OK, I've been working on this to finally get one of my Topic Paper ideas finished and posted. Well, except for figuring out how to port the diagrams over, and how to upload the paper itself. But to get your interest up, here's the text of the paper, anyway.
It builds on the previous post, so it replicates part of that.
Seth Godin's got an interesting blog post on "The erosion in the paid media pyramid." He starts with the suggestion that since the development of media, there's been a model of value and pricing options for paid media.
Basically, he differentiates paid media into 4 groups, with value and pricing related to supply, or the breadth of demand. At the bottom of the pyramid is Free content. He describes this kind of content as including content that is delivered to anyone who is interested in consuming it - primarily as a draw for sales of something else. Chris Anderson's Free covers the same ideas.
Mass content includes media products where the cost of replication and delivery are relatively low, allowing lower prices with the development of mass markets. With mass markets, value can be aggregated over larger numbers.
Limited content, Godin suggests, is rare and thus expensive. This can be the result of higher costs of replication and delivery, requiring higher pricing and limited markets, or can be a decision that inherent value is high enough that income can be maximized by restricting the size of the market.
At the tip of the pyramid is Bespoke content - which for any media product is the most expensive, as it needs to recoup the whole cost (and value) with a single exchange rather than averaging costs over a larger market.
Godin suggests that with the rise of competition, convergence, and the digital network economy, three things have occurred that have eroded, or upset, the pyramid.
- Digital media have significantly reduced replication and distribution costs, and have also expanded the availability of content. He suggests that this has led to an explosion of choice, or from the point of traditional media content producers, an explosion of competition and clutter.
- As a result, attention is worth more than ever before. In the old model, attention was the important value in Free, or even some Mass content, but was low compared to most other costs, and therefore didn't have a big impact.
- Again, as a result of #1, the marginal cost of one more copy in the digital world is zero (or close enough that nobody cares). This is important because general economic theory recommends setting price at marginal cost.
While he's got a point, he's also missing a lot by basing the pyramid on the linking of cost and pricing, and pricing with value. In other words, thinking that the only source of value is from commercial sales, and that the determinant of value is based largely on the costs of creation, replication, and distribution. Still, as evident in his description of "Free" and "Mass", there are values at work other than prices, coming both from those producing content and those consuming it. In noting that there is content that some will pay to have distributed, there is a recognition of content where the value to the creator comes from having it out there and used (Yochai Benkler's The Wealth of Networks provides a good look at these motivations). And there’s some recognition of demand in the sense that he recognizes that there is less demand for content that is more costly.
So let's try looking at the media content value pyramid from a bit wider perspective. One that looks at both the supply and demand sides of the market, as well as the value motivations of both producers and consumers. .We also have to start with baseline economic realities; first, media and information content is costly to produce (even before replication and distribution costs), and second, most content producers aren’t likely to continue to produce content unless they perceive that they’ll ultimately receive some amalgamation of value in excess of those costs. The final reality that needs to be addressed lies in the fact that the value of information goods and services, or media content, is uncertain. Part of that is that for most content, the perceived value may vary widely across contexts and consumers; and part of that is that the actual value to a consumer can not be determined until the content is consumed, so in every consumer decision there is uncertainty as to the value to be obtained. The latter is perhaps the prime factor behind the idea of bundling and regularization of media content – to reduce the overall uncertainty that some level of aggregate value will be obtained. It’s also led to the situation where content markets develop general pricing strategies based on aggregated demand and costs, rather than a strategy of pricing content individually.
In constructing a Content Value Pyramid in an emerging digital network society, you need to recognize how the rise and diffusion of digital technologies and digital networks have impacted media and content markets.
At the bottom I'm going to put content that people want consumed widely – and they want it badly enough to absorb production, replication, and distribution costs. This would include what could be termed promotional content (what Godin described as stuff given out with the hope of generating sales); but it may not be direct sales of related goods – there’s a large amount of content produced and distributed for self-promotion, to show off skills and abilities that may enhance the producer’s value in the market. I'm going to label a related segment of content push content - content that someone wants to get to users (such as public health campaigns). I'm also going to include noncommercial content, information goods and services whose value lies wholly or mostly outside of traditional paid media markets. This would include things like academic writings or sharing your vacation photos through social media. It might also include what one would call attention-getting content, content that exists to attract the attention of users to a medium and its other content offerings. The common element to these content types is that their value to their creator and/or distributor is based primarily on the width and breadth of distribution and use rather than individual commercial sales to consumers. As such, it also makes sense to price these at zero, as any positive price would restrict demand at least a bit. It may also make sense for these types of goods to have a negative price (through a subsidy of a related set of goods or costs). In that sense, you can still use the “Free content” label and place it on the bottom of the pyramid in terms of size and scope of market.
