Digital Tonto: The new media value chain

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April 26, 2012, 11:02 a.m. | Op-ed — by Greg Satell

Greg Satell

“What’s that word again that you used for stealing content” my newspaper editor friend asked me? “Curation” I said, “and it’s not stealing content.” I had that conversation a few years ago, but the debate is still raging. SOPA was killed, but is now reborn as CISPA. Rupert Murdoch has called Google a piracy leader, while Neil Young has said that piracy is the new radio. What’s going on?

It seems to me that at the heart of the controversy is a fundamental shift in the value of information. It used to be scarce, but now we’re drowning in it. That’s creating a fundamental shift in the economics of media. Therefore, the the answer lies not only in product innovation, but business model innovation, which is even harder.

When content was king

Until the ‘80’s, content was truly king. There were relatively few TV channels, some magazines with a wide national audience and one or two newspapers along with a handful of radio stations in each market. In other words, there wasn’t a whole lot of choice.

To get an idea of how much has changed, take a look at TV ratings from 25 years ago:

Now look at some recent ratings:

Compare the two charts and a few things should become clear. Firstly, live television events aggregate audiences these days. Secondly, the top programmed content garners only about one third of what it used to (All in the Family’s” audience would be equivalent to a 30 rating). That’s not because people watch less TV (actually they watch more), there’s just more choices.

Trends in other media are similar. Newspapers no longer have a monopoly on local journalism, local radio stations now must compete with satellite radio and apps like Spotify and Pandora, magazines have metastasized and now compete with blogs for niche readers.

Another big difference is that media companies in the old days controlled, to a large extent, both content and distribution. The Internet has made access universal and, as the latest cord cutting data shows, even cable companies are losing control over consumer access.

Everywhere you look, media is multiplying and fragmenting. Media empires aren’t what they used to be and the barbarians are at the gate.

The filter economy

The media trends are part of a larger phenomenon. Information itself is exploding. EMC reports that the world’s data is doubling every two years and by 2020 we will be generating 50 times as much of it as we do today. Scarcity isn’t the problem anymore, overabundance is.

With so much data, it should be no surprise that filters have become central to the ecosystem. Search engines, of course, have become a multi-billion dollar business. Recommendation engines, such as Yelp and TripAdvisor are becoming an important force as well.

Back in the old days of media media was limited and therefore broadly targeted. You watched, read and listened to pretty much what everybody else did and media were targeted broadly. These days, media a relatively niche and we depend on communities to help us filter.

That’s why curation has become such a powerful form of expression. People do it on Facebook, Twitter and blogs, but sites like RealClearPolitics and The Atlantic Wire have made it their Raison d’être. Even Rupert Murdoch does it in places like AllThingsDigital’s “Voices” section (which is excellent, by the way.)

Facing reality

While curation is not exactly new, the Internet has put it on steroids and it has serious economic value. A relatively small percentage of any site’s traffic arrives directly. The vast majority comes through search engines like Google and reference links on other sites. Pinterest, for example, has become a major traffic generator for retailers.

So why the hubbub? Why is there so much controversy over something that actually sends you consumers for and doesn’t charge you a dime? What I really think is causing the uproar is the loss of control over the value chain. Content creators have lost, to a great extent, direct access to consumers.

Unfortunately, in a semantic economy, that’s becoming a fact of life and not just for media. Uncertainty, rather thancertainty, has become the new normal. For better or worse we now live in a world where information is free, incumbency has been devalued and control is an illusion.

Business models old and new

In the old days, media was pretty simple. You paid a certain amount for content, which attracted a certain level of audience that was worth a certain amount. You made your profit by maximizing the difference between what you paid for the content and what advertisers would pay you for the audience.

To a certain degree, that still holds. Media companies earn a lot of money from advertising. However, with the supply of content rapidly expanding and the demand for eyeballs somewhat mitigated by brands own content efforts, the model has begun to fray at edges. However, just as old opportunities are fading, new ones are exploding.

Where newspapers have failed, the Huffington post has succeeded. While demand for traditional advertising may be in doubt, marketers have a new need for consumer engagement. Where we used to create programming, now we have the opportunity to build whole content ecosystems.

The problem, of course, is that none of those things make nearly as much money as the traditional model yet. They are, from a profit perspective, crappy.

Finding an answer

Clearly, every media company needs to think seriously about innovating their business model. However, the key to making the change is understanding that not everyone will prosper with the same one and they won’t fall into simple categories like TV, Magazines, Radio and so on.

Having spent most of my career in emerging markets, I have a unique perspective on this. Every time I went to a new country to work in an industry that I thought I knew, I found a business that I didn’t quite recognize. At first I was dismissive, then annoyed, then interested and finally I embraced it.

Business model innovation is, after all, crappy innovation. It doesn’t arrive clean and shiny on the doorstep, but comes in the guise of a carpetbagger. It requires trial and error, lots of failure and years before it will make a material impact on a large business. The only thing we truly know about the future is that it won’t look like the past.

As Socrates said, “the only true knowledge lies in knowing that you know nothing.”

Greg Satell is a U.S.-based independent media analyst.You can read his blog entries at
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