For The Future Of The Media Industry, Look In The App Store

Media scarcity is dead. In the future my son will have a flash drive that he will pay $29 for that will have the capacity to hold all movies and music ever released by a major label, studio or tv/cable network. It will take 30 seconds to clone the data over the network to a friend who will pay $14.99 for a device with double capacity a year later. How does the media industry survive such a coming disruption?

For many of us that have been in this game for a while, the word “convergence” harbors some shameful vibes. It conjures up many false hopes, dashed dreams and misfires. Nevertheless, I would contend that convergence is upon us and it has arrived from an unexpected delivery man: Steve Jobs. Apple has created a media consumption experience that has reduced friction to such a point that soon the consumer will not know if he is buying music, a movie or a game. The notion of App is changing. The lines between these different forms of media are quickly blurring and soon will be completely artificial. Already these distinctions are merely fossilized conventions that stem from consumers’ discovery habits. As those evolve, like learning that it is easier to go to Amazon and search to find a product than going to aisle 9 at the store. The coming confusion of the consumption experience where a user won’t care or know if what they are buying is a movie, a game or a music track presents vast opportunity.

The prospects for the old media industry appear bleak, as the rest of the media industry follows the music industry into decline. Indeed in my discussions it is apparent that the smart money in Hollywood already sees the writing on the wall. While the trend will take longer, it is clear which direction the wind is blowing. The main lesson to learn is that the market will punish you if you don’t deliver the goods.

But the entertainment industry has a vested interest in the success of this new type of convergence, as within it lies the secret to its continuing prosperity. The only way to block the incredible ease of pirating any content a media company can generate is to couple said experiences with extensions that live in the cloud and enhance that experience for consumers. Not just for some fancy DRM but for real value creation. They must begin to create a product that is not simply a static digital file that can be easily copied and distributed, but rather view media as a dynamic “application” with extensions via the web. This howl is the future evolution of the media industry. It has arrived from a company that is delivering the goods. Apple has made it painless for consumers to spend money and get the media they want where they want it, proving that consumers are happy to pay for media if delivered in ways that make it easy and blissful to consume. For all the criticism Apple draws on the walled garden nature of its business, it has even come around to stripping DRM and allowing users to download mp3 files.

Even today if you look in the iTunes App Store you will see a myriad range of “Apps” that are just evolved ways to package media. While the traditional part of iTunes still mirrors the product taxonomy of a Tower Records, the App Store is creating a folksonomy of media products. It is where new ideas evolve, thrive and go instinctively based on market power. The App Store is where the action is. This is where evolution is unfolding as direct consumer spending spurs media development.

In preparing this post, Erick asked me, “Is Apple a media company?” I thought about that and the answer is really that Apple is what media companies are missing. The missing part of the puzzle is what made media conglomerates such juggernauts in the past. Namely, distribution. The internet is stripping them of their control over the how their products are distributed. Media companies used to be able to create scarcity merely by delaying the distribution of their products across different channels—theaters, pay-per-view, DVD, cable channels, network TV, and so on. The internet disrupts this ability to create media scarcity. It is such a huge disruption, in fact, that it threatens the fundamental profit engine of the media business.

Both during my time interacting with senior management at Time Warner (where I worked at AOL after it acquired the company I founded, Relegence) and with some of my current portfolio companies that are working with the film and music industries, it is clear to me that many of the smart people running these media companies understand which way the wind is blowing. The music industry, as the one that has suffered most of the carnage, is ripest for change. Executives there are receptive to new ideas and move forward quickly, leaving me somewhat optimistic. It is also clear to me that it is hard for the industries which have not endured their level of pain to flee the golden cage of media’s past. But for those firms which rise to the occasion, there will be vast rewards. People’s hunger for good content will not subside. It will continue to grow, but so shall the unbearable ease of pirating it. The premise of extending the media experience to the cloud is a core necessity for the survival and growth of the media industry. It is the only way to for media companies to weather the coming tsunami of increased bandwidth and the ever open web. Hybrid media packaging with both files and an application layer in the cloud is core to a lucrative future.

