Who’s going to pay? (part 1)Posted: February 25, 2013
This is the first in a series of short essays looking at the problems involved in paying for modern entertainment content. Obviously the consumer, eventually, pays, every time. This exercise is about whose hands their money passes through, and whose bank account the cash finally resides in. This first essay introduces a model and looks, briefly and incompletely, at recent history.
I have a simplified model of the entertainment content industry, it has only 3 elements, the content itself, the necessary infrastructure and a monetisation scheme. It looks like this.
According to this model, infrastructure is the fundamental article of change. I use the term nebulously to include some things that perhaps are not traditionally labelled as infrastructure. So, for example I refer to the burgeoning camera, recording and projection technology that launched the Hollywood we all know and love as infrastructure, even though I realise that this is not a perfect descriptor. Infrastructure broadly covers 3 disciplines. Making content, distributing content and consuming content.
Infrastructure is the fundamental element of change because transformations in the infrastructure lead innovations across the whole industry. As a result infrastructure changes also lead to innovations and adaptations on both sides of the money structures, covering both costs and revenues.
Of course, somehow or other, money has to be extracted from the customers. This, therefore, is the acute part of the model, where business success or failure resides and where the motivation for competitive dynamics comes from.
Understanding the interplay between these 3 elements, historically, can help us make some predictions about what is going to happen as the current turf war plays out.
This is a broad brush strokes model and I’m sure there will be some elements that cause difficulties at the more granular levels but as a fairly high abstraction it is a useful way of looking at these businesses and how they exchange power amongst the key players.
Hollywood (the golden age)
As a consequence of there being less enabling technology available during the golden age it is the most straightforward of the examples we will look at. It has been said that it was a simpler time, and in this case that is certainly true.
The studios hired the writers, the actors, directors and cameramen et al, and they also owned and operated the sound stages and hired the locations used to make the movies as well as the technology itself, from the camera’s to the editing rooms, and everything else in between.
In an early and effective example of vertical integration they also owned the infrastructure for distribution and consumption, the cinemas and drive in theatres that people visited to consume the movies.
Monetisation is always tied to the infrastructure…somehow or other. In this case monetisation, was actioned through the theatres. Access to the customer’s wallet occurred at the point of delivery, and that point of delivery occurred on land owned by the content makers.
As a result the consumption infrastructure, the cinemas, had a very important role, in some ways the most important role, the collection of the cash.
The model was simple, the market was limited and controllable and there was no tension, no conflict over ownership, as everything was owned by one business lobby, the studios themselves. Obviously there was significant competition between the studios, but in stark contrast to today’s world there was no conflict over which industry group was able to take the money from the customer.
This happy scenario lasted until 1948 when anti-trust laws were brought to bear forcing a separation of these 2 business structures, and studios were forced to divest their theatre chains.
Content and monetisation still needed to work well together, (they were after all in a mutually dependable relationship), as the cinemas needed good movies, while good movies needed an audience. Both of these, now separate, industries owned fundamental parts of the infrastructure. There was a forced synergy and an effective, functional, detente.
Television introduced some pretty knotty complications.
The infrastructure requirements changed a great deal, although not uniformly across our 3 infrastructure categories. The technology for making moving pictures (the content) did not change much. It got better, TV eventually went from black and white to colour but fundamentally there were no paradigm shifting breakthroughs.
The same was not true for either the distribution or the consumption infrastructures.
We all know how enormous an event the arrival of TV was. The delivery of moving pictures into the household was a huge event in the modern history of the human race. As such it is no accident that TV was originally, largely, a governmental endeavour.
I sometimes think we miss quite how impressive TV’s arrival was from an engineering perspective. We take ubiquitous industrial communication infrastructure for granted today without even a second glance. But back when TV was being turned into a mass market product, all of a sudden the new commercial entities needed to build out networks of distribution (broadcasting nodes etc) at industrial scales, and build wholesale and retail businesses that would put reception technology (the TV’s themselves) into homes. Broadcasting was not a small town theatre with 200 seats, it was big engineering, big technology.
The infrastructure required for TV marked the arrival of an industrial scale in the entertainment content game, and this, of course, made the thorny problem of cash extraction anything but simple.
In the UK the government adopted a scheme for licensing TV’s in exchange for cold hard cash, while in the US the problem was solved when advertising was made legal in 1941. In both countries the monetisation schemes came in exchange for a public service obligation, delivered by the new TV companies.
The content production business also changed. With the entrance of the TV networks as original creative producers, alongside the Hollywood studios. For the first time Hollywood had competition for the production of moving pictures. There was, fortunately, significant clear water between the format of big international movies and say Dixon of Dock Green so it wasn’t particularly difficult for them to live together.
Part of the reason for this was that they relied on entirely separate monetisation schemes, based on entirely separate consumption and broadcast infrastructure.
Satellite and Cable TV (1970….)
The next change in my little (and highly incomplete) trawl of broadcast history was the arrival of yet newer methods for distributing the content. Instead of broadcasting via radio waves we were now able to dig up the ground, to make a physical connection to the household directly via cables or to utilise the newly burgeoning satellite technology with consumers required to buy a satellite receiver alongside the television itself.
As with the original arrival of TV these new technical paradigms forced changes in the other parts of the model.
Consumption was still exclusively via television sets, so that didn’t change much (although some people needed access to the kit required to receive satellite, as mentioned above, which was easy enough actually). But the creation of privately owned distribution technology (cable or commercial access to the satellite network) meant that the monetisation model could now be stretched to a subscription basis. Because the delivery was via infrastructure which was privately owned, as opposed to being flung over the very public airwaves, a connection could come with a simply stated price.
The subscription model meant that the content production part of the equation could, via the proliferation of channels with built-in discrete payment mechanics, produce content for specific and tailored audiences. This changed the dynamics governing what content could be made profitably.
As a result the subscription mechanic is responsible for many of the innovations in content over the years.
Big sport became big TV. In 1975 the thriller in Manila opened up the opportunity of appointment viewing for big sporting events, and boxing indeed spent many years as a staple of the cable/satellite distribution companies, the payment model being stable enough for big revenue shares to include this new class of content producers (the sporting federations) and the cable networks as well.
Movies also went through a number of innovations. Terrestrial TV had been broadcasting Hollywood’s movies for some years, but on a very different timeline, controlled by Hollywood, designed to protect Hollywood revenues. It could be years before big movies came to TV.
Subscription models led to the creation of movie specific channels, creating a new tier in the timed release schedules (Cinema, Pay for cable (individual movies), pay for cable (movie channels), terrestrial TV). This of course is very much like the publishing industry’s delivery of hardbacks and paperbacks with staggered release schedules.
Finally, the new cable and satellite companies, of course, also became content producers, alongside Hollywood and the terrestrial TV companies. In stark contrast to the existing TV networks the new players, in the late eighties, started to compete, incompletely, with Hollywood, introducing the made for TV movie concept. They also started to produce quality programming, drama and comedy series, alongside appointment viewing specials (comedy, music and sport).
Even though control was diffusing, the number of significant players increasing and competitive overlap becoming more likely, the 3 elements of the ‘moving picture’ industry (Hollywood, TV, cable) were still able to live alongside each other. The next infrastructural change would not be so kind. The internet, as we all know is not respectful, of incumbent industries.
We have seen how infrastructure is always tied to monetisation. Which, unsurprisingly explains why businesses want to manage, or at least have significant influence over, the control of it. We are, probably, all familiar with the phrase ‘content is king’ , I rather like the addendum , ‘distribution is King Kong’.
The 2nd essay will look in some depth at how the internet has changed the picture.