Chair - Jane Treadwell
Our next speaker is Matthew Liebmann, who is a Director in PricewaterhouseCoopers’ Australian Entertainment and Media Practice. In this capacity he has advised many of Australia’s sector leaders in addressing a wide range of business challenges, including strategic and business planning, marketing analysis, due diligence, risk management and regulatory compliance. It started really interesting, got really tough didn’t it? Matthew is the principal author of the ‘Australian Entertainment and Media Outlook’, the leading publication for the local sector, and is a frequent commentator in the media. Welcome Matthew.
Speaker - Matthew Liebmann
Hopefully my presentation doesn’t go like my profile and start interesting and taper off. [laugh] It starts with a picture so maybe… Thank you very much for having me along today. What I’d like to do is give a bit of an overview to Australia’s entertainment and media sector, to set this presentation in context and then start to look at some of the developments that we’ve seen, both locally and around the world in recent years, starting with convergence, which is a great buzz word, but then taking that to it’s next evolution around the concept of lifestyle media, and beyond that we will introduce the concept of a media marketplace which we call a Convergence Driven Business Model and, although I will talk about it in more detail later, I mean in terms of ‘business model’, a mechanism for exchange, so not just revenue or money changing hands. And finally we will look at some of the challenges and recommendations as they relate to collaboration and libraries.
But what I thought I’d do is start with a table and to show you the expenditure of entertainment and media in Australia over recent times, so from last calendar year, and then through to 2009. To give you an explanation of what the table shows, it’s consumer spending on access to content and advertising revenue. So I will give you a second to digest that but to just point out that the clear winners at this point are those driven by new technology. The internet, subscription TV and interactive gaming are the stars in the marketplace. But what I will do is flick the slide over and break this into its component parts because it’s a little more relevant to see where the ad dollars are going and, more importantly for this forum, where people are spending their time accessing news, information and entertainment.
So to start with consumer spending, we’re forecasting that over the next five years there will be compound annual growth of just over 8% and the consumer spending on content will rise from 11.3 billion dollars to 16 and a half billion dollars by 2009. We’ve dubbed the winners in this space the ‘quick’ and the ‘connected’. The ‘quick’ are those that have responded fast to technological advancements and the ‘connected’ is a reference in two parts. First of all connected by the internet, connected by technology and broadband and all that it promises, but just as importantly, connected to each other so that people can create communities with the people who own the content and with other people who are using it in social networks, and we will talk about that a bit later on.
In terms of the printed word, so we’ve again got the ‘quick’ and ‘connected’ being subscription TV, internet, interactive games. The printed word, being magazines, newspapers and books, are facing some challenge in this environment. In 2004 they represented about 38%, sorry 34% of the market share on the left there. By 2009 that will have fallen to 28%. So we’re seeing electronic media take market share points in terms of spending on content.
I will touch briefly on advertising, because as convergence has occurred the ability to get tailored advertising out there continues and it’s a fundamental part of the convergence model. What we’re seeing is that advertising will grow slower in this marketplace than people’s access and content and it’s a cyclical thing. We will find that people will embrace new forms of entertainment and media, there will be a bit of a lag and then the ad dollars will follow. And, as we’ve said there, the advertising always follows the eyes and the ears, so the growth in advertising is following the growth in broadband subscriptions and internet subscriptions, and market share points are being eroded from the traditional giants of entertainment and media. Free to air television and newspapers, you can see – free to air television being the big orange slice - is losing one percentage point and it shows that despite audience fragmentation, they’re still a giant, but their ad pie is slipping away slightly. Newspapers face greater challenges. They’re the big blue slice and in five years we’re expecting about four percentage points worth of market share to flow out.
But what I will do now is start to move into the concept of convergence and one of the things we will see around convergence is the slices of these pies will start to blur together and maybe one day we’ll see just one big colour. Looking at that, it will probably be a really nasty shade of brown with all of that merge. Hopefully though the concept of convergence and what it promises is a little more exciting than that.
