Showing posts with label digital content. Show all posts
Showing posts with label digital content. Show all posts

Sunday, April 6, 2014

Coordination costs can make it difficult to create synergies at media firms

Media firms have for years tried to reduce their costs by centralizing the production and marketing of a variety of content. But the cost of coordinating centralized activities can be considerable, large enough in some cases to offset the savings that firms hope to realize.
For example, firms that own multiple newspapers have for decades tried to reduce costs by centralizing the production of news or centralizing administrative tasks. Efforts to centralize news production have also been extended to newspaper websites and mobile editions.
However, centralization can be difficult to coordinate if individual newspapers use different computer systems or software to manage and publish their digital editions.
Technically, these companies are trying to create economies of scope, colloquially known as “synergies.” Economies of scope exist when the joint production of two or more products is cheaper than producing the products separately. 
Technically, it’s also much easier to say you are creating economies of scope than it is to actually reduce costs this way. The successful creation of economies of scope often requires that a firm re-arrange details of the production process.
If, for example, a multi-media news story is distributed to multiple papers with different publishing software, the story might have to be re-formatted for compatibility with each individual paper’s software.
Media firms are also trying to collect and analyze data about how audiences interact with the firms' web sites and mobile applications. This kind of analysis might also be expensive to coordinate if different websites use different measurements or data collection techniques. Trying to reconcile differences in the ways that numbers are collected can be a lengthy, frustrating and sometimes impossible task.
Firms might have to make significant capital expenditures to eliminate inconsistent software or other internal barriers to coordination. Some newspaper companies are buying or creating new software platforms for distributing digital news and advertising. Some of these initiatives may be intended to resolve coordination issues, if so that is a hopeful sign.
Problems coordinating activities inside a media firm are not likely to draw much attention outside these firms. But there is a reason multiple economists have won Nobel Prizes for examining coordination costs (here, here and here).
Media firms that centralize internal activities to save time and money will find it worthwhile to include coordination costs in their analysis of what it takes to make those efforts work.

Monday, September 12, 2011

Abundance and scarcity in new and old media

Speakers at last week’s conference clarified what the exponential increase in production of digital media content means for different kinds of media firms.

Steve Wildman of Michigan State University explained the negligible cost of storing content on a digital server removes an important constraint on the production of media content. This very low cost allows companies to open up their servers to anyone who wants to upload a video, photo, text or other content.  If someone does want to access a particular file, the company that owns the server doesn’t pay the cost of producing a copy – the person who accesses the content pays that cost.
The result is sites like YouTube, where millions of videos are stored and most are never viewed.

Wildman said digital servers act as if there is an almost unlimited number of channels for delivering media content.  Each channel is created when someone actually requests a copy of the content stored on a server.

This has been a boon for all of us because it dramatically reduces the cost of exercising our apparently limitless desire to create and distribute messages, photos, videos and other content.
But traditional media companies own and must pay for a limited number of channels, they could never afford to act this way. Traditional companies must earn enough revenue from publishing each piece of media content to pay for the channel where the content appears (Wildman has detailed this analysis here).

Non-media companies benefit from unlimited media channels

When server based content is combined with modern search tools – such as Google or Bing or twitter – it becomes cheap for companies to find and communicate with customers.
This makes possible new marketing strategies such as Open Branding, discussed by Nita Rollins of Resource Interactive.  Open Branding calls for companies to engage in a dialog, building online communities where customers have a voice in the creation of the company brand.
Of course, companies will only do this if the cost is less than or equal to the return in the form of increased sales or revenues.  But digital tools have dramatically lowered those costs, so companies that sell non-media products can take advantage of Open Branding.

But media companies face increased competition

But what about companies that are actually in the business of creating and distributing media content? 
Media companies must compete for attention with the huge amounts of content generated by individuals and organizations using free server space.  For example, the time of a city council meeting, or a call for volunteers to help a civic organization can now be published directly by the council or the civic organization.  Media companies are no longer neccessary to get the word out.
Stephen Lacy of Michigan State said the central problem facing media companies is how to create content that is both scarce and valuable to potential audiences.  One way to do that is by offering content that has special quality to set it apart. 
But for now I want to focus on the channel part of the scarcity issue.  Another way to make your content scarce is by controlling channels people use to access the content.  That can mean controlling the hardware – computers, smart phones, tablets- used to access all of those servers.
Competition to control access to unlimited content
In this competition, companies that can limit consumers to a single device or related set of devices can win.  Apple is the highest-profile example of how this works.

I’ve written before about how Apple limits access to music and video downloads by requiring that customers use Itunes.  The company's recent effort to seamlessly link Apple devices with one another and with Apple’s servers is another step in this direction.
Meanwhile, the company knows it can increase the range of content and functions available to customers by allowing more apps on its devices.

Of course, this also means anyone who wants to provide content to Apple customers – such as a media company struggling to compete in a server-based market – must design an app that allows Apple to keep a substantial share of revenue the app generates from Apple customers.

For now, companies like Apple appear to be ahead of the game when it comes to creating scarcity in the digital media world.