For a great example of how change is happening see what Britney did today at @BritneySpears. It was, I believe, the first time a major artist premiered a music video on Twitter. This drives people to Amazon or iTunes to buy the track but in the not too distant future it could be the start of much more than that. A complete experience will unfold that will be interactive and convert to new revenue streams. Not just a purchase of a track but of an app that pulls consumers into an experience and further promotes user engagement and virality. Media becomes a platform with a funnel of traffic and conversions to alternative revenue streams. All boosted by the frictionless billing that Apple has created in the App Store. Media executives will have realtime metrics for their success as it maps to revenue and in turn this will accelerate innovation and help redefine media.

If you are a media exec and you look at your product and at the end of the day it’s a digital file that can be copied, then you have a serious problem with your format. Think of your product like a pie chart of the value you are giving the consumer. If 100% of the value is in that file, it is not a sound approach for defending the future of your business. However, if a portion of the experience is derived thorough an integration with a Web component that will yield additional value in functionality or social elements, then it will be more sustainable. There are many such examples emerging in the app store (I am T-Pain, TapTap and many more). Applications that let consumers interact with the media. Create things and share them with their friends. These will not only make the consumer the one who markets your product, but also create an unprecedented level of engagement. That level of engagement will directly map to reduction in piracy as consumers will pay for this experience and wont be able to copy it. Sell access and experiences, not media files.

Guest author Edo Segal (@edosegal) has launched and sold several companies. In 2000 he founded eNow, which he sold to AOL in 2006 (after it was renamed Relegence). Today, he runs his Incubator/Investment vehicle Futurity Ventures, which recently launched a new search engine for wisdom.

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56 Responses to “For The Future Of The Media Industry, Look In The App Store”

  1. mattheww says:

    And another thing:

    Everyone focuses on the ramifications of the falling costs and barriers to entry of media distribution, but few on those of the same thing happening to its creation.

    How long before the technology that is about to bring us “Avatar” is available for $59.00? (Hint: The technology that brought us “Terminator 2″ already is: http://bit.ly/2jvrS4.)

    Once anyone can capture unlit, uncostumed whole scenes in one take in their living room and then tart it up with sets, outfits and monsters freely available from online libraries (like this one: http://bit.ly/11Paai,) “Lord of the Rings” could be replicated by any hobbyist with free evenings; “24″ regularly provided by a group of bloggers.

    What, for that matter, will such ubiquity and demystification do to the public’s enthusiasm for such entertainments?

    I would not want to be in that industry right now (wait, crap, I am.)

  2. links for 2009-11-02 | Yostivanich says:

    [...] For The Future Of The Media Indus-try, Look In The App Store “In prepar-ing this post, Erick asked me, “Is Apple is a media com-pany?” I thought about that and the answer is really that Apple is what media com-pa-nies are miss-ing. The miss-ing part of the puz-zle is what made media con-glom-er-ates such jug-ger-nauts in the past. Namely, dis-tri-b-u-tion. The inter-net is strip-ping them of their con-trol over the how their prod-ucts are dis-trib-uted. Media com-pa-nies used to be able to cre-ate scarcity merely by delay-ing the dis-tri-b-u-tion of their prod-ucts across dif-fer-ent channels–theaters, pay-per-view, DVD, cable chan-nels, net-work TV, and so on. The inter-net dis-rupts this abil-ity to cre-ate media scarcity. It is such a huge dis-rup-tion, in fact, that it threat-ens the fun-da-men-tal profit engine of the media business.” (tags: media busi-ness inter-net eco-nom-ics mar-ket-ing social-me-dia twit-ter itunes apple amazon.com onde-mand) [...]

  3. rationalThoughts says:

    wow… so many fallacies… no facts… and no logical progression from one assertion to another.

    1. Anyone who pays the $99/year gets distribution so long as their app doesn't violate the terms and conditions. So why do you say he doesn't?
    2. You claim that the future cannot be with the App Store but then admit that it has been "thus far". Give a reason or get lost.
    3. My favorite, 'If Apple did the same thing with OSX as they did with App Store it would have failed too' (paraphrased). That is called a slippery slope fallacy. You gave a condition and a radical conclusion with no justification in between.
    4. Speaking as a developer, I DON'T need the power to distribute my apps by any means. What I need is the power to MARKET them by any means. And although the App Store doesn't do good job at helping you market your apps, It doesn't restrict your ability to market them.

  4. rationalThoughts says:

    Really… you used Britney Spears hocking her wears over Twitter as your example of how things are changing? I guess you just discovered Twitter three days ago and you're going through the Twitter is the greatest thing to marketing phase. Maybe I'm just jaded.

