Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.


 
Wednesday, March 14, 2007

I Want My MTV 2.0


Mark Cuban has a nice post on Viacom vs Google + Youtube.

Unfortunately, his argument - though passionate - is utterly spurious.

He uses the example of HBO and the Sopranos, pointing out that the syndication value of each episode is $2.2 mil. Surely, then, letting YouTubers rip stuff off is just bad business - we forego millions every time we do so.

Really? The problem is that, in reality, YouTube is about microchunks - not hour-long programs. If it was just another "distribution channel", the industry wouldn't have a problem - make a new window, slice up the pie, bob's yer uncle.

The problem is that it's something new, which is radically, fundamentally altering the dominant TV business model, reshaping it (and it's about time, isn't it?).

Now, this is bad for Mark, who's bet on the same old business model - just made a little bit more efficient. But that's another story.

Viacom, I think, isn't really concerned about the Sopranos on YouTube - but about YouTube (plus Myspace) reducing MTV (etc) to a smouldering pile of rubble.

And it should be. After all, MTV's content strategy can be divided into two phases. First, music videos. Second, reality shows.

MTV's brand of reality TV isn't just surprisingly close to "user-generated" - it often is user-generated, with cameras directly in the hands of teens and tweens.

And videos, of course, are microchunks to begin with.

And that's the heart of it. The real problem is that, from an economic pov, YouTube is a hyperefficient solution for the production and distribution of both of these kinds of content.

In economic terms, MTV has just been hypercommoditized - though it might not know it yet.

And that's really bad news. Because it breaks the market power at the heart of MTV's monopoly, which is what let it get away with Microsoftian tactics like negotiating exclusive ongoing rights to videos.

Labels - who own the rights to videos - aren't so stupid that they're not slowly cottoning on to this. This market power over content creators is really what Viacom's fighting for (and you can extend this argument across Viacom properties, like Comedy Central, etc).

Hence, lawsuit (oh yeah, factor in some kind of minor negotiation breakdown - which is inevitable, this is really kind of a fight to the death).

One last point - please try and understand what I'm saying. It's not about the law. I could care less about an antiquated ideal of property rights - which is based on an industrial-era understanding of economics that's utterly obsolete (see my prop rights article).

The point I'm making is about strategy. Let me illustrate it. Don Dodge says:

"...Most of you know I was a VP at Napster back in 2000 when the RIAA was suing us. I learned a lot about "fair use", DMCA safe harbors, take down notice rules, and the enormous penalties for copyright infringment. These laws are tough and there is no wiggle room."

Yes - certainly. But they never helped the record labels boost their ailing margins for even a nanosecond.

You can win the battle - but it has little bearing on whether you win the war. That's about the inexorability of a superior set of economics.

To make this crystal clear - Don goes on to say:

"...Viacom can't lose. If they win the suit they get their billion dollars. It is more likely that Google will settle for big bucks before the case goes to jury. Viacom wins either way."

Sure - but so what? From a strategic pov, if I were Google, I'd happily pay a few hundred million bucks to ensure the ongoing strategy decay and eventual irrelevance of Viacom - it's a great investment :)

-- umair // 12:58 PM // 6 comments


Comments:

Viacom is not stupid or backward thinking. They understand the media business very well. They understand that if they take a couple hundred million dollars from YouTube today that they have sold their future business revenue streams.

Sorry, but Mark Cuban is right on this...and so is Viacom. Your new market theories and strategies are just that...theories.

Hey, I was a VP at Napster and fought the RIAA. I know all the arguments about how "sampling" actually improves sales and exposes content to new users who will become paying customers. I believe that is true...but it doesn't matter.

The record labels and film studios own the content and copyrights. They get to decide how their content will be distributed and exposed. They decide. Not you, not me, not Google...the copyright owner decides.

The problem is one of value. Record labels value a song at about $1.00 and film studios value a movie at about $10.00.

Advertising business models can't support that kind of cost/value. YouTube's advertising model can only support a few pennies per stream. Viacom thinks a YouTube video stream is the equivalent of a lost DVD sale, or $10.00.

Google/YouTube can't close the value gap with advertising revenues or new marketing theories.

Believe me I know the theories and have fought the fight. It doesn't work in paractice or theory.

Don Dodge
// Anonymous Don Dodge // 2:54 PM
 

Really? The problem is that, in reality, YouTube is about microchunks - not hour-long programs. If it was just another "distribution channel", the industry wouldn't have a problem - make a new window, slice up the pie, bob's yer uncle.