What I’ve got up in the first bullet point there is a traditional definition of convergence. If I was to summarise it, what it says is we are going through a spurt of technological innovation and what that’s doing is collapsing the different channels and value chains of getting content to people in the one single delivery chain and so that people can access content through just about any network they want on to any device, and this has all be facilitated by broadband and internet protocol. For those people that own the content, they play the role of facilitators. They now make their content available in digitised form, and I thought Mary-Jane’s presentation was an excellent example of that. I will keep referring back to that because of some of the examples she showed through this presentation. But it also allows them to benefit by creating new business models, new ways of exchanging content back and forward with those people who want it. A risk, a challenge and an opportunity, I guess is that convergence now places the power with the people. They have the tools to now choose what they want, when they want and how they want and, increasingly, how they will pay for it, whether it’s with their time in terms of watching advertising, or money or some other means of exchange.
In terms of collaboration, what we’re seeing is that convergence creates social networks and by that what we’re talking about is the infrastructure that allows people who are separated by time and distance to interact with each other in areas that have mutual interest. An interesting statistic we’ve gotten from our US practice is that already almost 60% of all online teams have created a blog or a home page, or posted some original content or remixed content. So you’re seeing that level of interactivity that’s occurring as a result of convergence. But just as important - because when you see this new technology you think, ‘Ok we’re all going to be programming our own TV stations and radio stations, it will all be interactive going forward’ - is that convergence is a spectrum. And it allows people to have that truly passive experience that has been around and enjoyed for many years, the broadcast television model, reading a book for example, but it also allows them to dip into significant levels of interactivity. And that can be like an interactive game where you actually interact with the content, or it could again be interacting with other users and the people who own the content, and it’s up to the user to choose how far along that spectrum they want to be.
The way we’ve looked at convergence is that it’s a technological evolution, but if things are left to people in white coats there really isn’t that much engagement from the people at large, so what we’ve defined as lifestyle media is the consumer behaviour overlay to what convergence as a technology allows. Now, the definition is that it’s a personalised media experience wrapped up in a social context for participation. Now, if I was to give an example, I’d point back to Mary-Jane’s ‘Four Corners’ example. The personalised experience could range from the passive watching the programme in a broadcast sense, but it allows people to go online and dive down to depths that they choose to get additional news and information, and then through providing the forums for discussion we get the social context, the interaction between people. The characteristics that we see for lifestyle media are, well, the four of them up here. First of all it’s untethered and by that we mean it’s any time, any place, any device, any transaction.
In terms of ‘any time’, you can look at the Foxtel IQ personal video recorder or the whole concept of podcasting, which is listening to what was a live radio broadcast at your leisure at a later time.
‘Any place’ is around media server technology which allows you to take a piece of content and watch it on a handheld device or the TV or the internet.
The ‘any device’ is expanding at a rate of knots and in the last couple of years we’ve seen the introduction of mp3 players for music and PlayStation portable handheld devices which also show films and books and email and the like.
And ‘any transaction’ is a whole range of different ways that people exchange for content from traditional pay-per-use models to borrowing, to subscription models, to giving up their time in terms of watching an advertisement or interacting with an advertisement in return for content for free. So the options in terms of untethered are expanding day by day.
Another characteristic is that it’s participatory. It fosters communities and sharing and increasingly – and importantly - it gives them the tools to create, to share, to mix, to recommend the content that they want to interact with. Social networks like News Corp’s MySpace are examples of that and we can talk about that a little later on.
It’s also got to be dynamic, and by that we mean that it’s packaged up for the individual user and done in real time. So if I was to take a traditional media example I would be talking about a news broadcast made up of the stories that I as an individual want to see. And we’re already seeing examples of that online with some of the US networks, but I would imagine in your space it’s coming back with a package of results, a package of information and knowledge that is specifically targeted to the individual who put the search in so that the same search terms would yield different results based on that person’s interaction with your systems in the past. It’s hyperlinked and we know what hyperlinked means in the internet sense, a text-driven sense on the internet, but we’re increasingly seeing that there’s capacity to hyperlink video and that will be the next evolution.
