The standoff between media and multimedia

Laura Rieman is a principal of U.S. Media Group, a San Francisco-based business development company focusing on the creation of information products for interactive multimedia in partnership with traditional media companies and new media developers. She was previously vice president of finance and administration for Chronicle Broadcasting Company, a subsidiary of the Chronicle Publishing Company.

Traditional media companies — newspapers, magazines, broadcast television, cable networks and entertainment syndicators — can’t compete in the 1990s. Each media segment is accustomed to operating in an environment of well-defined technologies, entrenched competitive barriers and lucrative economic returns based on its historical experience.

All this is changing, as is obvious to even the least involved consumer who is experiencing a plethora of TV channels, dozens of new communications gadgets to buy each Christmas and a very obvious recession that has kicked consumers, retailers and advertising-supported businesses in the groin.

That the (old) media are threatened is natural; that they are reacting by assuming an extremely defensive, rather than proactive, posture is short sighted. They are attempting frantically to “bar the gates” with every resource at their disposal: regulatory lobbying, initiating a bog of lawsuits, promoting fear that rights to intellectual property, privacy and freedom of speech will be overthrown, and trying prematurely to nail down “standards” for communication before the pace of technological change has even begun to think about slowing down.

Multimedia, by definition, crosses the borders of these traditional terrains; it makes a confusing mess of all the old ways of thinking, communicating and making money.

Also by definition, multimedia is based on, utilizes and redeploys content developed and nurtured by the old media industries. News, movies, game shows and advertising messages do not evaporate as transmission modes change, and it is wasteful, if not impossible, to try to recreate the wealth of content as well as content-generating machines that have fed consumer demand for decades. The lack of cooperation on the part of the traditional media companies is stultifying and oppressive to the struggling growth of these emerging businesses.

THEY WHO RESIST LOSE IN A LOGJAM

In the past, similar competitive logjams have inevitably been broken, and the resisting player has always been the loser. The cable networks overturned resistance by Hollywood studios, professional sports establishments and entrenched worldwide news gathering organizations to bring fuller, more timely and more easily accessed content to consumers.

The videotape rental industry, fueled by the enhanced choice and timeliness its service provided, swept over resistance from studios, distributors and regulators.

The triumph of television in a radio-centric world, despite a high consumer entry cost and complete incompatibility with prior technologies, is so complete that it has been forgotten that television, too, had a “zero installed base” when capital was invested in the first transmitters and production studios.

In each case, and many others, where did the money go that was spent on litigation and other forms of resistance to change? In short, down the drain. It is not strikingly insightful to realize that dollars invested in developing the future are a better bet than dollars invested trying to live in the past. However, it is an insight that has failed to permeate many media boardrooms. Why?

THE EGOCENTRICITY OF TRADITIONAL MEDIA ‘CULTURE’

Movies like The Player, Broadcast News, and All the President’s Men aptly portray at least one salient characteristic of the media industries: an overwhelming egocentricity, the belief that the world would be bereft if that particular media were not available to guide, inform and influence the populace.

Newspaper companies scoff at television; broadcasters and cable companies continue to battle tooth and nail. At media conventions one hears a continuous drone of reference to the “public service” missions that media companies like to cloak themselves as serving.

There is some irony to the thought that institutions that are so dedicated to public interests (i.e., what the public is interested in) spend so much time belittling other institutions that the public clearly supports.

But egocentricity and self-righteousness alone do not explain the industry’s stiff resistance to the challenge of new media. There also exists a great fear of anything that threatens the traditional sources of cash flow. When the marketplace demands change, existing players have three relatively unattractive choices: they can invest in future technologies and products (putting capital and reputations at risk); they can co-venture with the emerging experts (thereby accepting a smaller piece of future pies); or they can lie down and die (no risk, no return). Simply stated, few managers want to take responsibility for making any one of these three choices.

There are further cultural factors, specific to the traditional media industries, that make the new competitive environment even more foreign and therefore fearsome.