The problem is that it's something new, which is radically, fundamentally altering the dominant TV business model, reshaping it (and it's about time, isn't it?).

Can "Viacom suing YouTube" vs. "Viacom signing a deal with Joost" be seen as a fine illustration of the above? YouTube is disruptive, and is sued, while Joost (so far) goes for a rather old-school TV approach with some on demand features (= "another distribution channel") and hence gets the deals and the positive attention.
// Anonymous Andreas Bovens // 11:07 AM
 

I agree that Internet users like "Micro Chunks" of music, TV, and film. They want the best, funniest, craziest, chunks for free and discard the rest.

Record labels have pushed junk on us for years. One or two good songs on a CD of 15 songs...and you pay $20.00 for it. So, you end up paying $10 to $20 for the one or two songs you care about.

TV and film is the same way. Lots of junk punctuated by a few moments of brilliance. If users Micro Chunk the good stuff, they will not care much about the rest and the whole monetization system goes down.

The record labels fought the change. They demanded DRM and demanded nearly all the revenue from download sales. TV and film studios are doing the same thing.

They don't want their content Micro Chunked. They don't want their revenue models disrupted. They don't care about new theories or strategies. They want to hold onto their business models as long as possible.

You and I can call it stupid but that is the model that has made them successful. It is their content and they get to decide how and when to change it. I still have the scars from trying to change the record labels before they wanted to change.
// Anonymous Don Dodge // 1:40 PM
 

Wow, this Don Dodge fella really IS scarred from his Napster experience!

I find this argument to be particularly hilarious:

"The record labels and film studios own the content and copyrights. They get to decide how their content will be distributed and exposed. They decide. Not you, not me, not Google...the copyright owner decides."

Wrong. NO ONE controls supply on a decentralized network. It's literally out of control.

Regardless of the law, etc, anyone on the Net can distribute any kind of media anywhere wherever they want.

All content creators [myself included, I am a musician and run a jazz label/management company] need to deal with the fact that there is no practical way to control where and when anyone is exposed to your art.

Don's "value gap" argument is also pretty humorous. NO ONE will close the value gap because the paid-acquisition business is deflating completely (economic argument: supply is out of control/infinite, so prices go to zero).

Josh at First Round capital has a great post about this...he wants to invest in companies that "shrink markets":
http://redeye.firstround.com/2006/04/shrink_a_market.html

I would suggest that Don step back from all these tactical roadblocks he sees and really take a LONG TERM VALUE CREATION view like Umair does.

By doing that, he might see, um, how to create long term value!
// Blogger Ethan B // 7:20 PM
 

Google's on the bus, so to speak, so their strategy isn't microchunks or anything. Their strategy is to grab whatever's working and to keep grabbing. Things have not finished changing-- they've started sliding. This is a Singularity.

There's a small window of time when sharing lots of videos for free on the internet costs a substantial amount of money. That window is already open, which means it's already in the process of closing. BitTorrent is nipping at its heels-- but even if there were no immediate threats, there is a time limit to the whole game. Bandwidth costs (and-- though it's so low already it's almost silly to mention it-- the cost of storing video files) will continue to plummet as a result of underlying technological change, at best sometimes plateauing for a while before the next decline.

A few short years after sharing video on the internet is expensive, it becomes so cheap that it is effectively free. There is of course a cost to sharing text over the internet, but we never think about that cost because it is so low. There is no way to stop the free dissemination of a text file on today's internets. That is the long term status of this problem.
// Blogger mungojelly // 7:55 PM
 

Don Dodge said: The record labels and film studios own the content and copyrights. They get to decide how their content will be distributed and exposed. They decide. Not you, not me, not Google...the copyright owner decides.

...

In the real world, is that true?

All the bits and bytes and clips and chunks of images, music and video thrown around the web at a moment's notice by anyone who wishes to make a solitary decision?

I understand it's a desire for copyright owners, but in realtime it just ain't like that - not entirely anyway - which I guess is what these scraps are all about.

I'm just suggesting that your statement above also includes a theory, one that is not universal. Like the poster suggested, the RIAA beat Napster but no-one's saying that music piracy is legs-up and dead, which can only suggest the current model is still a failure, regardless of real-world expertize, strategies and practices.
// Anonymous goggle eyes // 4:42 PM
 
 

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