So from where I sit in entertainment and media we’ve looked at mass media which is the one:many model and that’s been saturated, the free to air TV and the newspaper model. We’re seeing niches start to hit saturation. There’s some growth, but they’re starting to hit the long tail towards saturation. The growth is around a personalised one-on-one experience that facilitates social interaction.
Just to explain why lifestyle media has come to the rise, we’ve identified our key forces here. The first of them is that there are new distribution channels. Broadband really has been – well, it’s been around as a technology for a while. We’ve seen it as about two years old as a viable service in Australia since Telstra decreased their prices a couple of Februarys ago and everyone followed suit. That penetration broke what we called ‘the chicken and the egg cycle’, which is content owners didn’t want to put anything online because there was no one there for it and because there was no one – nothing there that was compelling in a rich media sense, nobody wanted to upgrade to dialup, but that value proposition has been altered and we now see broadband as being one of the drivers of convergence. But we’re also seeing mobile platforms, handheld devices and these are all helping to create lifestyle media, allowing people to consume what they want, when they want and how they want.
What we’re also seeing is new sources of content. Going back a few years, we only really thought of professionally created and published materials, feature films, books, music and the like. But now everyone can create their own content using relatively inexpensive digital technology. There’s blogging, internet home pages, creating your own home movies and digital still photos of the family that you want to share with people, and communities are increasingly banding together around that and creating opportunities themselves.
The internet has created new ways of interacting, the tools to create, share, mix and recommend, and finally we’re seeing new ways of actually locating content. Google has revolutionalised the concept of search and if you want to think of it in terms of advertising, internet search now as a technology, is about three to five years old and already earns more revenue than cinema advertising and pay TV advertising. The recent internet statistics suggest that overall internet advertising is fast approaching out of home advertising and radio. So if you take the premise that ad dollars follow the ears and the eyes you can see the strength of these is new search methodologies or technologies.
We’re also seeing around new ways of finding content the old idea of recommendations. The internet is allowing individuals to comment on the content they’ve purchased and used and pass that on. And if you think about where you place the greatest faith in finding out about content, news, information, just about anything, word of mouth from a trusted friend, family member carries a lot more weight than traditional advertising, and what we’re seeing here is the ability to recommend content is taking more weight than professional criticism. I could put that another way by giving you an example around Amazon. A couple of years ago you would go to Amazon and find a book. You would search and get the title. Now, or a couple of years after that, you’d go there and they’d find the publisher’s review for the book and now what they have is everyone who has read the book can post their own recommendation and we’re seeing that spectrum for people who want to place their faith in somebody who is paid to review entertainment and media, to people like them sharing their own experiences, and that's what we mean about recommendations.
And so these four forces act together to bridge what is really now an unlimited world of content that’s both professional and amateur-created, they’ve bridged that with the fact that consumers now have increasingly limited time and attention spans and that’s what these four forces point towards the concept of lifestyle media.
There are some new ways of dealing in this world that are different from what we were used to beforehand and the idea that success is driven by technology or product is a sure road to failure. It’s now about creating an experience. It’s about focussing on service rather than the product. It’s about relating to the individual, not the group and to do that, having both the matrix and the infrastructure to collect and process that information. It’s about an orchestration role rather than being a supplier, and to use Amazon again, they’re an orchestrator in that they provide the content, they will sell that entertainment and media product, but they also orchestrate the commentary, the recommendations that go through it, and in doing so they’ve provided a range of rich tools for everyday users to get on and participate there.
This diagram here, I guess, is probably the best illustration of collaboration in this lifestyle media environment. What it shows are the four key components: content, which you can see illustrated by music, photos, videos, other forms of entertainment and media; the consumer profile, that there’s rich data that knows how to treat these people as individuals; that there are the tools for them to search, configure, schedule as they want; and the range of devices that it can be served up to. So if you look at the blue lines, they represent professional content, what we’re used to coming from the centre out to individual users, but just as importantly now we’re seeing green lines of user-controlled content going into central repositories and being drawn upon by other users, so that there’s that sharing methodology and this has created what we’re calling a ‘pull oriented consumption model’.
