Finding hope in difficult times

It's very difficult to live in Western society today without becoming cynical, or at least without seeing a lot of things as a "glass half empty". We have one universal language: Lies, and one universal religion: Money. Corporations, politicians, pundits and commentators lie so much and so often that it leads to deep cynicism--we expect our institutions to lie, and are pleasantly surprised when they tell the truth. Even the press, which we've relied upon for more than a hundred years to tell the truth, is regurgitating stories fed to them by PR flacks, avoiding stories that would alienate advertisers, using sensationalism to deflect attention from stories that are more difficult to tell and more important to understand, and spinning the news to the benefit of political parties or corporate interests.

The worship of money is very closely connected to the proliferation of lies. When there's no money at stake, there's no need to lie, but when the cost is high, it often costs much less to lie than it does to tell the truth and accept the consequences. Here are a few examples: Many energy companies and firms that either output greenhouse gases or make products that create greenhouse gases spend tens of millions of dollars in an effort to stop legislation designed to curb global warming. They hire lobbyists to convince legislators to block laws, underwrite bogus research that questions the impact of human activity on global warming, or even that global warming exists at all, and create "astroturf" groups to further inflame voters already panicked about the state of the economy.

Multiple pharmaceutical companies have been accused of suppressing research that found that their drugs may be unsafe. Health care organizations publicly supported U.S. reform legislation, but privately lobbied legislators against it and created their own "astroturf" organizations to try to defeat the legislation. The tobacco industry spent decades lying about the health effects of their products, and is now focusing on less-developed countries where companies can freely advertise to children and don't have to warn consumers about the risks of cancer and heart disease.

Banks and other financial institutions sold millions of mortgages to consumers who couldn't afford them, and then bundled the mortgages together and sold them (and their risk) off to others without detailing their shoddy quality. Companies pursuing high-profile mergers say and do everything they can to convince government agencies to approve the deals, and then backpedal on their commitments whenever they can once the merger is approved. Some corporations claim publicly that they're cooperating fully in civil and criminal investigations, while privately, they're destroying evidence that could be used against them.

Politicians, political appointees and staff members regularly go to work for lobbying firms hired by the same companies that they formerly monitored and regulated, at many times their governmental salaries. Some politicians are on a "Merry-Go-Round": They get elected, then after several years, move into the private sector as a lobbyist or corporate lawyer. A few years later, they make another run at public office. Their staffers often follow them, from public jobs to private, and back to public.

Journalists sometimes follow the same path, moving from a career reporting on companies to jobs in public relations firms, where they're paid by the companies and organizations they used to cover to pitch stories to other reporters and spin the facts. Of course, a reporter who's diligent in their efforts to learn the truth about individuals and companies that they cover isn't likely to get very many PR job offers, so there's strong pressure to run stories as they're pitched, and to not look under too many rocks.

Even with all these lies, all this gaming of the system, I maintain hope. Almost every day, I see organizations (primarily government-run and university laboratories, as well as start-ups) working on solutions to our energy and global warming problems. Some corporations recognize that global warming represents a bigger business opportunity than maintaining the status quo. As we get more existence proofs showing that we can maintain our standard of living while still decreasing greenhouse gases, the arguments of the companies and their paid advocates who say that it can't be done will be shown to be lies.

Our consumer protection systems continue to work, albeit often slowly and poorly. Some (but, unfortunately, not enough) of the abuses I wrote about above were detected by these regulatory agencies. Despite efforts to water down or eliminate many of these agencies, I believe that their value will ultimately be understood as essential for capitalism to be both effective and fair.

As "old media" companies find themselves in an ever-increasing spiral of sensationalism and irrelevance, new companies, large and small, for-profit and non-profit, are launching to fill the void. The Internet has eliminated the need for transmitters, printing presses and government licenses, and has decreased the cost by several orders of magnitude. Individuals can report as an avocation, and millions of them do, using their mobile phones, camcorders and personal computers. When you don't have to make a profit (or very much of a profit), it's very difficult for an "old media" company to kill you.

Even with all that, there are days when I just want to turn off my television, radio and computer, toss out the magazines and newspapers, and move to a cabin outside the range of modern media. There are just so many lies that I can take.

New media has to break its addiction to old media

People have been trying to turn the Internet into a new medium that can compete on an equal footing with television, radio, newspapers, etc. since the Netscape days of the mid-1990s. So, fifteen years on, what have we accomplished?

