Content's Kingdom is Getting More Complicated

"Content is King." How many times have we heard this assertion?

But being king hardly means lounging around enjoying the good life. With each passing day, content providers are facing a more and more complex world, which must be sorted out in order to obtain the highest ROI on their production and marketing investments.

Based on discussions I have had with content providers, the following three interrelated questions continue to surface:

Where's consumer behavior heading?
Nobody can be sure of what's going to work for consumers when it comes to new video options. So while it's cliché to say consumers want content anytime, anyplace, and at the exact price they're willing to pay, when you dig deep into this question there are still far too many variables to define a clear answer to what consumers specifically want. This is likely to remain the situation for some time to come.

Smart content people know this, and that's what's behind the recent flurry of video distribution announcements. This is a time of massive experimentation with market participants eager to do lots of low-cost, low-risk learning, while keeping a vigilant eye on content protection.

Even when data begins to emerge, it can be far from conclusive. One recent example is in the market for $1.99 video downloads from iTunes. Apple says that iTunes has done 8 million of these. While many people interpret that amount as a leading indicator of an emerging business model for $1.99 downloads, many others maintain that it's still a novelty and the 8 million is not indicative of future success.

Personally, I believe there are three key drivers that will continue to guide consumer behavior: convenience, price and quality (both quality of viewing experience and quality of selection). Consumer behavior will emerge as a function of how each individual consumer weighs these three drivers under a particular set of circumstances. This latter point is important — depending on circumstances the same consumer may exhibit vastly different preferences and behaviors.

The bottom line on consumer behavior is that it will continue to evolve for many years to come, as technologies that are just coming into the market now are diffused and adopted. General trends are important to follow and extrapolate from, but consumer behavior with different types of content will vary. So content providers need to focus on understanding their own particular video assets and genres, and then investigate changes in consumer behavior in these specific segments.

What business models and content will work best?
Closely related to consumer behavior, content owners want to know which business models and content will work best. Obviously this question is closely tied to understanding evolving consumer behavior and what's technically feasible. In addition there are several key sub-issues.

The first issue is whether the content should be free to consumers or not. On this decision alone, there are multiple opinions. If the content is going to be free to consumers, then advertisers are going to be the sole source of financial support. With the advertising community's interest in moving dollars over to online and broadband specifically, and the reality that consumers are more likely to adopt a new media if it is free to use, a free consumer offering seems smart. However, broadband advertising, while growing fast, is still small in absolute dollar terms, so the kind of content that can be funded with ads alone must be very low cost to acquire. When it launches, AOL and Warner Brothers In2TV will be one of the highest profile ad-supported initiatives and will be closely watched as an early proof point for the ad-only model.

Conversely, if consumers are to be charged, then the question is whether to favor subscription business models or per use rental/ownership models. Subscription models offer compelling economics, but these are fundamentally rental models, whereby consumers don't actually own anything. In either case, getting consumers to open their wallets requires compelling content. Thus the questions of short form vs. long form, original vs. repurposed, user-generated vs. star-driven and others are all being intensively scrutinized in the content community.

Yet another issue is that for most large content producers, the role of distribution partners is key to their current business models. So it's important to avoid upsetting these incumbent distributors, and maybe even find a role for them in new business models. But as the old adage goes, it's hard to make an omelet without cracking a few eggs. New technologies that bring new efficiencies to markets induce lots of paranoia that middlemen/distributors will be shut out of direct-to-consumer models. So a push and pull dynamic between content providers and distributors will continue.

A final issue related to business models is the role that competition is playing. The "democratization of content" being enabled by widespread broadband connectivity and affordable new publishing platforms has been a recent rallying cry. If true, then new competitors will have far lower costs of entry, and be far more able to reach their intended audiences than traditional competitors. As a result, new competitors may spring up across multiple categories, exploiting new business models to grab market share. So for incumbents the challenge is how to pre-empt these new players by innovating themselves to achieve acceptable ROIs under new market circumstances.

What technologies will win?
Another interrelated question is which technologies will win? Of course, picking winning technologies is not for the faint of heart. In fact, what does it even mean to be a "winning technology"? Being adopted by the most number of users? Providing the most differentiated service and features? Being the lowest cost to implement?

As content providers survey the landscape of new platforms to consider, all of these questions come into play, both for short term and long term consideration. Clearly content providers want to address the widest possible audiences. But sometimes it's sufficient just to have critical mass or the promise of critical mass. This is clearly the case with Google Video Store, which has only recently launched a revenue generating mechanism, but is already generating a huge amount of interest in the content community.

As a result of the difficulty of picking winning technologies, content people often declare themselves agnostic, and profess a willingness to work with multiple technologies and platforms. Broadband, mobile, portables, Windows MCE all seem to be on the table. However, resources are still finite, so choices need to be made. Often it is only behind closed doors that strong biases for and against certain technologies are revealed. These biases become important guides in executive decision-making.

I continue to believe that for new video distribution technologies to succeed, they need to be finely focused on optimizing one particular user experience and content business model. Once a foothold has been established, this can be used to grow into other areas. A great example is how Apple optimized the iPod for music, and then with this success, expanded to support video. At least for now, buyers don't regard iPod's video capability as their primary purchase criterion, rather they look at it as an incremental feature to the music capability. Further, Apple's business model for video is paid downloads, just like music. However, it is likely that we'll see other business models evolve from Apple, leveraging the success of paid downloads.

Conclusion
These three intersecting questions are being resolved in the marketplace and the regular drumbeat of announcements reflects each step forward. Content people want to position themselves properly for new learning opportunities, revenues and positive PR. At the same time, they are looking at long term structural changes in their markets brought on by new technologies, consumer behaviors and business models. All of this makes maintaining content's kingdom look harder and harder each day.