Visions of the future of “media”

One of the fastest changing industries is the one lumped together under that terrible label of “the media.” Newspapers, radio, TV, movies etc etc etc are rapidly undergoing transformation as the means of delivery shifts to digital. No one knows where the industry will end up. But as Sunday’s International Herald Tribune pointed out in a story “Road maps for the digital revolution”, there are some interesting ideas.
One alternative is increased interactivity – taking the lead from gaming (as I have talked about before):

To Gerhard Florin, the mass media empire of the future combines a phone company the size of Verizon with a search engine as popular as Google and a video game company with interactive content like the one he works for, Electronic Arts.
. . .
“Media companies should learn from games because we totally absorb our players,” he said. “Unlike music, for example, people playing our games are not also reading a newspaper.”
. . .
“You may be able to do everything online, but we find people are still very attached to the idea of getting something physical,” Florin said. “Downloading simply does not give people the same satisfaction.”<br.
Advertising would only be a minor source of revenue, mainly in the form of credible product placements.
“Our players react very strongly against obvious advertising,” Florin said. “But, interestingly, our players are quite positive about branded items placed in credible situations.”

Another alternative is localization:

The Internet may reduce the cost of distributing content on a global basis, but Michelle Guthrie, chief executive of the Asian broadcaster STAR Group, is convinced that the next-generation media empire will be built using highly localized content.
“I know this sounds strange in the era of global communication, but you can already see this localization trend among our viewers,” Guthrie said. “The top 10 television programs in every one of our markets are locally produced about local stories.”

And there is the rise of content-as-king:

Shelby Bonnie, chief executive of CNET Networks, a technology-focused online news organization claiming more than 110 million unique visitors a month, said future media empires would center more on a broad brand name than on a means of distribution.
. . .
“The successful media empire of the future will regularly send their audience to the best stories by their competitors,” Bonnie said. “The three-legged stool of content will be original, user-generated and aggregated.”

Interesting ideas. And all very important for those in the “media” industry.
But we will see if any of them matters, at least to the end user. Remember TV was supposed to transform our lives. It did transform popular culture – but created what was labeled a “vast wasteland“. Likewise cable was to give us expanded choices. But, as Bruce Springsteen said “57 Channels (And Nothin’ On).”
As much as I like the “new media”, sometimes the old visions are best. Over 30 years ago, Isaac Asimov wrote an essay entitled “The Ancient and the Ultimate” where he described the ultimate self-contained, portable, high-tech reading device of the future. You guessed it, it is the book.
So put me down as enjoying the old fashioned pleasure of a roaring fire, a stiff drink and a good book.

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Music industry’s new model – update

Monika Ermert has posted a great summary of the state of play on P2P music downloads on Intellectual Property Watch: “After Grokster, Industry Seeks Legal P2P As Mobile Music Takes Over”.
The title says it all: legal P2P systems and mobile music:

Now industry is looking for the next model, one that will meet demand within the confines of the legal and policy environment which itself is changing.
There is a whole array of P2P services in the making, as British music consultancy MusicAlly found out in a study presented at Midem. “Most of these services have been around for several years already preparing for a start,” says Paul Brindley, managing director of MusicAlly. “If they do not start this year, it is over.”
. . .
The music industry, on the other hand, seems to place its hope on a different technology. The Midemnet in Cannes devoted a whole day of discussion to mobile music. “Mobile music may solve the piracy problem,” said Brazilian lawyer Marcelo Goyanes. “Mobile might be the saviour of the music industry in China,” added Richard Robinson, co-founder of Shanghai ISP and mobile content provider Linktone.
While the CD and Internet music market was 90 percent pirated, this was yet no problem with mobile phones. The combination of fast-growing numbers of handsets in countries like China (400 million), India (over 80 million) and Brazil (86 million) and a nearly piracy-free technology makes mobile very attractive.

The ongoing conductivity part sounds similar to the interaction model of gaming that has cutting down on video-game piracy (see my earlier posting). I’m not sure that the technology can be made piracy-proof, but if the nature of the commercial interaction is “right-now, just-for-me” it seem hard to see how pirates have an advantage. Unless of course the music industry follows to old movie industry practice of limiting initial distribution — there is a reason why all those pirated videos are in hot demand and it has to do with availability well before the “official” video release, not just price. Interestingly we are now seeing movies with simultaneous release in multiple formats. Someone is learning that in the digital age, more (distribution channels) is better.

What happened to growth

This morning’s GDP numbers for the 4th quarter of 2005 were quite a shock: growth slowed to 1.1% (a rate we used to call a “growth recession” — still positive but not enought absorb the growing population). According to the BEA News Release: Gross Domestic Product:

The deceleration in real GDP growth in the fourth quarter primarily reflected a deceleration in PCE [personal consumption expenditures], an acceleration in imports, a downturn in federal government spending, and decelerations in equipment and software and in residential fixed investment that were partly offset by an upturn in private inventory investment.

