Bundling vs. A la Carte - Implications

In previous posts I've explained why bundling can be a good marketing and pricing strategy, particularly for certain types of information goods, and why a la carte strategies can be appropriate for networks with certain characteristics and in markets where access can be easily restricted.  I've also made the case that in the early years of cable and multichannel video distribution, bundling was arguably the optimal marketing strategy for system operators, as well as for audiences.  Technological advances and the explosive growth in market competition over the last decade or two, on the other hand, have opened the door for the effective use of a la carte marketing of video networks.  The remaining core question is whether shifting to a la carte is a good strategy for video distributors, networks, and audiences.  I'll try to address that issue in this post.

One of the problems with much of the current discussions of forcing a shift to a la carte marketing is that it's largely based on overly simple, and occasionally inaccurate assumptions.
   The one I've already addressed is the argument that bundling forces consumers to pay for channels they don't want.  The problem with that argument is that a consumer's decision to purchase a bundle of networks from a multichannel distributor is not based on a network by network consideration of value, but on the simpler issue of whether the consumer feels that the aggregated expected value of the channels he or she does want is greater than the price of the bundle; from that perspective, whether the distributor includes unwanted "costly" channels is irrelevant. ("costly" in the sense that the distributor pays for carriage rights).
   A second major assumption (unstated but underlying most discussions) is that the a la carte price for a network would be close to what multichannel distributors pay for carriage rights as part of bundle.  The problem with that assumption is that it oversimplifies the market forces at play, and ignores the economic impact of unbundling.  For many of the 800+ cable networks available in the U.S., going a la carte is likely to lead to a pricing death spiral.

   The problem is that while cable networks in aggregate (i.e. bundled) have been quite successful in attracting audiences (gathering 50-70% of viewing overall (a bit less in primetime), all but a handful of networks attract less than 1% of audience viewing (averaged daily viewing).  Of course, some programming draws significantly higher audiences, and demand for networks may be even higher.  Still, most cable networks are likely to attract substantially smaller number of subscribers as an a la carte offering than the potential audience obtained as part of a bundle.
   For example, the total daypart audiences for ad-supported cable networks in the last quarter showed that only 8 cable networks had overall total day ratings of 1 or higher.  Weekly primetime numbers for top networks can be 2-3 times higher, and certain episodes or events (primarily but not exclusively sports) can draw ratings of 10-15.  Actual demand for a channel marketed a la carte is likely to be higher than that (as it's aggregating across shows and over time), but is also likely to be highly price-sensitive.  Even if a cable network could get a 50% buy-in rate as an a la carte offered at the current bundled carriage rate, that would result in a 50% decline in subscription revenues for the network.  (That's one reason pay-tv network subscription prices are in the $15/mo range, while carriage rates for cable networks top out around $5/mo, and most are under a dollar.)
  However, that's not the only impact of shifting to a la carte.  Most cable networks are also supported by advertising.  While a network would likely keep most of its core viewing as an a la carte offering, it would lose the occasional or drop-in viewers, which would have some negative impact on revenues.  More critically, though, is the fact that many national advertisers prefer to buy spots on networks that have a potential reach of 80-90% of the national population.  Few cable networks are likely to reach that goal as an a la carte service without significantly discounting subscription prices.

Unbundling cable networks is likely to have significant negative impact on revenues for all but a few channels.  Those where losses are small are likely to be channels with established record of high-value content, and a fairly broad audience base.   Those channels whose value lies in a narrow niche are likely to find that unbundling will drastically cut their revenues, forcing them to choose between significantly hiking a la carte prices or cutting back on programming costs.  Either of those responses put the network on a potential death spiral where demand (and revenues) continue to shrink as networks try to cope through price hikes or cost-cutting in content.

There is one additional implication of shifting from bundling to a la carte.  Multichannel video distributors face significant costs in building and maintaining their distribution infrastructure.  Those costs need to be recouped through subscription fees.  When the subscriptions are for bundles with a large number of, the per-channel distribution costs are fairly low.  If consumers shift from a large number of channels to only those they are willing to pay for separately (the goal of a la carte), then those distribution costs would have to be paid for separately, or split among the smaller number of channels subscribed to.  In the first instance, that would mean that a multichannel distributor may place a surcharge on access, regardless on how many or which networks are subscribed to.  The alternative is to split distribution costs across the channels; meaning networks would have to pay for their distribution, or add distribution costs to their a la carte prices.  In either case, that's more negative pressure on revenues and demand.

