Saturday, January 29, 2005
Living Room Wars - Content is Not King
Cringely asks whether the iPod's the razor or the blade, in a killer piece chock full of insights. I'm still down with the flu, but this piece, and the recent discussions about the future of video made me think the bigger picture is worth thinking about.
In every media industry, there's a fundamental tension between content production and distribution. Now, during the bubble, we all remember the mantra - 'content is king' - largely because switching costs to media consumption (different songs, movies, articles) etc vaporized instantly (or at least got slashed significantly).
Interestingly, a few years later, the Living Room Wars have brought us full circle. The razor vs blades iPod argument is founded on the premise that distribution is again the choke point for the media industry - that's what all these great conversations, whether about the iPod, VoD, PVRs, etc really about. Whoever controls the Living Room owns the key strategic asset - the customer.
Now of course, this argument is founded on a contradiction of the bubble's 'content is king' mantra - namely, that switching costs for customers are gonna go up again, because entry into the living room is by definition scarce. For example, at the physical level, there will be a small number of key interface points from content to consumer (fiber, wireless, cable etc). Similarly, at the software/firmware level, distribution will get stickier, because of DRM (Broadcast Flag), bundling (subscription, triple-play models), etc.
So for consumers to switch from one distributor to another will be inherently costly at all levels. This is what Apple's play is really about - becoming the monopsony buyer and thus monopoly distributor of relatively high-quality digital content (music, film ,etc). Razors and blades is the wrong model, because it's static, not dynamic. In the long run, Apple can have a razor and razor - by jacking up margins on content by squeezing film studios and record labels, and by keeping the iPod/Mac Mini innovative and fresh, dominating the hardware space (or even by tying both, but I think that's unlikely). But, if you buy this argument, here's the interesting bit: notice that distribution, not content, is what creates and appropriates the lion's share of value: distribution is king.
So we've come full circle - this is a nice illustration of a classic economic dialectic, and I have a feeling that which side of this dialectic various media technologies and b-models competing for the living room fall on will be a powerful predictor of success.
Initially, it seemed you were critical of Apple's monopsomy's play. Didn't you argue Apple should have made a play to establish an open platform?
What is your current opinion of their strategy? You seem to imply in this post that you don't think Apple will continue to keep a closed iPod/iTunes system, or am I reading you wrong.
-Alex in Los Angeles