Technology Driven Change to Distribution Will Disrupt the Media Industry

 

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Since time immemorial technological advances that disrupt and improve the efficiency of the distribution of goods, services and information have spurred the advancement of civilization. Historically, these technological advances in distribution methods were significant contributing factors to the outcome of wars between civilizations. History records that ‘All roads lead to Rome’ which refers to the Roman construction of roads across its empire to efficiently distribute its armies and provisions. This innovation in distribution led Rome to become a 1,000-year Empire controlling the entire Mediterranean. Other technological advances that disrupted distribution systems throughout history include the wheel, paved roads, the aqueduct, the chariot, merchant sailing vessels, mechanization, railroads, the steam engine, the combustion engine, the automobile and truck, the pallet and the shipping container, and the airplane. These advances are significant contributors in a historical context to improving the distribution of goods, services and information.

More recently, we see technological advances in distribution creating and disrupting entire industries. The automotive industry as we know it, for example, was spawned from the invention of the ‘assembly line’ in 1901 by Ransom Olds and subsequently perfected by Henry Ford in 1913. This technological advancement allowed for the significant improvement and efficiency in the distribution of parts and labor within an automotive factory ultimately allowing the automobile to be produced at a cost that was affordable for the middle class.

Another example, fifty years ago the global distribution system of mail and packages was dominated by country specific taxpayer funded monopolies. In the United States it was the US Postal Service which was created in 1775 by an act of the Second Continental Congress with Benjamin Franklin appointed as the first Postmaster General. Congress’s decision was based on the principle that every person in the United States, no matter who and no matter where, had the right of equal access to secure, efficient, and affordable mail service. The current ‘Net Neutrality’ debate in the United States is an interesting parallel, however, the current Congress does not appear to be as visionary as their congressional forebears! The proliferation of private mail distributors, operating more efficiently and using modern technology, has changed the way mail and packages are delivered worldwide. The companies that were founded in the late sixties/early seventies including DHL (founded 1969), Federal Express (Founded 1971) and UPS (Founded 1907 as a messenger service) are global behemoths that dominate the global distribution of mail and packaged goods. No doubt these behemoths will be challenged by industry upstarts in innovative distribution including Amazon, Google and Uber who are experimenting with technological advances such as drones and driverless cars to create greater efficiencies.

Historically we have viewed distribution primarily as the physical movement of goods. This changed in 1440 with the invention of the Printing Press by Johannes Gutenberg which enabled knowledge and information to be distributed globally to the masses. The printing press was the basis for numerous transformative industries including book, newspaper, and media industries. These Publishing Industries have had enormous impact on the course of human history.

The publishing industry curated and editorialized the information, entertainment and knowledge of any given era that was then distributed to the public. The invention of moving pictures led to the development of the Entertainment Industry which in turn led to the development of distribution systems for filmed entertainment; the movie theater. The addition of sound to moving images in 1927 enabled the Entertainment Industry to evolve into what is known as ‘The Studio System’. The period of 1927-1948 is referred to as the Golden Age of Hollywood and refers to the vertical consolidation and control of the entire Industry, including the distribution of filmed entertainment to the public, by eight (8) Major Studios. These eight Studios were Fox Film Corporation, Paramount Pictures, Metro Goldwyn Mayer (MGM), RKO Radio Pictures, Warner Brothers, Universal Pictures, Columbia Pictures and United Artists and combined they controlled 95% of the production and distribution all filmed entertainment in the United States. These companies became so powerful that the United States Government, through its use of Anti-Trust Legislation and a victory in the United States Supreme Court in 1948, forced the breakup of the Studios and the separation and sale of their distribution systems for filmed entertainment.

Broadcast Television technology evolved between 1927 and 1941. In the United States the first commercial advertisement on Broadcast Television was aired on July 1st 1941 on NBC for the Bulova Watch Company during a Brooklyn Dodgers baseball game. Thus the richest form of content distribution and commercialized television was born. Television was a major technological advancement in the distribution of content, delivering it directly into the living rooms of audiences. Significantly, the content was free to watch with the cost and investment in programing being funded by advertising. Television continued to evolve through significant advances in distribution technology. Before the advent of Cable and Satellite distribution, distribution was via tall antennas beaming signals in a straight line between aerials. Currently it is estimated that 800 million Households globally have access to Cable and Satellite distribution systems.