It is also a market that has exploded with the rise of the digital network economy, largely because technology has drastically lowered the threshold for content production. Back in the analog, physical media days, there were real costs associated with each of these, - and that meant producers and distributors knew that whether free, mass, limited, or bespoke, the market needed to generate sufficient sales at whatever pricing strategy to cover those costs. This imposed a threshold on underlying value of expected sales (revenues) that needed to be crossed before content would be offered, and severely limited the amount of content available to consumers in media markets. Between the rise of digital computing and media, and telecommunication networks, there has been a drastic reduction in the costs associated with creating content, storing it, duplicating and distributing it, as well as in the search costs of consumers finding it. This has enabled an avalanche of content to be unleashed in media markets, so that base level of “Free content”is much wider and much deeper.
I’m also going to use the “Mass content” label for the next stage, but define it primarily in terms of a combination of demand level and cost factors. Content in this category is characterized by two factors related to the scale of the content market – that there is sizable demand for the content at fairly low price levels, and that there is a viable mass reproduction and distribution system available that allows average costs to more or less match those levels. Much of what is considered entertainment content fits this category. Movies, with the theatrical distribution system, and broadcasting use media that can spread costs over thousands to millions of consumers. In print, the rise of mass markets occurred with changes in printing technology that dropped per unit costs of replication from dollars to fractions of pennies. But here I also want to differentiate content and market somewhat, based primarily on the relationship of mass scale pricing to average costs. There are clearly content markets where aggregate demand levels and average costs are low enough to fall below a market’s strategic pricing levels. I’ll label this Mass commercial content, and the book publishing and old record industries generally fell into this level. There is a quite significant second type of content that can be called “mass” – Mass subsidized content. This refers to types of mass content where the average costs don’t quite cover the relevant pricing strategy for that market scale. Early broadcasting is a clear example – while the “mass” distribution system reached large scales, it was difficult to enforce direct payments for use. In a public broadcasting model, the state could enforce a tax or usage fee for funding, but for a viable non-state model, funding needed to come from other sources. News is another example of mass subsidized content. Studies show that demand for news, marketed separately, is not sufficient to cover mass production costs in most contexts, but with the right mixture of content and subsidies, news organizations could be profitable. Taking advantage of bundling, in mixing what would be marginally commercial content (marketed alone) with push content and/or promotional content, mass subsidized content could achieve a point where their strategic pricing strategy, combined with revenues from subsidized content, could cover costs in a mass market.
With the lower reproduction and distribution costs of digital networked media, it’s quite likely that both “Mass content” categories will see significant growth in the range and scope of content and markets that follow a mass marketing strategy. Growth is likely, if only due to the lowered costs of digital media, and the fact that digital media markets can be truly massive (potential global reach). The new mass scale of digital markets, particularly if content industries shift from pricing strategies based on physical copies and develop viable (reduced) pricing strategies based on digital copies, whole new levels of consumption and purchase could emerge. With revised (and lowered) pricing strategies, more and more content is likely to move into, or be produced for, this category – which will shift supply curvess and drive demand and consumption skyward. In addition, if pricing strategies fall to the point where they are less that an individual’s minimum uncertainty threshold (i.e., the price is so low that people will try it without expectations of value), purchase and consumption could explode.
I’ll follow Godin again and use “Limited Content” as a label for the next type of content, which could be described as high-price, limited demand content. There are actually several different categories of content that could fall into this general layer for different reasons. The first is Limited demand content, where the differentiating feature is that while there is no significant demand on a mass level, there is a significant segment of the market for which there is strong demand. Examples are legal and financial information – in each case, pertinent information may be highly valuable to a small but identifiable market segment that recognizes that value and is willing to pay accordingly. Here, the costs are secondary to a strategic pricing strategy to restrict supply to keep price high. A second could be described as Limited supply content, where the costs of replication and distribution are high, and there are no viable low-cost alternatives. Live concerts or duplicates of bronze statues can be examples. Here, even if there is high demand for the content (think concert), the costs are so high that supply needs to be restricted by price to achieve a balance of revenue from price and actual costs. A key distinction from the Limited demand content is that if costs could be dropped to a “mass” level, more content could move into that layer, whereas with limited demand, content will likely remain in that limited (or even more restricted) market. There is one other type of content to consider – content where its scarcity is a significant component of its value to at least a segment of the market. Let’s call it Scarcity-value content. This is content, like signed limited editions of books or art prints, where its scarcity, or collectability, has significant value, at least to a limited segment of the market. Like Limited demand content, there is a definable market segment that places a higher value on the content than others, but that value comes from its imposed scarcity rather than the value of the content itself.