The upshot is that unbundling will result in significantly lower subscription numbers for most, if not all, cable networks.  The lower buy rates will negatively impact both subscription and advertising revenues compared to the current bundling market option.  If networks need to maintain current revenue levels, they're likely to have to significantly boost the a la carte pricing, or drastically cost the price (and consumer value of) their content.  Either strategy could easily result in a death spiral of declining audiences leading to price-highs and cost-cutting, leading to falling demand and audiences, etc. until the network proves to be no longer economically viable.

The "death spiral" problem is aggravated by the fact that there is a new TV distribution system available.  Online video delivery is becoming widely available as broadband Internet access increases.  Over 70% of Internet users already watch online videos, and streaming services like Netflix, Hulu+, and Amazon offer access to a vast archive of current and older TV and movie content.  The TV consumer faced with the issue of whether to purchase, say, Turner Classic Movies channel is not only thinking about whether that channel is worth purchasing, but the value of TCM vs. AMC vs. USA vs. CNN vs. a Netflix subscription and a plethora of free online content.

  Already several million US adults have become "cord-cutters", dropping some or all of their multichannel distribution services in favor of accessing their TV and movie content through online streaming services.  If unbundling drives channel prices up and forces consumers to be more rational in their purchasing of subscriptions to access cable networks, this could trigger a move of consumers to online video.  That move may well be followed by a move  by networks finding a less costly - and more flexible - distribution system that allows more viewer interaction, better usage metrics, and greater capacity for price differentiation.

If unbundling is bad for most cable networks, it's got to be good for consumers, right?  After all, a lot of the political push argues that it's in the consumer interest.  The reality here is that unbundling is likely to result in consumers paying higher prices for significantly fewer channels.  The problem is that bundling acts as a form of cross-subsidization as well as a form of risk aggregation.  When value is uncertain, aggregation through bundling spreads that risk - moving the the consumer from "I'm not sure that program/network is worth the price charged" to "It's likely something in the bundle is worth the price."  Bundling spreads distribution costs across more networks, reducing per-channel costs.  And from the consumer perspective, buying a bundle of channels you're not sure you want while getting those you do essentially subsidizes access to those added channels.  Previous efforts to remove subsidies in cable (the 1992 Cable Act) actually increased prices for most cable subscribers, rather than reducing them, as the politicians and interest groups pushing for the Act claimed.  In telecommunications, cross-subsidies usually are based on high-demand & high-value services subsidizing low value and low demand services.  In this case, it's ESPN subsidizing The History Channel; not the other way around.

Even if the subscription prices of channels don't increase, consumers are likely to reduce the number of channels they will subscribe to. Rather than "bundling forcing consumers to buy channels they don't want," unbundling means that consumers will be able to not buy the channels they don't want.  Audience research shows that for most consumers, almost all of their viewing is confined to 5-10 channels.  Another factor suggesting reduced channel access can come into play when there are multiple channels or networks in a content niche.  If the consumer perceives overlapping value across related niche channels, then the purchase decision is based not on the total value of the additional channel, but the added value that channel is likely to generate above that available in channels already in the a la carte subscription basket.  That makes it much less likely that the consumer will purchase complementary channels, or multiple channels within a content niche.  At least not without some significant cross-subsidy of channel prices. 
  So rather than having access to 100s of channels via bundling, it's likely that most Americans would scale back to 5-10 channels, perhaps with occasional video-on-demand purchase of high-value content.  Gone would be the opportunity for serendipity and the opportunity to sample and establish value for innovative networks and programs.  Thus, unbundling, along with the removal of possible subsidies, is likely to negatively impact general social welfare.  In fact, that's the long-established argument for public broadcasting.
  To illustrate, a consumer who has a low to moderate interest in news is much more likely to subscribe to a single news source than to subscribe separately to multiple news networks offered a la carte.  It's generally given that relying on multiple news and information sources is more valuable than relying on a single source - but a la carte models reduce the likelihood of multiple subscriptions, as the added value of additional news sources decreases as the number of sources goes up.  (When content overlaps, the consumer will base a purchase decision on the added value the additional channel will bring, rather than the full value of the channel.  Thus further decreasing demand for multiple channels within a niche).  I'm sure that most liberals would be upset if Fox News Channel was the only cable news channel subscribed to, just as most conservatives would worry if MSNBC was the only cable news network many people subscribed to.
    In addition, the impact of increased costs will hit lower income groups more than others.  Lower income groups are likely to cut off a la carte subscriptions once their separate subscriptions reach a point where the channels provide a threshold level of content, particularly if the addition of other channels provide minimal incremental value.