• Netflix has more subscribers than Comcast, but it lives or dies based on which television networks, cable networks and movie studios are willing to do business with it, what shows they're willing to supply, when they're willing to supply them and at what cost.
• Hulu has much the same problem, even though it's owned by three of the four major U.S. television networks.
• YouTube is trying to cut distribution deals with many of the same television networks, cable networks and movie studios as Netflix and Hulu.
• Pundits spend an inordinate amount of time discussing how much The New York Times and The Wall Street Journal are charging for access to their newspapers online, whether paywalls work, how to circumvent paywalls, etc.
• Hearst, Condé Nast and Time Warner will offer their eMagazines on the iPad if they can only get a business deal worked out with Apple. Meanwhile, News Corporation's "The Daily" is on the iPad and is losing money.
• Clear Channel is building its own clone of the Pandora streaming music service and plans to launch it this summer.

The "new media" has largely become a repackaging of old media for Internet delivery: Old wine in new bottles. Almost all of the content on the Internet that's economically viable comes from old media companies.

In order for content to be economically viable, it has to have two key attributes:

1. It has to attract a large audience, and
2. It has to be repeatable--audiences have to be willing to come back day after day, week after week

Content that repeatably attracts large audiences can be sold to national advertisers, which generates the revenues necessary to create more content and make the business attractive to investors. Viral videos, like those found on YouTube, meet the first criteria: A popular viral video can get millions of views. The problem is that they're not repeatable. The vast majority of viral videos are "one-hit wonders". Google has found that it's possible, but very difficult, to sell advertising against viral videos. Many advertisers don't want their ads to run alongside "objectionable" content, yet it's that same objectionable content that makes many videos go viral.

On the other hand, webcast networks like TWiT and Revision3 get audiences that come back week after week for original shows, but the audiences aren't big enough to generate a lot of advertising revenue. They make enough money to make a nice living for a few people, but not enough to attract investors.

That's why new media companies keep turning to old media companies to get their content. The problem is that old media companies don't want to risk their existing revenue streams, even if those revenue streams are already being eroded. If you're an Internet company and your business plan depends on convincing old media companies to license their content to you, you're starting with two strikes against you. Even worse, your biggest suppliers are in a position to become your biggest competitors, if they aren't already competing against you.

New media companies have to break their dependence on old media, and the only way to do that is to produce original content in new forms that old media companies can't, or won't, duplicate.

The old, old media

I've been thinking about how hard it is for a new media company to attract audiences of the size of old media companies, at least in the old media companies' markets. One impressive thing is how old the old media companies in the U.S. really are, and how long they've survived. Let's look at the companies that dominate U.S. mass media, based on when they (or their original predecessor companies) were founded:

• Chicago Tribune: 1847
• New York Times: 1851
• Washington Post: 1877
• Wall Street Journal: 1889
• Warner Bros.: 1903
• Paramount: 1912
• Universal: 1912
• Fox: 1915
• MGM: 1915
• Columbia Pictures: 1919
• Disney: 1923
• Time Magazine: 1923
• NBC: 1926
• CBS: 1927
• ABC: 1927 (was originally NBC's Blue Network)
• Turner Broadcasting: 1970

The most recent company on this list was founded 40 years ago, and the next two were founded 87 years ago. There have been mergers and acquisitions, but these remain the leading media companies in the U.S. The media businesses of Yahoo and AOL are tiny compared to any of these companies. Google sells advertising connected to other people's content rather than creating content on its own, and while Facebook's audience dwarfs most of the major media companies, it's a stretch to call it a media company.

There are certainly other successful media companies out there, but they tend to focus on market niches. Discovery Communications, for example, focuses on science and nature, although it will expand into children's programming with The Hub, its joint venture with Hasbro, which launches later this month, and OWN, the Oprah Winfrey Network, which launches January 1, 2011. The National Geographic Society has published its namesake magazine since 1888, but formed its cable network as a joint venture with News Corporation (Fox).

Perhaps the formula for success as a new media company is to avoid what the old media companies are doing. Don't try to be a movie studio, a television network, a newspaper or magazine. It also means being independent of old media. If your business model depends on getting permission to distribute old media companies' content, or getting old media companies to distribute your content, your fate isn't in your own hands. In other words, don't play in the big guys' sandbox. Build your own.