This is now where entertainment and media content of all sorts is being demanded by the end user, not forced upon them. Now I would have to say, we haven’t seen this model in the idealised sense that we’re describing here. But there are different organisations that are moving along the path to this sort of idealised state. The internet aggregators like Bigpond, Yahoo and Nine MSN have strong search capabilities. They have user registrations, they provide a range of exchange models from paid through to advertising and they allow professional and user content to co-exist. So they touch a few of the bases and we’re seeing social networking sites like MySpace, which is owned by News Corp, with 57 million subscribers, again providing the tools for people to share their own entertainment and media content. And it’s an interesting model in that it started off as individuals, members of the public, coming up with their own home pages and increasingly we’re seeing professional entertainment and media providers, bands, film stars, and the like putting their own pages around it. So what started as a community environment and service has been coopted by professional entertainment and media providers.
Now there are certain requirements to facilitate this environment of exchange and collaboration. It needs an integrated delivery mechanism, which was another way of saying collapsing the different value chains and delivery chains into one so that consumers can get what they want, how they want it. Transactions need to be flexible. I think one of the things that piracy shows us is that people no longer place value on the entertainment and media content that they used to, or more to the point, they can get around it now. And maybe it’s a bit naive, but I have a sense that a lot of people who are stealing content would be willing to go to some sort of legitimate exchange, given the sort of service that they’re after, a valuable price or some other means of exchange. And by that I mean if as it takes the 30 or so seconds to download a song on iTunes instead of paying for the track, the $2 if you don’t want, you’re compelled to interact with an ad, to fill in a survey or the like - there’s an exchange that could be viable and sit parallel to a financial exchange.
The media marketplace does need community content to be co-mingled with professional content. It needs that social overlay. It needs to allow people to choose where on the spectrum of interactivity they want to play. A different business model so that people can interact both business to individuals, individuals to individuals, businesses to businesses. The data-centred part we’ve got here is absolutely critical. To offer the one-on-one experience you need to know who that individual is, not who that kind of person is, but they need to know you as a person and that creates it’s own challenges both in terms of defining the information that’s needed, being able to process it and then use it in an effective way.
It also then links to critical issues of privacy and security, and we’re seeing that become more and more important going forward. It needs robust search engines because people want to know how to get what they want as quickly as possible and it really is one of the strengths of Google. I don’t know whether you had the same experience as me, but when I first heard about Google it was all about how quickly the page comes up with the results and that’s about the robustness of the search engine and it needs also robust digital rights management. Now often DRM is thought of as a prohibitive technology but it’s really a facilitating technology. It’s all about what rules and rights you give somebody to use your content, so it shouldn’t just be seen as protection from piracy, it should be seen as allowing or giving permission, but also facilitating transactions.
One of the aspects we’re seeing which has a direct bearing on collaboration is the concept of the network effect, and every time I rehearsed this definition I stepped over it, so let’s see how we go. Basically the network effect says that the value a potential customer places on a good or service is dependent on the number of other people that are already there. I will put that another way, if you want to go on to iTunes, one of the strengths it gives you is that you will search for a song and it will say, ‘People who like this song like all these others.’ For that return to be meaningful and useful you want to know there are a lot of other people there, who are like you, who have gone through the system and who have given a recommendation that’s meaningful so when those songs pop up you know that it’s something that you might be interested in.
If you think of the number of times you’re on a web page and the advertising is completely irrelevant to you or what you’re doing at that time, it’s a turn off and you will find another service. So that’s sort of what the network effect is about. The other link to it though is if you’re the sort of person who wants to sit on the very interactive end of the spectrum and be able to talk and participate with other users, you want to know you’re not the only person in the room, so the network effect says that if I know there are millions of people like me out there, then I’m going to place more value on that particular web site, good or service than the one with two or three users.