So, a complete unbundling and a shift to a pure a la carte marketing approach is likely to have a significant negative impact on all but the biggest high-value cable networks, and be particularly problematic for networks with content of lessor or unknown value, and those targeting small niche audiences.  It's quite likely to increase access costs to consumers (both on a per-channel and aggregate level), and result in their reducing access to networks and content of low or uncertain perceived value.  Not only is this a negative consequence for the consumer, but the reduction in access brought by a pure a la carte marketing approach is quite likely to have meaningful negative social impacts as well.
  It would hurt multichannel distributors as well, impacting the cost and profitability of their multichannel video services, and accentuating their competitive disadvantage as a TV distribution system vis-a-vis online streaming.  The eventual certainty of competitive disadvantage in that field has been recognized by the industry, and is one reason why much of their focus is shifting from multichannel video distribution to becoming a digital telecommunication access point and service provider.

Let me end by saying that a look at the likely impacts of a shift from pure bundling to pure "a la carte" model for multichannel video distribution suggests that there will be serious negative consequences for most groups in the market.  But it's not necessary to completely shift from one extreme to another.  The growth of video-on-demand (VOD) is demonstrating that a la carte can be a viable option for some networks.  The explosion of carriage fee rates for some networks - regional and nation sports networks in particular - suggests that splitting related niche networks and channels into separate mini-bundles, possibly with some a la carte options, would be appropriate and even have a positive impact on consumers and networks, letting the high costs of those channels be born more directly by those that see that value.  (And also hopefully bringing bundle prices back down to where multichannel access, and the social values associated with maximal access, are maximized.)

The market and technology is a a point where a la carte marketing of networks and channels is viable, and where it makes sense for some types of channels.  The same can be said for the intermediate strategy of offering various mini-bundle mixes of channels, programs, and services.  However, there are still a large number of channels, networks, and services where bundling remains the optimal approach, from consumer, network, distributor, and social perspectives.  It's pretty clear that rushing into a overly simplistic "bundling is corporate evil so a la carte must be consumer-friendly" assumption is not a reasonable foundation for policy in this area.  This is an area where an incremental approach that considers what marketing approach is best within a specific context; where consideration is given to the type of content and its content as well as audience interest, social welfare, and the values inherent in having the content accessible and used.  That's the approach most likely to result in positive outcomes.

Pew reminder: Americans don't like what their news organizations are becoming

The Pew Research Center recently released a "Fact Tank" of 20 research highlights - a couple of which suggest that Americans are losing faith in their news organizations - or at least are becoming less valued among U.S. adults.

About two-thirds (65%) say news organizations focus on unimportant things.  Even higher numbers say that news media are often inaccurate and try to cover up their mistakes.  Three-quarters say news media are often influenced by powerful people and organizations and tend to favor one side.   More than half say news organizations are politically biased (58%) and that they don't care about the people they report on (59%).

In addition, 38% say journalists are less important because there are other sources for news and information, and only 29% say journalists contribute "a lot" to society.

Nearly one-third (31%) of people say they no longer use a particular news outlet because it no longer provides the news and information they want and have grown accustomed to getting.  Those who report no longer using what had been a regular news source overwhelmingly (66.2%) indicate that the stories being less complete and valuable as a reason for their change.  Even among those who haven't yet stopped using a news organization, more than half (53%) say that news stories are less complete and valuable.

Results like these should serve as a wake-up call to U.S. news organizations that they're not doing the job that news consumers want and expect.  However, most of the major news organizations in America today seem to be pursuing goals other than journalism, so I won't be surprised to see these numbers grow, and reliance on traditional news outlets to decline.

Source -  20 facts from Pew Research Center,  Pew Research Center Report
Amid Criticism, Support for Media's 'Watchdog' Role Stands Out,  Pew Research Center for the People & the Press research report.
Americans Show Signs of Leaving a News Outlet, Citing Less Information,  Pew Research Center's Project for Excellence in Journalism report.