First is a mass-marketing mindset, to which the concepts of interactivity and consumer choice are as directly challenging as a river confronting a leaky dike. Traditional media economics, in terms of both advertising and other revenue streams, are entirely based on control of information access to large population segments. Everything about this economic model must be reinvented to make it work in an era of media that is both personalized and accessible from interchangeable sources.

Second, traditional media have been lulled by a long history of regulatory protectionism. Their natural first reaction is to seek legislative assistance to sustain their positions. However, a fundamental underlying change has occurred that will ultimately make this type of relief unavailable: The media industries have grown up. Communications regulations, however uneven, were at their core driven by public and political desires to prevent the consolidation of information control in the hands of a powerful few. Regulations that have outlived this concept by continuing to protect the few in the face of market demands for diversity will eventually collapse.

Adept at closed markets. Finally, because media companies are used to operating within anticompetitive, protected franchises, they have attracted and nourished managers who are adept at closed-market economics. The companies are mature and often bureaucratic; their long-time employees have deeply ingrained habits; their cultures have set like cement. Those that try to establish “new media” departments are faced with the dilemma of either staffing them from within, which usually creates an ineffective clone of the same old cells, or hiring a nucleus of new managers who may find communicating with and obtaining resources from the core company futile, since they are so inherently unalike.

THE NATURE OF THE WORLD HAS CHANGED

From every aspect — regulatory, technological, financial, competitive, consumer habit — the nature of the worlds that fostered the growth of newspapers, of television and of CATV systems has changed. On the surface, the shift from clear business segments and established communications intermediaries to multimedia and diversified distribution systems is obvious. But there are deeper societal changes that, moving like a current below the surface of the products and services we see, explain why it is so difficult for historical entities to adapt and why there is such power driving the force of change. The world is moving from:

• Static plateaus of technology to permanently, rapidly evolving technologies.
• The gate-keeping of scarce spectrum to the availability of unlimited bandwidth.
• Franchise valuation and financing to project and product financing.
• Legally segregated ownership to broad interownership (and the blurring of competitive battle lines, as exemplified by the current Warner/Disney feuds).
• Media-defined content to consumer-defined content (and delivery time and place).
• Broadcasting and narrowcasting to “spreadcasting” (reaching most of the audience through a multitude of channels).
• Targeted advertising to consumer-chosen advertising.

These changes present vast, fertile ground for creative and profitable invention. It is not sufficient to pipe old content over new networks; “talking heads” are fine for radio but could never compete on television media with the kaleidoscopic images of MTV.

New media is not just a new distribution channel, it is a new form of communication, which has yet to be defined. Existing media companies are actually at a disadvantage to the extent that they try to translate rather than to recreate, as if it were simply a matter of changing the words from English to Russian, or copying newscasts onto CD-ROMs.

To fulfill the promise of this opportunity will require every ounce of innovation available from the minds of program developers, operations managers, system engineers, advertisers and their agencies, and the business executives who will try to pull the whole thing together into some kind of reasonable bottom line. Perhaps some of the “winners” will be preexisting companies; but they will not win by doing business as usual.

EXASPERATING IT MAY BE, BUT THE CHICKEN NEEDS THE EGG

As exasperating as it may be for those who believe in the potential for a multimedia future and would like to get going on its realization, consumers watch programs, not technology; and therefore, multimedia has a basic need to access content that has proven appeal. There are numerous searches in progress for the twin holy grails of a technology standard and an installed customer base, but neither will materialize until a core exists of some attractive information formatted in a compelling way (the elusive “interface”).

The interactive multimedia industry got under way principally through the efforts of the electronic game business and those who saw opportunities in the education and training market. Both fields have long experience in interactivity, and leapt at potential for huge quality gains available from multimedia technologies. Both fields are thriving. But when the average adult thinks of time spent daily utilizing various media, what fraction of that attention span is spent on either games or educational pursuits?