There are a couple of roles that can be played in this media marketplace and one’s the internet aggregator. You see they have the user registrations, the search, the ad serving technology and they can play that broad horizontal role and, to the extent they can segment their entertainment and media content, they can play along various verticals, but the other role is for people with deep content in one area and a strong brand in that space who just pick one vertical and do it to the market leading best. Disney is a great example. Disney could provide a marketplace in this space for family content, but I would see that libraries can play in both these spaces. The wealth of information within the walls provides the horizontal space, the ability to segment allows you to go down in different verticals and serve sub networks.
But convergence and media marketplaces do create a range of challenges. What the internet now allows is for ease of search, organisation collection and, if necessary, the return of entertainment and media content. Services like Factiva allow access to a range of journals that can be provided to a person’s desktop at home without stepping foot out of their house. The internet provides a massive range of information, sources and media. Now that’s both a challenge but also an opportunity and I will touch on the opportunistic side of that in a second. It creates a whole range of different business models from borrow to buy and what have you and it also provides and facilitates that social network on a vast geographic dimension so that you can participate with content with people around the world and we are seeing services like Factiva, Google moving into video and looking to digitise books, and HarperCollins, one of the divisions of News Corp, looking to digitise new releases and sell them on a loan basis, on a temporary basis, as well as at full retail through book stores, both bricks and clicks.
The challenges come also with opportunities and some recommendations. The key thing is to play the role of facilitating knowledge sharing. You think of the Amazon example we gave earlier. There was the content, there were the professional reviewers and there was the opportunity for participation. Well, there’s the professional content in the libraries, the stuff that’s been produced by third parties. There’s the analysis from the librarians and the stuff and there’s a forum that could be created around people who frequent and use that information to create discussion and recommendations. Now one of the things the internet promises is the ability for people to bypass middle men, for record labels, films, book publishers, all the cut out retail stores and online stores and go straight to the end user.
And yet that hasn’t happened, and the reason for that is that a lot of the people who own this content have never had a conversation with the end user. They don’t know how to offer that personalised experience and so there is a role in this environment for an electronic middle man, and the best example there is Apple with iTunes and what they’ve done. They’ve stepped in, in an electronic environment and are now the retailer of music because they have been able to strike that one-on-one relationship with people in a way the labels haven’t. And there is a role, a similar role, for libraries in terms of knowing your customer, sorting through the vast amounts of information and making sense of it and providing recommendations that are meaningful.
The other recommendation is around building your own social networks. There are great opportunities for the libraries as a whole and in all the sub sectors of interest that occur here. It’s important to develop convergence-specific content and I think that ‘Four Corners’ example again was a prime example of not just taking the TV show and shoving it online or on mobile phones. It recognises there are different drivers and priorities and interests on different media and so coming up with that sort of content here is also vital.
What we also need to see is the ability to balance freedom and security. So I’ve talked, I guess, long and hard about creating networks and allowing people to manipulate the content, but a lot of content is copyrighted so it’s getting the sufficient rights that allow people to interact with that professional content as they want in a third party environment and just as critically as managing privacy and measurement expectations, because you need the rich data on the individual to provide the full range of services, but people are increasingly wary about parting with their knowledge.
Just in conclusion, what we’re seeing is the clock is ticking. First move is get the greatest number of registrations and customers. They can provide the deepest and richest experience and the faster they do that, the quicker they build up the loyalty which makes it harder for newcomers. So those people who move fastest are best positioned. What we see, if I was to summarise the key concepts here, is that convergence really is a bunch of guys in white coats inventing stuff. Lifestyle media is how people want to interact with that stuff and the media marketplace is how individuals are brought together with content owners for exchange.
There are a number of ways - in and of itself that is a collaborative chain - but there are a number of ways that libraries can interact with that, both in terms of facilitating content, enhancing the content and bringing people together. So it’s not an environment without its challenges but I think there are some significant opportunities and it will be interesting to watch how you guys progress as you go into the 21st century.
Transcript from the Libraries & Collaboration session of the Library of the 21st Century Symposium, State Library of Victoria, Thursday 23 February, 2006.