(edited to remove unneeded white space)

CBS/TimeWarner Squabble Denies Viewers - UPDATE

Apparently CBS really needs cash - otherwise the retransmission fees fight with TimeWarner would have been settled long ago.  The short version is that stations get to negotiate for compensation from cable and other multichannel video bundlers for the rights to rebroadcast the broadcast station signals every few yeats.  Last Friday was the negotiation deadline, and FCC rules require cable and multichannel systems to drop the broadcast signals if no agreement has been reached.  So TimeWarner dropped the CBS-owned local broadcast stations (mostly in large markets) from their line-ups.

  To add some spice, Time-Warner also dropped all CBS-owned cable networks (including Showtime and TMC) at the same time.

  Then CBS tried retaliating by blocking access to CBS programming through the internet to TimeWarner internet customers.

  From reports, it seems like the hang-up is that CBS wants at least $2/month per subscriber from TimeWarner - a price that is difficult to justify from an economic perspective for a network whose ratings have been falling for decades, and which has been touted as "free TV." (at least when accessed off the air).  While less than rate leader ESPN gets, its more than twice as much as other general interest cable networks are getting.

-- A quick aside - CBS approached me as an outside consultant in the late 1990s as to the retransmission value of their network.  At the time, based on primetime audience viewing share and average cable subscription rates, they thought they ought to be getting $5-7 per month per subscriber.  I had to remind them that viewing isn't the same as willingness to pay, and that pushing for any significant amount in fees would likely be an economic and PR disaster for CBS  After all, they'd be asking people to pay for access to "free" broadcast programming, and cable would gladly advise customers about how to get the programs over-the-air (or these days, offer CBS as a stand-alone a la carte channel and see how many would be willing to pay).  Apparently they didn't like my analysis, because they "forgot" to pay me the agreed stipend (that's why I feel comfortable sharing this with you now).  Still, they didn't push for cash in that round of negotiations, so I guess they felt I had a point.

Since most viewers in those markets have options for getting CBS free (over-the-air and online through CBS.com), or bundled in with other channels from alternative multichannel services, in the long term viewers will figure out how to get what few programs they really want from CBS.  Still, in the short term, lack of "normal" access is likely to hit viewing and ratings hard.  In the meantime, CBS isn't gaining any PR points from their insistence that viewers pay for access to what the network's been touting as "free TV" for years.  TimeWarner isn't helping itself either in the short-term, although they may benefit in the long term as consumers start to learn just how much they're being asked to pay for network programming (those rising fees aren't just cable company greed - they're mostly pass-throughs of retransmission fees from broadcast and cable networks).

Should be fun to watch, although I doubt it'll go on for long - there's too much to lose for both CBS and TimeWarner.

Update:
TimeWarner has made an offer to CBS to include it as an "a la carte" channel, at whatever price CBS wanted.

"Rather than our debating the point, we would allow customers to decide for themselves how much value they ascribe to CBS programming," said TimeWarner CEO Glenn Britt.

CBS dismissed the offer as a "sham" and "PR stunt." Recent statements from media analysts suggest that moving to a la carte could likely cut revenues to networks and program producers in half.  Maybe CBS does know how much value viewers place on access to CBS programming after all.

Sources -  No Deal! CBS and Showtime Go Dark on Time Warner Cable, Deadline-New York
CBS Blocks Time Warner Customers From Watching Full Episodes on CBS.com,  TechCrunch

Hulu+: 3 Bids Over $1 Billion

News reports are indicating that at least three of the bidders for video streaming service Hulu+ are offering $1 Billion or more in the current round of bids.  One is identified as DirecTV.

Hulu+ currently has more than 4 million subscribers and generates around $700 million annually from subscriptions and ad revenues.

The new bid level is certainly more welcome than those obtained in 2011 - when Hulu+ owners News Corp, Disney, and Comcast first put the service up for sale, only to back off when bids didn't approach the amount they wanted.  Of course, the problem then was the unwillingness of the owner group to guarantee long-term access to their programming.  It's not clear what kind of commitments they might be willing to give prospective bidders this time around, but the increase in bids is at least partly a reflection of the growing success of subscription video streaming services and market.

Source -  DirecTV, two others bid over $1 billion for Hulu: source,  Broadcast Newsroom

Internet Week's take on the Future of Media

The recent Internet Week conference hosted (and recorded) four sessions where various industry folks talked about the future of media.  From one of the keynotes to panels on "Tomorrow's Media Landscape", "Convincing People to Pay for Content", and "Is Twitter Live TV's Newest Follower?".

