The Digital Analyst

What came first – the chicken or the egg?  Rhetorical and slightly annoying, but I think the question addresses a concept that is too often overlooked when analyzing our adoption of digital media.  Thinking about the devices through which we experience media can help us better understand our relationship with that media and the direction that media industries are heading.

First, let’s take a look at the evolution of the music experience.  The 20th century was dominated by the album and the record companies optimized the production and profit they could extract from that media experience, whether it was from vinyl records, cassette tapes or CDs.  These types of physical media enabled musicians to sell collections of their music, which was considerably easier and generated more revenue than selling each song individually.

When people began transferring their music collections onto their computers and eventually their MP3 players, the organization and experience of music changed forever.  The computer enabled you to collect and instantly play music across a number of albums on a single device.  Creating playlists also changes the musical media experience and helped us become accustomed to listening to songs individually instead of in the experience of an album.  Radio also has this effect on our interest in single tracks, but organizing playlists on the computer is a more personal and conscious behavior than passively listening to a radio station that might or might not play a song you enjoy.

By all accounts, the music industry has largely failed to recognize these shifts in consumption preferences and are clinging to old business models that will never produce the same results because even if every file-sharer began purchasing all of their music digitally, they’d likely purchase individual songs, which is not as valuable as someone who purchases a $18 CD.  The good news, in my opinion, is that the music industry does have a chance to regroup and adapt to the new marketplace because I do not foresee another major shift in consumption habits for quite some time.  I think the music industry’s revenues can slowly climb back if they begin embracing multiple digital monetization strategies, but I have very strong doubts they will ever climb back to their once lofty perch.

The music industry was forced through the growing pains of digitization faster than any other entertainment media because the software for building digital music collections on PCs was developed very early on.  Playing them on MP3 players, lead by the earliest iPods, became a very easy behavior for the public to embrace because they were already used to interfacing with portable tape and CD players.

File-sharing has had such a strong impact on the music industry because of their inability to adapt their distribution and profit models to new consumption habits.  Napster, Kazaa, Limewire and later BitTorrent were the only ways for early adopters to fill their MP3 players easily with music they didn’t have on CD and this eventually conditioned a culture that devalues the price of digital media.  Why pay $18 for a CD when you can borrow it from another willing party on a permanent basis?  Copyright infringement does not resonate with the common person and file-sharing can quickly turn into a Robin Hood kind of situation with pirates stealing from the mighty entertainment industry to give to the poor students and young adults who can’t afford to buy their entertainment.

I see hope for the long-form video industries though because TV shows and movies have not yet been optimized for mass digital consumption.  I say that because the TV is one of the most uniquely important devices in our lives.  As a technology, we have become very comfortable with the TV and with time our expectations surrounding the experience a TV delivers has increased dramatically.  The same early adopters and digital media enthusiasts driving digital media adoption are also the primary customers for HDTVs, Blu-ray players and home theater surround sound systems, and there is no way a digital rip or even the paid download of a movie will compare to the experience on their 60″ 1080p LED-LCD with 7.1 Surround Sound.

Digital TV shows and movies are primarily consumed on computers and portable video devices like the iPod Touch, so in order for the TV and film industries to protect their revenue, they need accomplish three things:

1.)  The TV and movie studios need extract as much sell-through and rental revenue as they can from the portable media experiences.  The emergence of portable video consumption could end up giving the video industry the same kind of boost that the music industry experienced when tape players and CD players made it easy for us to listen to our music whenever we wanted.  This boost should not be nearly as big though because the length of a song lends itself to a ‘snacking’ type of media consumption.  The closest parallel to this kind of video experience is YouTube and streaming video, which has been steadily growing in recent years.  YouTube-style video snacking does not do it for everyone though.  There is certainly still an audience for people who want a deeper mobile media experience.  Catching up on a TV show you missed while on the bus or renting a movie to watch on a 3 hour business flight are just two examples of this opportunity.  Luckily, the industry has been developing the mobile video experience and we have legal options now with iTunes, Amazon and other digital distributors.  The iPad will play an interesting role in expanding the reach of mobile video, but that’s another post for another day.

2.)  The long-form video industry must discover a compromise for teens and young adults who cannot afford media priced for their parents to buy.  One thing people high up in the media industry do not always realize is that $20 to someone over 35 with a steady salary, savings and stability is not the same as $20 to a teen working on the weekends, students on financial aid or young adults who either cannot find a job after graduation or are saddled with so much debt that they pretend ramen noodles is a delicious alternative to a meal.  Young adults do not want to steal, but they also recognize that the experience they download from BitTorrent is not the same as the one on their TV or played through a Blu-ray player and they aren’t interested in paying the big screen price for a small screen experience.  Ignoring this audience could condition the same attitudes toward Movie and TV show ownership that the music industry fostered, creating a culture of free that is unsustainable in the long-term.  Almost more importantly, young people are the media industry’s most voracious, loyal fan base.  The sway they have in the market is too great for studios to treat them like criminals.

3.)  The third thing the long-form video industry needs to  accomplish is protecting their content on the TV.  This is one area where the industry is leading the way.  Although the effect of DVRs on TV consumption and advertising effectiveness is still up for debate, I think there is strong enough evidence to claim that it has lead us to consume an even greater amount of TV than we previously had since we can watch shows at times that are more convenient to us.  In turn, this makes it easier for us to become more loyal to a particularly show because it removes many excuses for missing an episode.

Aside from DVRs though, it is fairly difficult to re-create the experience of watching a show on your TV if you don’t in some way pay for the experience.  There are some of us who are savvy enough to hook our TVs up to a computer where we can stream TV shows for free, but no matter how optimized your system is, this cannot recreate the full TV experience because of buffering, video quality and simple audio outputs.  Free downloads from file-sharing applications played through the TV are much closer to the real deal, but require a deeper level of commitment to the process of acquiring said media.  Trying to consume digital movies on your TV is a very similar experience, except streaming options are limited and usually extremely poor quality.

Media extender boxes like the Netflix Roku player, Apple TV, web-enabled Blu-ray players/HDTVs, and gaming console platforms like Xbox LIVE and PlayStation Network have begun delivering digital TV and movies to our TV sets, but all of those technologies are examples of the entertainment industry responding to consumer needs with technology that safely allows them to transition their business models on their terms.  Adoption and usage of these devices might start off slowly, but they should see acceptance in the market place as the rest of the technology in our livings rooms catch up and normalize into our media experience.  If the entertainment industry can retain control over our TV sets, they should be able to weather this digital transition and find new ways to monetize their products that eluded the music industry for years.  That is, until a technology comes out that displaces or disrupts the dominance of the TV screen in our media consumption, but that will be a mighty throne to topple.

As always, your comments and feedback are encouraged.  The topic I’ve touched upon here is extremely complicated and no single blog post could do it justice, so feel free to play devil’s advocate or expound on a point in the comments below.