Saturday, July 30, 2005
Media 2.0 - Value Maximization
There's been a huge amount of attention focused lately on the issue of the end of distribution/retail scarcity in a Media 2.0 world. That's cool, but the real questions are much deeper.
At a recent gig, I got a lot of questions about value maximization. Folks from a Media 1.0 background are often loath to concede that micromedia can create more value than (big-budget) mass media.
It's often counterintuitive because value creation is about economic value (ie, how utility and preferences inform demand relative to supply) - not accounting value (ie, production budgets).
Posner explains this nicely, in a recent piece about Media 2.0 econ which is essential reading (and which, strangely enough, closely follows the logic of my Media Econ presentation):
"...To see what difference the elimination of a communications bottleneck can make, consider a town that before the advent of television or even radio had just two newspapers because economies of scale made it impossible for a newspaper with a small circulation to break even. Each of the two, to increase its advertising revenues, would try to maximize circulation by pitching its news to the median reader, for that reader would not be attracted to a newspaper that flaunted extreme political views. There would be the same tendency to political convergence that is characteristic of two-party political systems, and for the same reason - attracting the least committed is the key to obtaining a majority.
One of the two newspapers would probably be liberal and have a loyal readership of liberal readers, and the other conservative and have a loyal conservative readership. That would leave a middle range. To snag readers in that range, the liberal newspaper could not afford to be too liberal or the conservative one too conservative. The former would strive to be just liberal enough to hold its liberal readers, and the latter just conservative enough to hold its conservative readers. If either moved too close to its political extreme, it would lose readers in the middle without gaining readers from the extreme, since it had them already."
It follows that in a micromedia world, content can be very closely tailored to individual preferences. Put another way, in a mass media world, we each suffer some amount of disutility from having to consume mass media that doesn't closely match our preferences.
Because micromedia can cause us each to suffer less disutility, the total amount of value that can be created in a micromedia world is greater than in a mass media world. For the folks I was talking to, who were focused on real-world effects, the point is that demand explodes relative to supply (and the equilibrium price of your content, and your margins, and, even better, such an advantage is sustainable).
This doesn't have much to do with big vs small production budgets. In fact, that's almost missing the point entirely: micromedia's happening because the cost of production is being vaporized by order-of-magnitude step changes in technology. So yesterday's big budgets become today's small budgets (think about the kind of video production you can do on a Mac today vs even five years ago).
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