"Price Toward Free" Marketplace Challenges All Advertising-Dependent Media Companies - JackMyers Think Tank

Kyle in South Park Episode 1204 one of the great alltime TV episodes quotWe thought we could make money on the Internet But while the Internet is new and exciting for creative people it hasn39t matured as a distribution mechanism to the extent that one should trade real and immediate opportunities for income for the promise of future online revenue It will be a few years before digital distribution of media on the Internet can be monetized to an extent that necessitates content producers to forgo their fair value in more traditional mediaquotYou can watch clips from last week39s brilliant South Park episode and read Ed Martin39s comments on the program at JackMyerscom Everyone in our business who39s invested in the continued financial stability of traditional media andor the growth of digital media should watch the episode or at least the clipsThe South Park observation that quotit will be a few years before digital distribution of media on the Internet can be monetizedquot is a cruel reality for Michael Barrett who is departing as head of sales for Fox Interactive Media on the heels of News Corp39s advisory that FIM would underperform sales expectations by as much as 100 million 10 below projections Barrett is a skilled and seasoned online sales veteran and Fox needs innovative approaches to close the gap between expectation and possibility MySpace has become the poster child in the media industry for low costperthousand networked inventory as the Internet follows a price toward free model With MySpace now partnering with Sony BMG Music Universal Music Group and Warner Music as announced late last week the issue is whether two highly commoditized products can somehow develop a more profitable business modelIt would be wise for all media companies to closely follow MySpace and understand the implications as media supply inexorably increases and costsperthousand are relentlessly pushed downward quot000 Is the Future of Businessquot writes editor Chris Anderson in the March 2008 issue of Wired magazine quotOnce a marketing gimmick free has emerged as a fullfledged economyamp8230 The rise of 39freeconomics39 is being driven by the underlying technologies that power the Web Just as Moore39s law dictates that a unit of processing power halves in price every 18 months the price of bandwidth and storage is dropping fasterquot write Anderson quotWhich is to say the trend lines that determine the cost of doing business online all point the same way to zeroquotAnd that includes advertising Wired39s Anderson also recalls Stewart Brand39s original aphorism from 1984 quotInformation wants to be free Information also wants to be expensiveamp8230 That tension will not go awayquotAdvertising wants to be free and costsperthousand are clearly moving in that direction although there remain pockets of resistance Advertising also wants to be expensive but the traditional models and metrics for establishing value based on costperthousand eyeball impressions are tools for zerobased pricing not for establishing new valuation modelsThe quotPrice Toward Freequot concept is not an original one In my 1998 Book Reconnecting with Customers in The Relationship Ageamp8482 I quoted author Kevin Kelly who suggested in the September 1997 issue of Wired magazine that companies do the following quotFirst think of 39free39 as a design goal for pricing There is a drive toward freeamp8230 that even if not reached makes the system behave as if it does A very small flat rate may have the same effects as flat out free Second while one product is free this usually positions other services to be valuable Thus Sun gives Java away to help servers and Netscape handsout consumer browsers to help sell commercial server software Third and most important following the free is a way to rehearse a service39s or good39s eventual fall to free You structure your business as if the thing that you are creating is free in anticipation of where its price is goingquotKelly pointed out that the first indexes to the Web in its early days were written by students and given away quotBy being available free indexes became ubiquitous Their ubiquity quickly led to explosive stock values for the indexers and enabled other Web services to flourishquot In my 1998 book I anticipated that AOL would be required ultimately to reduce its fees to free I also argued that quotIn the New Media Age commercial inventory for advertising messages will be a relatively cheap commodity following a downward curve toward free as media companies develop services and transactional capabilities that will be far more valued by the marketplacequotWhile some TV networks several magazines and selected media companies are actively investing in enhanced services and transactional capabilities many more remain dependent on traditional metrics and business models Size remains the pervasive measure of performance for the vast majority of media companiesEvery day I receive press releases and information about new media companies almost all of which will be relying on advertising revenues to achieve the ambitious goals of their investors Many of these businesses are aggregators What they aggregate varies but they are all in the same game on the same field The field is quotMadison Avenuequot and the game is the aggregation of eyeballs andor clicks which are essentially interchangeable in mediabuyer parlance and selling them at market rates What many of these companies are failing to recognize is that their currency is becoming valueless Unless they can define new forms of currency they will never achieve their aggressive revenue goalsThere is however a solution that I will outline in next week39s JackMyers Think Tank Share your comments at wwwjackmyerscom

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"Price Toward Free" Marketplace Challenges All Advertising-Dependent Media Companies - JackMyers Think Tank

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