    BTW: There's nothing wrong about this article, but I really have heard all of this before… several times… on lot's of other websites.

  5. Edo Segal says:

    Ya, you are jaded :) We are just now arriving at real scale on this, It's only just beginning. Just hang in there!

  6. uri says:

    Great post, Edo. The cloud also helps monetize the long tail without significant storage and distribution costs. An unprecedented level of engagement and actual value – that is also the future of effective advertising.

  7. MobileBehavior says:

    [...] For The Future Of The Media Industry, Look In The App Store – [...]

  8. Ben says:

    I honestly think you are one hundred percent wrong. Your solution advocates more content to maintain the 'value' (read – prices) of media. Whether it resides in the cloud or not is essentially irrelevent.

    Consumers do not want extra content. How many times do you watch the 'extras' on a DVD – would you be prepared to pay half the cost for a vanilla disk without it? I suspect the majority would.

    Consumers have had a taste of 'free' and they understandably prefer it. Micropayments (like the 99 cent app) are acceptable, as are subscriptions that allow the ownership of media (not rental). Old media pricing is not.

    I cannot see one idea in your essay that differs from soon-to-be-failed saviors of the music business like iTunes LPs. If that industry honestly believes that freebie extra content like artwork and videos are going to halt piracy, they serious misunderstand the requirements of music fans.

    The only model that will prevail is the one where the costs fall to a level where consumers simply will not bother to pirate content. This will not happen until the vast, and now unnecessary organisations of the music business and film distribution are dismantled.

    One last stumbling point: These industries are now so loathed by consumers for their actions over the last few years, that nothing less than their demise will probably be enough to turn around the habits of pirates. They have to build some mighty bridges if they wish to continue to exist at all.

  9. TECHNUT TUESDAY Market Nut says:

    [...] Dynamic Applications and the Future of Media. (TechCrunch) [...]

  10. Michael Long says:

    Listen to the majority of garage band demo tapes. Or spend a summer reading "slush pile" book submissions.

    They are almost all bad. The highlight of your day is finding one that sucks less than the others.

  11. Michael Long says:

    Fair price, and make it easy to buy.

    The Kindle is a good example in one regard, in that it's easy to buy, the content is delivered immediately, and the prices, for the most part, are fair.

    They do, however, need to learn the lessons from the music industry and drop DRM so that one can use the reader of one's choice.

  12. Michael Long says:

    "…have said many times here that the future of these products is packaged media files with web-like functionality."

    The problem area is books. Especially fiction. There aren't extra "media files", the author doesn't perform, and almost no one wants a t-shirt.

    Quick and easy distribution at a fair price is the only real solution.

  13. Michael Long says:

    When I'm running, working out, or just working, prerecorded music is just fine, and helps eliminate the boredom.

    Or when I get home and want to relax, prerecorded movies and TV shows are just the ticket. Going out is one thing, but that's the exception and not the rule.

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  20. JMcknight says:

    I'm 25 years old. And I'm making an educated assumption that most readers of this article here are around my age or higher. We are forgetting a very important piece in this puzzle.

    We have watched the evolution of the digital age via the web, like a parent watching a child growing up. We are obsessed and interested in it because it's, in a humbling way, our creation. We strive to find new ways to gain success and conquer the roller coaster ride within the digital age. Yet I believe that the young kids who are being born INTO the digital age, where they have no idea what life was like without it, will get bored. I know, blasphemy it seems, but its a possibility. Does anyone remember the children's novel "The Giver"?– Doesn't matter what you have been born into, even if it's claimed to be the easiest and most convenient lifestyle on the planet, the young will always assume there is something greater out there; something different. It's the universal Hero's Journey. It could be fantasy to most, but I think it's possible that what we consider to be "convenience", could be considered lame and outdated by the youth of tomorrow. I believe it's not otherworldly to believe that even the most shiniest of apps may soon become, pardon my french, utterly dull.

    Our children: the future's consumers, could possibly strive for an organic future (not speaking of food), because they won't care too much about what their lame parents are into. Speaking of myself as well when I say lame.

    The future may not be on the internet…

    Just my thoughts I had late last night after reading this and watching Roxette videos on youtube ;)

    Jessy.

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