AdAge embeds the four videos in its story, and the Internet Week folks have those and other recorded sessions available at the Internet Week NY site on Livestream.

Source -  The Future of Media, as seen at Internet Week,  Advertising Age

Apps rule! (among users)

A new study of more than 3500 smartphone and tablet users around the globe has found an overwhelming preference for using dedicated apps, rather than mobile websites, for information.
Some 85% of the survey's respondents preferred using apps, citing their speed, convenience, and ease of use.  The study found that people spend an average of almost 2 hours a daily with apps, twice the time they spent with apps a couple of years ago.  Those factors help explain why global app store revenues are expected to reach $25 million this year (a 62% increase).
  Happiness with apps isn't uniform, however.  Two-thirds of respondents indicated that they had a bad app experience - the app crashed, froze, or returned an error message.  Almost half (47%) had experienced slow launch times, and 40% have tried an app that failed to even open.  Users weren't very tolerant of problematic apps - 79% said they'd try an app that failed initially only one or two times before deleting it.
  Finally, the study found that app ratings were very influential when looking at apps.  84% said user ratings posted in app stores were an important component in their decision whether or not to try the app.

Source -  Speed Wins: Users Favor Apps Over Mobile,  OnlineMediaDaily

Infographic: Value in News

An interesting visualization of the various sources of value in news.  As we move from habitual news consumption to more active news consumption, we need to give more thought in terms of the various ways in which news can have value for consumers.  And how to shape and market news in ways that add value.

Some Thoughts on Media Content Pyramid

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.

1. 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.
2. 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.
3. 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.

Godin argues that as a result, there's a "huge sucking sound" of value leaving the media model (or at least prices and revenues from sales falling dramatically).  The new media pyramid, he suggests, will be a whole lot flatter, with a whole lot of free, and a little bit of high end limited content trying to subsidize everything.

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

New approaches for online advertising - Adkeeper et al.

Do people really hate ads, or do they hate the fact that they interrupt something they are more interested in?  A new Web start-up thinks there's money to be made in the latter case.  Adkeeper is a service that allows users to "bookmark" or "Time-shift" online advertisements they might want to examine later, and even share them with others.  Research from Nielsen suggested that about half of users would be interested in such a service,  Venture capitalists were even more interested, to the tune of coughing up $80 million to fund development, and PepsiCo was so impressed that it ordered that it all of their banner ads had to incorporate the service.  Adkeeper has added 350 ad campaigns to its system so far.

The man behind Adkeeper, Scott Kurnit, sees the service as step in a broader movement to improve the quality of online display advertising, in part by thinking about how users experience it, and how they can find and create value. Ben Kartzman, CEO of a competing service (Spongecell) commented that ""What we're all trying to do is make the online advertising experience memorable, sharable and valuable.  We're trying to drive engagement from a banner."

Source: "Preserving Advertising," OMMA, The magazine of Online Media, Marketing & Advertising

Amazon adds value via streaming (Updated)

Today's Amazon entry page touts a new, and potentially significant source of value.
They are offering to Amazon Prime customers, the ability to stream more than 5000 movies and television shows free.  If you're currently a member, you get commercial-free video streams for free (and Prime's $79/yr cost beats Netflix's rates), certainly providing added value for Prime members.  By increasing the value of Amazon Prime membership, it should encourage a boost in memberships and revenues.  But in providing free access broadly, Amazon also gets a jump on Netflix and other outlets in establishing a brand that will promote its online video rentals and sales, and ties into its DVD/BluRay store for those who want to get a hard-copy.  Call it market-building and branding for now - but it's another reflection of the shift to online video, and perhaps adding another push in that direction.
I'm watching Contact at the moment (gotta test this thing out), and the quality on the U's network isn't bad.
Update:  Found this table (from Clicker) that compares Amazon Prime streaming options with Netflix and Hulu+.

An idea for Value in local TV

A recent TVNewscheck article reports on one interesting new idea for local TV stations to create value - working with a local TV antenna installer and advertising that consumers could save $60-$80 a month by dumping their cable or satellite feeds and installing a roof-top antenna. 
As the article suggests, in moving from a networked TV feed back to OTA (over-the-air), the station may lose some money in retransmission consent fees, but is likely to make up for it from new advertising.  Also, this puts the station in a better position in the long term, as the more OTA-only homes in the market, the more valuable the station becomes as an network affiliate, and as a full-market reach outlet for advertising.