Much of this was a large decline in purchases of durable goods (-17.5%) – especially autos. Spending on non-durable goods and services both increased (5.1% and 3.2% respectively). However, the biggest increase in services was in health care — not necessarily a good sign from long term growth.
And while the trade figures for only two of the three months of the quarter are out, BEA estimates there will be a decline in services exports for the quarter.
One worrisome part is the slow down in investment by businesses in equipment and software — down to only 3.5% compared to 10.6%. Most of that slow down was due to an absolute decline in purchasing of transportation equipment, but investments in IT equipment and software and in industrial equipment slowed slightly as well.
The stock market shrugged off the news but economists reactions were mixed. Some forecast high, rebound-type growth in the first quarter of 2006. Others predicted a continuing slow trend. Some even questioned the number, since this is the advanced estimate, and expect large revisions once more data is available.
I try not to read too much into a single data point. However, the projected decline in services exports will bear watching. This may be due to a decrease in tourism and travel – or due to a decline in our intangibles trade balance. Monthly trade figures for Dec 2005 (and consequently for the entire year) come out on Feb 10. I will be looking carefully at that data to see how our intangibles trade is holding up.

Competitiveness plans

Yesterday, a bipartisan group of Senators unveiled major competitiveness legislation. Entitled PACE – Protecting America’s Competitive Edge, the legislation was crafted by Senators Bingaman, Alexander, Domenici and Mikulski. This set of three bills implements the recommendations of the recent NAS report “Rising Above the Gathering Storm” (which Bingaman and Alexander were instrumental in bringing about). The legislation includes provisions to increase funding for science and math education (including better training for teachers) and for energy research and development (including creation of a new agency in the Department of Energy similar to the Defense Advanced Research Project Agency – the famed DARPA). The legislative package also expands the R&D tax credit and, more importantly in my mind, creates a tax-credit for providing continuing education to current workers (rather than waiting for them to lose their jobs before they can get job training help).
This is the second major competitiveness bill. Late last year, Senators Ensign and Lieberman introduced the National Innovation Act of 2005 (S.2109) – which tracked the recommendations of the Council on Competitiveness’s National Innovation Initiative.
Adding to the mix, earlier in the week, the Democratic Governors Association unveiled its “America Competes” plan
While I think these proposals are incomplete, they are steps in the right direction. One provision in the PACE package that may sow the seeds for greater progress in the future is an OMB and Treasury Department study on innovation incentives. Such a study could lay the groundwork for a much more comprehensive approach to innovation policy
I don’t know whether to be optimistic or pessimistic about these initiatives. The growing drum beat over competitiveness is heartening. And the PACE legislation has the best chance of serving as a engine to get something through the Congress – since at its core is a set of energy policy proposals that are co-sponsored by both the Chairman and the Ranking Member of the Senate Energy Committee. Getting these big packages passed requires some sort of legislative vehicle. The last time Congress did a big competitiveness package, the engine was the need to give the President trade negotiating authority (which culminated in the creation of the WTO). This time energy policy, rather than trade policy, might be the spur.
However, a lot will depend on how the President reacts. Next weeks State of the Union address will be critical. There are some indications that the President will address these competitiveness issues – or so says a recent story in the Baltimore Sun “Bush weighs costs to U.S. of keeping up”. In a recent interview with the Wall Street Journal, the President talked about competitiveness:

WSJ: Is competitiveness going to become more of a theme for you in this year?
Mr. Bush: Competitiveness has always been a theme for me, and I’m going to continue to make it one. Remember, in the campaign, I used to say, “How do you deal with jobs going overseas? Make America the best place in the world to do business.” That is a competitiveness theme that basically says I recognize that we’ve got to compete. And we have a global economy. Some wish there wasn’t a global economy, but there is a global economy. And we’ve got to have our young trained for the jobs of the 21st century or else [the jobs are] going to go somewhere else. That’s what happens in a global economy. And there’s been some interesting — there is an interesting debate in America about, well, how do you react to a global economy? There are some who say, let’s protect ourselves. And as you know, I believe in opening markets and enforcing trade law, which is the opposite of “let’s protect ourselves.” It’s “let’s compete, and by the way, let’s make sure we have an environment within America that enables us to be competitive.”