New Media Financing, Part 1: The McDonalds Conundrum

The annual Cable Show ended last week in Los Angeles, and it's apparent that the status quo before the conference (the set-top box is the primary target device, and everything else gets TV Everywhere) is still the status quo. But why do a relative handful of companies have so much power over what people watch and how they watch it? The reason is what I call the "McDonalds Conundrum".

We all know that McDonalds' food is bad for you--it has too much salt, sugar and fat. Nevertheless, millions of people eat at McDonalds every day, because they like how the food tastes, and there's a McDonalds just about everywhere. Television today is much the same as McDonalds--there's tons of crap, but it's enjoyable and easy to find. Turn on your TV, and it's there. It's on your DVR. It's everywhere.

For all of YouTube's power, it never would have gotten off the ground if it didn't have a steady flow of content from television and cable. Hulu wouldn't exist if it didn't have NBC's and Fox's programs. People like to watch the television shows from the major networks and studios. They can find those shows incredibly easily. That gives the suppliers the power to limit access and to set terms for consumption.

There is nothing available on the Internet that has anywhere near the reach or ease of access of broadcast or cable television...unless it's broadcast or cable television shows that have found their way to the Internet. So, a critical step toward building a sustainable business model for Internet video programming is to make it incredibly easy to find and consume.

I'm now available full-time for work...

I suspected that my employer was going to let me go in a few months, but they showed the motivation, forward-thinking and determination that's a hallmark of the company, and let me go last Friday. As a result, I'm free to pursue full-time work and consulting projects in any area, including eBooks. If you've followed my blog for any time, you know about my experience and interest in eBooks, new media, consumer electronics, cable/IPTV, Internet services and building successful startups in general.

In both my blog and my business, I'll be able to speak more freely about the eBook business, and a lot of other things as well. If I can help you, or if you want more information, please email me at lfeldman257 (at) gmail (dot) com.

The Content Paradox

The "old media" Goliaths like News Corporation, Viacom, CBS, Disney, NBC Universal and Time Warner are often said to be doomed to extinction by the Internet, yet it's content produced and owned by those same companies that's the most popular on the Internet. Those of us in the U.S. may complain about Hulu's limited selection of and time limits on access to content, yet Hulu is envied by content consumers around the world. YouTube would never have gotten to where it is today without all the "old media" content that was (and still is) uploaded for free consumption. If YouTube had depended totally on user-generated content, it never would have reached critical mass.

We may not like the restrictions and limitations that the old media companies put on usage of their content, but they own it, and they have the right (subject to "first sale" rules and other restrictions in the U.S.) to control how it's sold and distributed.

No Internet "new media" companies have content that's in the same popularity class as the old media companies. Producer/Distributors such as Revision3 and TWiT have built very solid businesses. TWiT, Leo Laporte's company, is attracting bigger audiences than TechTV ever did, and judging from Laporte's own comments, it's making a nice profit. However, the audience for all of TWiT's programming is tiny compared to any of the old media sites. Thus the paradox: The Internet relies on old media to drive traffic to new media sites, but the vast majority of original new media properties can't find big enough audiences to sustain themselves financially.

The Internet has lowered the barriers to entry for content producers and distributors down to almost nothing, but making the content available and getting people to read or watch it are two very different things. Building a big enough audience that your content or site becomes attractive to advertisers is much more difficult, and getting people to pay to access the content is even yet more difficult. The old media companies have at least solved the problem of getting people to watch or read their content, but the new media companies all have to start from scratch to build an audience.

Old media isn't having that much easier a time of it on the Internet--just today, for example, Hulu announced that Viacom's Comedy Central is withdrawing its programming at midnight on March 10th, thus removing some of the most topical and popular content from the site. Hulu is widely believed to be unprofitable, and rumors have been flying for months that its parent companies (News Corporation, NBC Universal, Disney and Providence Equity Partners) have been pushing it to adopt a pay model in addition to its existing advertising-supported model. So, simply bringing old media content to the Internet isn't a formula for financial success.

This argument is going to continue until someone releases a breakout hit on the Internet, figures out how to make money with it and builds a profitable, growing media business. Until that happens, the Internet will remain primarily a distribution channel for old media, rather than a viable channel for launching new media.