The common element in these three Limited content segments is that content producers (or marketers), for various reasons, consciously restrict supply of the content in order to take advantage of the fact that some small segment of the user or consumer market places a significantly higher value on the content than do most others in the market. As such, it seems unlikely that this portion of the pyramid will change much from the transition to a digital market. The larger market access of digital may enable Limited content media products to target, reach, and get bought by the small consumer segments in the larger market, but it seems unlikely that this will shift marketing and pricing strategies significantly.
Finally, one has to also recognize that the extreme of Limited content lies in what Godin’s pyramid calls “Bespoke content.” This is the case where only the original content is traded – a monopoly-monopsony market (one seller-one buyer). Let’s call this Unique content, as that’s the primary distinction from Limited. While this could conceivably apply to any content, let’s consider what economic characteristics make this kind of transaction reasonable. Following the “bespoke” idea, one type of content in this layer is that for which value exists only for one consumer, regardless of price. In this case, let’s call it Monopsony value content, the content is usually produced at the direct behest of the consumer (i.e. “bespoke”), and only if the value to that consumer is greater than the cost of original production. Another kind of “bespoke” content can be one where there is a significant added-value to a unique combination of content and context, for instance, having your favorite pop star sing “Happy Birthday” to you at your fortieth birthday party. Let’s call such content Context value content.
Perhaps the largest segment in the Unique content layer, though, is there as an extrapolation of the scarcity-value argument. If there is value in scarcity, it makes sense that the scarcer the product, the higher the value. On the positive side, this might happen when ownership/consumption of content by a single individual generates more value than any other combination of limited supply and price. Let’s call this Uniqueness value content, and note that it’s different from Monopsony value content in that the value is due more to being the sole owner/consumer than the inherent value of the content. On the negative side is what could be called Secrecy value content – content where the value lies not in being the sole possessor, but in the fact that by doing so, you are preventing others from using, consuming or getting value from the content (i.e., the secret formula for Coca-Cola).
This “Unique content” layer differs from the “Bespoke” in the earlier pyramid because it’s based on defining the layer on the idea that there is value in being unique, whereas Godin frames his “Bespoke” layer primarily based on the cost of the content limiting effective demand to a single consumer. While Unique content is likely to be more costly than other layers because costs can’t be averaged over a larger number of consumers, content doesn’t have to be costly to have value in uniqueness. Consider that handmade birthday card from a young child to Mom, the one that’s had pride of place on Mom’s refrigerator for the last twenty years. As with the Limited content layer, the growth of digital media and content is not likely to have much impact on the expansion of the Unique content layer. Yes, lower content production costs will likely increase availability of Monopsony value content, as lower costs (and prices) allow more people to seek and find unique and personalized content that falls within their demand curves. As for the rest of the layer, it’s the quality of uniqueness that creates value, for one reason or another – and expanding markets and declining costs aren’t going to affect those much.
So in terms of a pyramid, let’s think of step pyramids rather than equilateral triangles, with the size of the steps representing either proportion of content in the layer, or in the value of that content.
Figure 1 – Pre-digital Media Content Value Pyramid
Figure 1 represents my view of the media content value period in the Pre-digital era. As with the old pyramid, the order is the same. However, let me point to a couple of distinctions. First, I have overlapped some of the Mass content with the Free content, to represent that portion of Subsidized mass content that is priced at zero. Second, the Limited content and Unique content portions are much narrower, to reflect the role that restricted supply plays in the determination of those layers. Finally, I’ve also made the Unique content taller, because due to its nature, we’re not as generally aware of the amount of content that falls within that classification.
In Figure 2, you can see a reflection of the rise of digital in the significant growth in the Free and Mass content steps (realistically, these should be much wider as well, but there are limits to the page). In particular, the larger layers, and the larger interaction of the two, reflect the role of declining costs making all types of Free and Mass content economically viable, and the impact of declining prices (strategy permitted) in terms of expanding use and consumption. There is not much change in the Limited and Unique layers, as the economic advantages of digital only come into play for segments of those layers. Now, visually this might not be so different from the old standard, but I think that pulling out the various categories within layers, and the broader focus on considering both the supply and demand sides may help in understanding the differing types of media content and media marketing and pricing strategies at play in media markets.
Benjamin J. Bates,
Professor, School of Journalism & Electronic Media
University of Tennessee, Knoxville
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