During the period 1995-2010 significant consolidation occurred in the Content Production and Content Distribution industries through mergers and acquisitions. Surprisingly, in 2011 almost 95% of all content in the United States was made and distributed by 6 companies.

 

2011 UNITED STATES MEDIA LANDSCAPE

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In the information age, the advancement of computer hardware, mobile device technology, and near universal access to the internet significantly change the way content can be distributed. Non-video content verticals such as book publishing, bricks and mortar retailing, newspaper publishing, and music publishing have already been significantly affected and forced to evolve their business models.

I argue that we are now at the tipping point of massive change in the global distribution of video content in all its forms; the way in which we consume it and the way we engage with it. Within the next 10 years I predict the complete overhaul of the global content distribution industry that will lead to the destruction of many traditional content distribution companies and the emergence of new behemoths that can take advantage of the technological advances without the impediment of legacy investments and relationships. The battle for consumer eyeballs is just beginning, and the battleground is the pockets of a global population with a mobile device and access to a broadband connection.

 

The Democratization of Content Distribution

Distribution has always been the great barrier separating content creators and their audiences. Film distribution has been controlled by the major Hollywood Studios and television distribution by the Cable and Satellite Television Distributors. Historically, independent content creators had to develop a pilot and pitch the traditional television and cable networks in the hope that the network would purchase the programming at a cost that might recover the production cost. Similarly in film, an independent filmmaker had to raise equity from various sources (often family and friends) to produce the film and then hope that it could be sold to distributors around the globe at a price that would recover the cost of production.

High Speed Broadband networks, mobile video screens, and emerging content platforms completely change the way content can be distributed. The launch of YouTube in 2005 and its purchase by Google in 2006 commenced the disruption to content distribution. Today, in a single upload, content creators can reach a global audience without any cost of distribution. Importantly for content creators, they are not burdened by Network or Studio oversight or involvement in the content they upload; they have total creative control. Using Google’s Ad Sense monetization, individual creators can earn money based on the number of views their videos receive.

Tens of thousands of content creators exist around the world using YouTube to distribute their original content. The most subscribed YouTube creator is Felix Kjellberg, a 26-year-old man living in Gothenburg Sweden, who goes by the tag name PewDiePie. PewDiePie principally uploads a daily 20-30-minute video of himself playing video games whilst providing commentary on his game play. He has 42million subscribers and has just surpassed 11,000,000,000 (11 Billion) video views. To put this in perspective, the largest Cable distributor in the world is Comcast with 22 million subscribers.

PewDiePie and other successful YouTube creators point to the future global democratization of content creation and distribution. Psy, A South Korean pop star famous for his song Gangnam Style, is the creator of the single most viewed video on YouTube. The music video sung entirely in Korean has been viewed 2,500,000,000 (2.5 Billion) times. Real Grumpy Cat, a channel starring a cat that looks Grumpy, has 230,000 subscribers and a total of 34 million video views.

Consumer acceptance and adoption of recent technological advances in mobile devices, Content Delivery Networks (CDNs), Streaming Networks such as Netflix, and emerging OTT (Over the Top) Networks such as Vimeo, Twitch, Hulu, and Crackle will accelerate this democratization of content distribution. What does it mean when audiences below the age of 35 are watching more non-traditional content than traditional? What does it mean when a 26 year old Swede can have a larger subscriber base than the largest cable distributor in the world? What does it mean when more people watch Minecraft videos than actually play the game? What does it mean when TWITCH, a streaming service for viewing live video game play, has the longest average length of view per viewer of any global streaming service including Netflix? In my next article I will address these questions and what I believe is the dawn of the Content Revolution and impending War for the Eyeball.

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