL BERRIOS
Boring: Joe Celia, Global Chairman and Chief Executive Officer, G2.
Bored: Joe's boss, Sir Martin Sorrell, CEO and Director of WPP Group
(Wordcount: 1,568; Pages: 4) For a $2500 admission fee, you'd think that attendees at the recent Economist Media Convergence Conference would arrive prepared with something more innovative than ogling Google, fondling MySpace, and bragging about how much they're spending online and how. It should come as no surprise to anyone familiar with the media industries that this is the extent of their preparedness to the utter change to their business and revenue models from this convergence thing.

Convergence started really when content was renamed "data" and digitized. By this point, books, music, software, and even video were all being swapped digitally on the internet. Now, voice is also digital data and calls can be placed with your cable company, through internet companies, and of course, your local carrier (remind me again what they carry?)

At a broader level, this means that the same "pipe" can carry content originally intended for any output (this is the convergence part, in case you missed it). But put convergence under a microscope, and you can see that it gives consumers the ability to control how they want that output to look like, whether it's via a big screen or a little one, a printout of a book or a podcast, and just like space isn't an issue, neither is time, as the convergence force also conspires against content controllers to empower consumers to enjoy their content willy-nilly on their own schedules. (The scoundrels!)

But convergence doesn't really end where media like broadcast and print converge; it implies the simultaneous divergence to any channel of content originally intended for specific channels. And when the channel no longer matters, media becomes a business of brand, not distribution; (and distribution a business of commodities (1)).

And this is the key to succeeding in a converged media universe. Sure, getting access to television, radio, internet, and phone data from a single provider who can bundle everything into a nice, neat discounted package makes economic sense, but remember that consumers are irrational and in no industry have they permitted themselves to be willingly tied to and directed by a single provider. So, before we discuss how branding will save your (content) business, let's discuss how convergence killed it.

(The only answer for distributors of content is to keep doing what you're already doing and offer everything to everyone; it costs you almost nothing additional - except a little marketing - and it's already well-proven to work in growing your profit per subscriber after decades of stagnation.

In a few more years, the geographical distances between competitors that once preserved your virtual monopolies will also cease to be an obstacle to convergence, propelling your business models once again to commodity status, where service is the primary differentiator, and pricing the second.)

Why Convergence Killed Your Business

Based on an al berrios & co. analysis of industries, there are certain conditions that need to exist in order for multi-product, single-source business models to fail. One of these conditions is that the products they're offering, which were previously unrelated, somehow standardize. The other condition is that once standardized, end users have to be able to enjoy them at near-zero or zero-cost (including switching costs) and without loss of (intrinsic) value. And once these conditions are met, they are irreversible.

(Despite media executives' beliefs, anonymity during consumption isn't necessarily a condition in order for someone to exploit your product offerings.)

In the travel and tourism industry, the more you fly, lodge, or even spend on credit, the more miles you rack up until you get upgrades and all sorts of free goodies. Because your "spending points" are convertible to miles, then actual, tangible services, travel services no longer possess the same value they used to when they were purchasable exclusively with cash.

Consequently, the travel industry has unintentionally standardized their services by allowing consumers to pay for them with miles, while simultaneously, they've let consumers enjoy them at near-zero or zero cost. (Due to the personal "asset-like" nature of miles and points, I can now buy tens of thousands of airline miles at auction sites from others travelers for a couple of hundred bucks, never having actually earned them to use them.)

When banks, stock brokerages, and insurance companies converged in the late 90s, it was hailed as the birth of the financial supermarket, where every conceivable financial product could easily be peddled from a teller's window. What? Financial groceries? Yea right! Based on our convergence model here, what banks failed to realize is that they inadvertently standardized their product while simultaneously making it available at a discount or practically free. The standardization occurred because not only could the same bank employee offer a checking account, a life-insurance policy, and put your money into a mutual fund, but the process by which it was all done was so seamless to the end-user, that the lack of distinct processes or even physical locations signaled to them that wherever they went, they could expect the same products with the same seamlessness.

