How was it that while monstrous, heavyweight dinosaurs perished, smaller and more adaptive mammals survived? And with change all around us, how can we in the media and entertainment business be similarly nimble survivors — escaping the "tar pits" and going on to thrive?
I know what you're thinking. This analogy has been around since, well, the dinosaurs. But before you groan and stop reading, bear with me.
Dinosaurs roamed the earth for more than 100 million years, and during that time, they evolved as their environment changed. That evolution was a natural progression, a gradual transition from one period to the next. The changes were significant to be sure, but they didn't happen suddenly.
Then, as the prevailing theory goes, along came a meteorite, the impact of which blocked out the sun and drastically changed the dinosaurs' way of life. The things they did to thrive before no longer worked. At that point, it was truly adapt or die. And many of the heavyweight dinosaurs didn't adapt. So ended the Mesozoic Era — the age of the dinosaurs — and newly evolved and agile forms of life took over in the Cenozoic.
There are several reasons the dinosaurs didn't survive. But what's worth noting is why other species did. That's where the real lesson lies. More on that later.
Obviously the age of the dinosaur is akin to the life of the traditional media and entertainment industry in this time-worn analogy. The technology shifts we've been experiencing in the past few decades — the move from analog to digital, the move from SD to HD — are like the gradual transitions the dinosaurs went through. Today we're on the edge of the Mesozoic and Cenozoic eras. We're facing a meteorite, and the survivors, those who adapt, will enter an age of new life, while the others will die.
The media industry's meteorite
The reason for that monumental change — the meteorite — is a fundamental shift in the economics and behaviors in the media business happening simultaneously. Consider this combination of factors:
Falling ad revenue. The traditional economic model, revenue driven by advertising, is under pressure. Linear ad prices rose steadily for many years, but over the past four years, both the cost of linear advertising and its return on investment have been dropping. People thought that digital advertising would eventually make up for the losses related to linear ads, but it hasn't happened. Instead viewer behavior, such as skipping ads and using ad blockers, is driving down the ROI for digital ads too. And lower ROI means fewer advertisers and less ad revenue.
More competition. Traditional networks and content producers face tremendous competition from over-the-top (OTT) content producers such as Netflix and Amazon. For instance, in 2016, Netflix spent about $5 billion on content alone. Such massive amounts of content create almost unfathomable competition.
Higher costs. Content that draws and retains broad audiences is increasingly more expensive to make. Back in the day, "The Sopranos" cost about $2 million per episode. Today, thanks in part to talent costs, Netflix spends about $5 million per episode on "House of Cards" and upwards of $15 million for an episode of "The Crown." HBO's "Game of Thrones" episodes are each $10 million plus.
Decreased longevity. With all the competition for eyeballs, it's getting harder and harder to keep viewers coming back to these shows for extended periods.
How viewers consume content. Gone are the days when you could pass content to traditional broadcasters and have them handle the rights for you, or pass your content to cable or satellite operators and have them sell it as part of a bundle. Now not only do you have to do those things, but you've got to be a part of a skinny bundle; put your content on platforms like Hulu and Sling; and perhaps even create your own OTT model and run your own ecosystem. And let's not forget social and mobile platforms.
The need to know your audience. Media companies, i.e., content owners and rights holders, must understand their customers in ways they never did before — so they can connect with those customers in ways they never did before. Instead of relying on data abstracted from Nielson or Ofcom or set-top boxes, you have to build direct relationships with your viewers to gather in-depth data about their interests and viewing behavior. That data will influence everything you do.
All those factors swirling around together add up to a perfect storm. Not a gradual periodic change, but an epochal change in the way media companies — and technology providers — do business. A potential meteorite.
At the same time, media companies can't drop the traditional mission on which the business was built. Balancing the two will be quite difficult.
So what's a media company to do? Deserve, not preserve.
You must work proactively to account for all the factors above, rather than just resting on laurels and protecting the current business model. In other words, work to deserve, not preserve, your profit streams. This is no time for complacency. After all, complacency didn't work out so well for the dinosaurs.
Deserving your viewers means:
Reaching every single customer. You can't make a $12 million episode and miss the chance to sell it to somebody, so you must promote, test and do everything possible to reach new audiences. For example, in promoting "The Crown," Netflix gave away free subscriptions to readers of Radio Times, a traditional broadcast-listings publication. The aim was to attract consumers from outside of Netflix's core demographic, royal-watchers who would come for "The Crown" and stick around once they saw everything else that's available.
Targeted promotions that meet viewers where they are can be quite effective. How amazing is it that The Wall Street Journal, one of the more traditional news outlets in the world, just hired a team of people to do nothing but create, curate and editorialize content for Snapchat? Or that the New York Times has a virtual reality app that is attracting and retaining teenagers? In both cases, traditional media companies have invented demographic-busting ways to reach new customers.
A big part of reaching every customer is discovery. Customers — and potential customers — must be able to find your content. Because if they can't find it, you won't profit. An important aspect of discovery is using what you know about each viewer to help them find content they didn't even know they wanted.
Ripping out costs. When you're going after every possible consumer in every possible market, no matter how small, cutting costs is the only way to serve them all profitably. For example, perhaps you forego paying someone to eyeball-QC the content in some markets, especially if it's going to mobile devices where missing pixels are far less noticeable. Trimming away nonessential items means more revenue.
Retaining viewers. Sustained engagement is crucial. It starts with the first interaction with your brand, whether it's a trailer on YouTube, a promo on social media or even an ad on linear television, and continues based on the quality of your content. This is also where knowing your customers comes in. You can use the data you collect to help keep them coming back.
Managing your rights. Be very deliberate and quick about managing content rights across your entire ecosystem, your entire set of platforms and the entire life cycle of the content, so that you can capture every possible dollar from its use.
If you master those four Rs — reach, rip, retain and rights — you'll be on your way to thriving in the next era.
Survival tactics that saved some species
Here's where I go back to the dinosaur analogy and turn it around a bit. Scientists discovered certain actions that were common among species that survived the meteorite: They ate less, ran faster, formed packs and became better at hunting and foraging. These tactics are instructive for everyone in the media business. They represent small steps that everyone can take.
For example, technology providers that serve the media companies also have a role to play. Whether you're a disruptive or a traditional technology provider, you can apply these tactics in your own business to help your customers survive and adapt in the new era:
- Eat less. Embrace agile software over cumbersome documentation. Nurture people and relationships over process and tools.
- Run faster. Continuously deliver - shorten development cycles to become more agile. Get them down to weeks or days, not 9 or 18 months.
- Form packs. Make APIs available. Forge alliances and partnerships with other providers with complementary technology to form better solutions.
- Hunt and forage. Hunt and succeed the competition. Hunt for talent. Forage for IP and other things that you can protect with patents.
Be aggressive about finding ways to grow and do things differently. Do something new every day. Shake your organization out of its paradigm. Shake yourself out of your malaise. All with the aim of continually getting better at what you do.
Media companies/content owners are facing the most challenging period in their history, between the unparalleled rise in content competition, the need to manage multiple platforms and an absolute imperative to understand consumers at an unprecedented level. No one has all the answers, but one thing is for certain: Traditional media companies — and their technology suppliers — must figure out how to behave and run in radically different ways. In doing so, they will survive the meteorite and thrive in the next era of media.
Harris Morris is CEO of Wazee Digital.