MediaCom: Note to Content Companies: Unbundling is Inevitable - Vik Kathuria

Will media companies learn? Or will history keep cruelly repeating itself? Major media industries tend to cling to the past by stubbornly shoehorning traditional business models into a modern consumer marketplace that may not be the optimal way of leveraging their products' potential. These traditional content models have been based on packaged, bundled content. Note to content companies: unbundling is inevitable!

In this multichannel universe that continues to fragment at a dizzying pace with the advent of myriad newfangled digital platforms, the notion of packaged, bundled content is quickly verging on obsolescence. The sooner vertically-integrated content behemoths confront this immutable reality, the quicker they will be able to adjust and exploit this new marketplace. Hopefully the wake-up call will be heard and embraced by the C-Suites at companies like major newspapers and cable TV.

You'd hope that the horrors that befell the music industry when they were completely blindsided by the notion of "unbundled" a la carte content consumption--ushered in by Steve Jobs and his prescient team at Apple with iTunes-- would serve as a loud cautionary tale to the aforementioned businesses. For years through multiple format changes (vinyl to cassette to 8-Track to CD to MP3) consumers were forced to buy "bundles" when all they really wanted were a couple of tracks. "Peer-to-peer" sharing, notoriously shepherded in by Napster, let the consumer control genie out of the bottle and the music industry was caught flat-footed and may never fully recover from it.

At its very core, unbundling is about relevance, efficiency and context. By this I mean users only consuming media that is relevant to them at the time, place and platform of preference. Bottom line is consumers are increasingly wresting control away from creators with technology enabling a more egalitarian distribution of content over a multitude of platforms. Consumers are now the deciders and media companies have been forced to cede much of its traditional mantle as creator and judge-jury of "quality content." This includes the decision about whether their act of consumption should be private or whether they push it into the realm of communal activity. The digital ecosystem was built on the very essence of personalization and efficiency enabled by technology and now it's rapidly encroaching on traditional media's turf, making traditional power dynamics ripe for major disruption.

Beyond the music business, a similar story is now unfolding with the print media as newspapers and magazines are furiously trying to figure out new business models (subscription vs. advertising) as well as dealing with new distribution platforms (i-Pad and a host of other tablets). One tactic ironically gaining traction is the "bundling" of digital with print. In my opinion, this is a mistake as the focus should be on delivering high-quality, relevant and timely information in a flexible way that optimizes consumer needs and preferences.

Finally the last bastion of "old media", cable / network TV, is also coming under assault. With the assimilation of TiVo / DVRs and digital video, a sea change is occurring in how TV content is consumed. Unbundled media content is delivered independently from any physical medium (CDs, DVDs, etc.) Increasingly it's consumed on the consumer's schedule and on their platform choice (TV / PC / Laptop / Mobile). YouTube (Over 100 M monthly uniques), Netflix (20M subs out of which 11M use streaming) and Hulu (projected to double revenue to approximately half a billion dollars in 2011 with over a million paying subs) are on an upward trajectory.

A direct consequence of this is the emergence of "cord cutters" as an estimated 2 million households are expected to drop paid TV in favor of broadband video services between 2008 and 2011, according to Convergence Consulting Group. Again this number is tiny but growing so the industry would be wise to pay heed and devise new business models. One attempt known as TV Everywhere is commendable, but again, it is another stubborn attempt at preserving the old cable cost structure by forcing consumers to subsidize a majority of channels just to watch a handful.

It's important for incumbents to aggressively test new business models but the key is relentless focus on consumer satisfaction. A halfhearted attempt with little focus on execution will lead to the inevitable. For example, one only has to flip the pages through recent history to notice Blockbuster first scoffing at and then ultimately emulating the Netflix business model. Then there is Barnes & Noble doing the same with Amazon. Blockbuster has declared bankruptcy and Barnes & Nobles has put itself up for sale while Borders, once a formidable competitor, has declared bankruptcy as well.

These are classic cases of the fallout from disruptive technoIogy as articulated in Clayton M. Christensen's book "Innovator's Dilemma." "An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill". The thesis of the book is that incumbents in markets –- especially large and entrenched markets -– seldom survive fundamental technology changes in their industries.

Will our major content companies prove Mr. Christensen wrong?

Vik Kathuria Managing Partner at GroupM/MediaCom. Vik can be reached at vik.kathuria@mediacom.com.

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