The cost became the difference between fractions of interest percentage points on value (appealing to a group that this firm has already proved caps out at 15 to 17% of the "promotion consuming" population and delivers no long-term value to the company (2)). In other cases, the free-bes were even more blatant as competitors offered free checking, free ATM use, and 24/7 convenience.

In both travel and banking, the distribution converged, and the content soon became standardized so that the end-user could use them in any combination, at any time, and across competitors at near-zero or zero cost, but most importantly, without loss of (intrinsic) value to them.

A Business of Brand

The implications for media businesses facing convergence is simple: because you are currently meeting all of the irreversible conditions, your current business model has failed. And in fact, you're only wasting money by developing competing technology standards and suing anything that clicks.

Comfort yourself with the premise that the business of content creation will always remain expansive and extremely fragmented because, like stated above, no matter how big Viacom gets rehashing their content to appeal to increasingly more specific ages ("The Twelve Channel, the channel for 12 year olds"?), there will always be a consumer looking for alternative choices in (confusing?) Time Warner, (pixar'd?) Disney, and even (trusted?) News Corp.

It is possible right now to access the web, music, movies, and your video games, call, text, and email all your contacts, photograph and video record anything anywhere, plan your week, by the minute, squeeze in some work and live virtually your entire existence from the palm of your hand or living room set. And you won't look like a huge geek doing it because your super devices will actually look trendy. Oh, and cheap.

In other words, your brand isn't limited to or defined by the medium in which it appears and will always have huge opportunities in a fragmented audience world. (What's that saying about the message and the medium?) And digitization (and ability to playback anywhere) isn't destroying the economics of selling content to consumers; it's transforming the content-creation model so that today, software isn't really necessary (and harder to "steal"); consumers enjoy, prefer, and even create their own shorter videos (so why aren't you?); and consumers prefer their content in smaller portions, a la cart, value-menu style (why do music labels still create "albums", instead of just singles?) And finally, even bookworms have a voice as they can now have a direct relationship with their favorite authors, enjoying every idea that pops out of their skulls (as blogs, podcasts, or even chapters of books, all without agents).

The consequence of convergence is not the limiting of content, then, based on the belief that since many content creators will naturally be disinclined from producing for an audience which doesn't appreciate their content, uses it without their consent or consultation, and severely curtails the value the creators can extract from their content. The true consequence will be less reliance on the protection of finite intellectual property and the near-prolific creation of ever more content, via every old and new media channel.

As this model gains traction, the process will improve, the quality will improve, and content creators will come to see that it's way too much for their audiences, unless they bundle it in convenient topical nuggets and charge consumers for their editing (i.e. Harvard Business Review); they'll realize that subscriptions to the entire content vault is no longer the primary value-driver, and subscriptions to specific topics or content brands do work (i.e. New York Times TimesSelect); and they'll conclude that despite not serving every consumer segment with content and being able to charge advertisers accordingly, their content depth does indeed reach a much more targeted user, a user who actually enjoys the advertisement, and that a content creator can rightfully charge more to reach (i.e. ESPN). (Editors Note: I mention this last conclusion due to the ever increasing rates broadcast networks still get away with charging to reach smaller and less targeted audiences. Every advertiser knows this makes no sense, and they prefer to continue to invest in bad content when they should ideally invest in proprietary ways to improve the metrics of this particular media business.)

Poor media buyers; how can you not feel sorry for them. Whether you get rid of them or not, their work just became a lot tougher.

Footnotes

(1) Berrios, Al, "Content vs. Media: Debating Which Advertising Asset Constitutes the True Commodity"

(2) Berrios, Al, "Everyone's a Punk Rocker - Examining the Effects of a Sustained Promotions vs. Short, Focused Promotions"


Al Berrios is Managing Director of al berrios & co., a pure strategy consulting firm, specializing in advising organizations + entrepreneurs on managing their enterprises in a service economy. Write or Subscribe to Consumer Strategies Report.

 

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