On the other hand, Bush’s energy message could veer off into a messy fight over a plan to reprocess used nuclear fuel, as reported in today’s Washington Post and Wall Street Journal. That fight could obscure other energy technology issues in a battle over nuclear waste and proliferation.
Presidential policy could also bog things down. Yesterday, Senator Clinton introduced her own energy technology bill – S. 2196 – to create an Assistant Secretary for Advanced Energy Research, Technology Development, and Deployment.
Like everyone else in Washington, I will be looking at the State of the Union address carefully – reading the tea leaves see the direction of our policy. More on my findings later

Power of ringtones to change the music market

This little story in today’s Wall Street Journal underscores the dynamics of the music market today:
WSJ.com – How Cellphones Saved the Radio Star

The mobile-phone ring tone was more important in propelling Madonna’s hit single “Hung Up” to the top of the charts than radio airplay, said a senior executive at Madonna’s recording company, Warner Music Group Corp.
. . .
“I think it’s not inaccurate to say that the mobile campaign, and the ring tone in particular, was more effective in launching the single than radio airplay,” said Michael Nash, a senior vice president at Warner Music.
. . .
The growing importance of ring tones, along with other digital music products, is prompting changes in the way music companies identify new artists and bands and market music to consumers. Mr. Nash said the ring tone is now becoming a central part of the marketing strategy for an album or single.
He said Warner Music has charged its staff responsible for signing and managing artists with creating content in the studio that works as part of a whole digital package.
The International Federation of the Phonographic Industry said mobile phones accounted for nearly 40% of digital-music sales in the first major year that full songs were available over the mobile phone. Ring tones account for by far the largest portion of mobile-phone music revenue, according to research released by Informa PLC.

As I’ve pointed out before, the rise of digital technology is forcing the music industry to find new business models. It appears that innovation and creating new markets (rather than criminalizing users) might just be the future salvation of industry.

Invention of the automobile – and competitive advantage

This Sunday is a special day in the history of the world (no, the Super Bowl is the next week). As Business Week explains:

The automobile celebrates its 120th birthday on January 29, 2006, the anniversary of the date in 1886 on which Karl Benz applied for a patent for his motorized vehicle. With the German Reich Patent No. 37435a, granted in November of the same year, his Patent Motor Car, as this three-wheeled vehicle has since been known, received official recognition as the world’s first automobile. It was the individualized technology that secured the Benz Patent Motor Car this status. Unlike other inventors, Benz did not merely install an internal combustion engine into an existing coach chassis, thereby making it capable of autonomous motion (Greek/latin: auto/mobil). His design extended to the entire vehicle: It was quite clear to him that a vehicle powered by an internal combustion engine was subject to engineering principles quite different from those applying to a horse-drawn carriage.

And I suppose you are one of those who, like me, were taught that Henry Ford invented the automobile.
Ford didn’t invent it. What Ford did was much more important. He commercialized the auto through a series of innovations – technical, organization and financial. Before Ford, the automobile was a rich-man’s toy; after Ford it was an everyday item. Mass produced to be cheap enough to be affordable by all. Simple yet strong enough to replace the horse for rural travel. Economically dynamic with linkages throughout the economy to help create the massive middle class.
As this history lessen shows, invention or great technical ideas are not enough. There is more to innovation than a smart engineer.
Now, if we can just get our policymakers to understand that lesson they might be able to craft a complete innovation policy.

Ford and our bankrupt economic policy

Two side notes to Ford’s announcement of drastic cut backs illustrate how our economic thinking and economic policy is bankrupt.
The first is the failure of the American Job – NOT – Creation Act – some thing I’ve discussed before. As Allan Sloan points out – Ford Takes a Tax Holiday for ‘Jobs Creation’:

Right there, on page 2 of one of its news releases yesterday, Ford said that “repatriation of foreign earnings pursuant to the American Jobs Creation Act of 2004 resulted in a permanent tax savings of about $250 million.”
Hello? How can you simultaneously cut jobs and benefit from the American Jobs Creation Act? Welcome to the wonderful world of Washington nomenclature.
Ford, understandably, declined to expand on its news release. But my calculations indicate that Ford last year brought into the United States about $850 million of profit that it had earned overseas but did not have to share with the Internal Revenue Service.
Let me hasten to say that I’ve got no problem with Ford bringing this money home. Ford is battling for survival, and every $850 million helps. It would have been remiss not to have taken advantage of the idiotic legislation that Congress adopted and that President Bush signed despite objections from his Treasury Department and Council of Economic Advisers.
My problem is with the legislation, and especially with its misleading name. Companies don’t add jobs based on one-time chances to repatriate money from overseas.

Yet – that is exactly what our political leaders seem to think.
Nor do state tax breaks help. The Hazelwood plant is one of the plants scheduled to be shut, according to yesterday’s announcement. Hazelwood had been targeted in earlier cutbacks. But, workers tried to turn the situation around. State and local governments also put up $17 million in incentives, according to a story in today’s Washington Post – “Workers Lament a Plant’s Falling Star”. It worked for awhile, but …

just last month, with workers still motivated to save their jobs, the factory was named the highest-quality Ford plant in North America and the one with the best cost controls, according to union and management officials.
. . .
After winning the two Ford performance awards, employees joked darkly that the company forgot to send the third award, the one for best plant closing.

One wonders why Ford was giving out these awards. Quality is no longer a competitive advantage. It is a minimal standard to stay in the game. And efficient mass production is no longer the name of the game. It too is a basic criterion.
Ford – and the rest of the country – needs to re-think its economic strategy. Quickly.