An enormous portion of the average person’s media-dedicated time is spent perusing newspapers and magazines, watching sitcoms and soap operas, news and sports shows, and absorbing advertising (classified, display, image, infomercial, home shopping, catalog, direct mail and every other permutation). The bulk of the information contained in this waterfall of data is owned or controlled by the traditional media companies.

Not only is traditional media content the meat and potatoes of consumers’ information consumption, but it is stuff almost ideally suited to the enhanced capabilities of the interactive multimedia environment. The eagerness of advertisers to provide more information about their products to interested consumers (if they only knew who they were); the chronic complaint that this newscast or that newspaper doesn’t spend enough time on local (or international or whatever) topics to suit a particular viewer, but “wastes” time on subjects of little interest; the deep need of soap opera addicts to know more about their favorite characters, which they feed with auxiliary magazines and audiotext services: all represent opportunities for interactive multimedia to provide immediate value-added programing to large audiences.

An artifact of the foundation of multimedia on the game and educational markets is the neglect of its potential for significantly improved advertising communications. Advertising support is multimedia’s untapped white knight. The game creators, the educators, the movie moguls who are beginning to invest in multimedia development, and the cable and telephone companies that are beginning to invest in its distribution, know next to nothing about how to access the $100 billion in advertising dollars that annually chases consumer eyeballs in the U.S. The media companies, which know these dollars intimately, are trying to hang on to the cash by pretending multimedia doesn’t exist.

But the advertisers are starting to get wise. The largest are building in-house technical staffs and outfitting multimedia production studios to prepare for the coming wave of distribution opportunities. The irony is that the longer traditional media companies continue to deny the future, the better prepared their future competitors will become to take the whole cake.

In a historical precedent, the cable television advertising business grew largely through the force of advertiser demand (why aren’t we reaching that 3, or 5, or 15 percent of the viewers anymore?) while broadcasters spent money on cable-bashing campaigns rather than offering to extend the services of their sales and programming departments to cable operators.

BRIDGING THE GAP BETWEEN TRADITIONAL AND NEW MEDIA

Looked at from either point of view — the traditional media or the new — one thing is certain: Money is going to be wasted, in recreating existing products and in fighting the evolution of new for-mats, until some form of mutual recognition is established. What are some possible scenarios for this resolution?

Joint ventures: An obvious alternative. Joint ventures have been plagued by three common pitfalls: They may be chaired by a neutral third party that is not commercially oriented and doesn’t have the drive to get to market very fast (these often go by the name “consortiums”); they may be so broadly based that they include direct competitors who refuse to share any important information or products with the joint venture; or they may be dominated by one party whose historical orientation and/or competitive objectives derail the success of the joint effort. Nevertheless, some JVs are starting to work, among which 3DO and General Magic seem to have the highest profiles.

Another option is direct but noncontrolling investment by traditional media companies in the new entities that stand to profit from the media revolution. Cap Cities/ABC proved the wisdom of this course with its relatively early investments in cable programming networks, at a time when other broadcast networks were still denying their viability.

A subset of the joint venture/investment category is something that could be called a nonpartisan business development corporation. This could be a limited partnership between key providers of expert and necessary knowledge — a local and an international media company, a distribution system operator, a creative programmer with experience developing interactive interfaces — which creates a very specific target market and time frame for the introduction of a defined set of products.

A key component of such an affiliation is management by a knowledgeable team with direct financial interest in the venture, yet without corporate cultural or other commitments to any special interest beyond that of the partnership. The objective is to achieve a synergy between the assets of each partner without burdening the future with the excess baggage of the past.

Clearly, each of these scenarios involves some sharing of the pie. This is a repulsive thought for traditional media companies that once had it all. They would find it consoling if they could accept the fact that the future pie has the promise to be much, much bigger than they ever dreamed. The final alternatives are either to take the giant step of radically changing corporate cultures and investment risk profiles to activate effective multimedia programs in-house, which some media corporations are starting to attempt; or to relinquish the future to currently struggling, but inevitably triumphant competition.

Laura Rieman