I noticed an article in the Hollywood Reporter this afternoon about layoffs at New Form Digital - the digital media partnership between Discovery Networks and Imagine Entertainment. This followed another article about cutbacks at Heat Street, a digital media business owned by News Corp.
There are various reasons that businesses fail, but this got me thinking about the digital media industry in particular. While most participants still express enthusiasm for the potential of so-called "new media" (really not so "new" anymore - people have been trying to make money on the Internet for over 30 years already), it obviously is taking much longer than anticipated to become a fruitful industry. The obvious question is "Why?" The likely answer is that, as with so many pursuits, its biggest strength is also its biggest weakness.
Digital media would appear to have tremendous profit potential because digital distribution is so inexpensive, but therein lies the problem. Because it is so easy to publish digital media (through YouTube or any other of thousands of outlets), there is no barrier to entry. That creates an essentially infinite amount of content. Basic economic theory tells us that if there is an infinite amount of something, then it has no value.
This means that only the tiny fraction of content which attracts a very large audience has even the slightest chance of making money. And that means the real value is in making superior content and then marketing it in a way that causes it to rise above the endless sea of other programming. First-rate content producers and superior marketing are not inexpensive. So digital media is really a business where you need to spend the same kind of money as in traditional media, but then fight your way out of a limitless crowd of inferior competition. That's actually less attractive than traditional media where there are at least natural barriers to entry that keep most of the inferior competition off of the playing field.
The other problem is that in this endless barrage of messages and images that all of us confront every day, advertising becomes mostly ineffective. We simply see and hear too many things to pay any attention to most of it. We are tuned out most of the time. So ad-based models become less attractive as potential advertisers realize that they are not seeing a return on their investment most of the time because no one is really paying attention.
Personally, I think one possible solution is to tie media more closely to purchases that people are already inclined to make. This is at the heart of the Amazon vision and business. They make their money from selling things, not just from media and advertising. That's why Jeff Bezos is about to be the richest man in the world and that's where the media business should be looking for its inspiration. Media needs to be integrated into the normal chains of commerce. Attracting eyeballs to try to sell your ability to influence them in some way is becoming an increasingly difficult business, and that is not likely to change.
Comments? I'd love to hear your thoughts.