9
Competing in a Networked World
Approaching its fiftieth birthday party, Sesame Street is chugging along with as much steam as ever. PBS reported that an estimated five to six million preschool kids between ages 2 and 5 still tune in each week to devour the adventures of characters like Bert and Ernie, Cookie Monster, and Oscar the Grouch, with the requisite daily allowance of ABC’s and 1‐2‐3’s mixed in.
In many ways, the mission has remained the same since 1969 when Kermit the Frog emerged from the primordial soup of VHF antennas and “pay TV” to host the most successful educational children’s program in history. But everything aside from the mission has changed. A half century in, the platforms by which Sesame Street reaches its audience have evolved and mutated, reshaping not just the distribution network, but the business model and the creative process itself. Where public broadcasting stations were once the main delivery system, Sesame Street now reaches many of its young viewers through HBO and video on demand, giving the premium channel first dibs on the latest programs—in exchange for the money that the Sesame Workshop, the nonprofit production organization, needed to produce them. Sesame meanwhile has launched a website and apps including STEM mobile games and a cloud‐based, vocabulary builder powered by artificial intelligence (AI), in collaboration with IBM. All these efforts put Sesame in the learning technology business, not to mention the movie, toy, and merchandise licensing business. And in 2016, the production company unveiled a corporate underwriter‐funded YouTube channel that is designed to drastically cut costs, boost innovation, and provide nimble audience analysis to inform creative decisions. The YouTube channel, executives believed, would be to the current generation what PBS was to children in the past.
In the evolving media landscape, survival of the fittest means survival of the most adaptable. And what could be a more adaptable, early‐adopting audience than one made up of preschoolers? As YouTube’s global head of family and learning, Malik Ducard, told NPR: “One thing ‘Sesame’ has consistently and effectively done from their beginning…was to really harness new media and technology and new formats in every generation.” If the medium is the message, this was a teachable moment. As actress Christina Hendricks, known for her role in the AMC television series Mad Men, explained to Elmo on an episode of Sesame Street: “Technology is a tool that helps you do things.”
That’s a facile concept, but the implications for how media companies monetize these personalized, overlapping, always‐on tools are complex and increasingly problematic, particularly for news companies. In the example of Sesame Street, we see that perpetual innovation creates networks of new relationships that seem contradictory: a public broadcaster partners with a premium subscription channel; copyrighted content bankrolled by old‐line charitable foundations is shared on YouTube. In such a world—a “Me Media” or “Infinite Media” age—how would Mad Men’s Don Draper, creative director for the fictitious advertising agency Sterling Cooper, not just survive but thrive?
This chapter slices that question into three parts:
- In a media environment that has shifted from finite content/infinite attention to the reverse—infinite content/finite attention—what are the economics for media organizations, particularly as tech behemoths such as Google, Amazon, and Facebook seize a disproportionate share of revenues?
- How have traditional boundaries between media organizations competing for that attention become contested, or at least blurred?
- Along those blurred lines of business relationships, how can media organizations use collaboration to protect themselves from the threats these changes pose?
In the age of Mad Men, the lines between content‐producers, advertisers, and audiences were each as clear‐cut and immutable as the part in Don Draper’s hair. What scholars call the “mass media” era, stretching from the 1840s to 1990s, revolved around reaching people where they were, either in terms of geography or media channels. The model was operational excellence built around efficient infrastructures. The goal was to mass‐produce content and distribute it to a large audience, typically through a single channel, and the financial formula was basic. Media companies held all the cards: content creation, production, sales, distribution, and most important, audience. Advertisers wanted to reach the audience. Therefore, advertisers paid media organizations a lot of money. The result was a jackpot for media companies. With profit margins this wide, why partner, let alone share?
The answer, as we saw in Chapter 1’s whirlwind journey from Gutenberg to Zuckerberg, is that the world has changed. With the advent of the Internet, media companies no longer have the monopoly on production and distribution, supplying limited content to satisfy the attention of an unlimited audience (Figure 9.1). Now, in the age of infinite or “Me Media,” supply and demand have traded places: there is unlimited content competing for a scarce amount of attention. Now, as never before, audiences can access virtually any information, entertainment, or news they want, when they want, from a variety of sources, most of them free. Media companies are no longer the default solution to reach audiences. The result is that advertisers have options to reach audiences—online display ads, mobile advertising, targeted advertising, and sponsored content.
Figure 9.1 The mass media bubble.
Why is this important? As we’ve seen, advertising revenues follow engaged audiences. When brands and consumers are publishers and anyone can get virtually any information, news, or entertainment they want at any time, savvy media organizations build for the “Me Media” era. They create premium content on multiple platforms, and do so cost effectively. The result is a business model shift from operational excellence to innovation, by delivering relevant, adaptive content to attract people, what we sometimes call the “few to few” approach. With apologies to Kermit the Frog, it’s not easy being green. But as we’ll see from the numbers, green is all there is to be.
Media Economics on Steroids: How to Measure Infinity?
While we have addressed the dramatic changes in consumer behavior in the “infinite media” era, we still need to consider how audiences have fragmented across a broad spectrum of digital news, information, and entertainment content. For example, in some local metropolitan markets, Google, the most popular website by visits, commanded 10–15% of average monthly website visits (from within designated market areas) in 2015, followed by Facebook with 7–12% of visits, according to research done by Morris Communications. It’s not surprising that Google and Facebook lead in average monthly website visits. But more staggering is the number of websites users visit in many markets in an average month. There is a vast sea of outlets with ever‐smaller audiences, most attracting less than 2% of visits. Where does all this leave local news sites, the former gatekeepers that came between advertisers and audiences? In the age of “Me Media,” they garner on average less than one‐half of 1% of total visits.
Pew’s State of the News Media 2015 found that the proliferation of platforms serving up articles and videos, news, entertainment, and sports, increased dramatically from 2011 to 2015. According to Pew, this, in turn, has made traditional publishers more dependent on Google and Facebook for driving attention and traffic. Outlets needed these platforms to stay afloat. And to understand the enormity of the sea change, take a look at the following measures, keeping in mind that in 2017, there are 7.2 billion people on the planet.
- Reach: Google’s parent company, Alphabet, has seven products surpassing one billion users each, including Android (Google’s mobile operating system), Gmail, YouTube, and Google Maps. Meanwhile, in 2017, Facebook was closing in on two billion users worldwide, according to the company’s SEC filings and industry estimates. And one more headline: that number had doubled since 2015.
- Engagement: Google’s number of daily users is estimated at 1.5 billion, Facebook’s at 1.28 billion. At Facebook, year‐to‐year growth has been about 20%.
- Dominance: As of 2017, Google.com processed 3.5 billion searches daily (40,000 per second). At Facebook, Zuckerberg estimated that out of every minute spent on a smartphone, 20 seconds of that was spent on Facebook.
Clearly, that’s a lot of “OK Google” requests, likes, shares, and cat videos, which all add up to audience engagement. And audience engagement means—you guessed it—advertising dollars. In 2017, eMarketer reported, the Silicon Valley “duopoly” of Google and Facebook was on its way to controlling 60% of online advertising. Importantly, that curve is growing steeper. In the third quarter of 2016, digital ad revenue grew by almost $3 billion over the third quarter of the year before. That was good news—except to smaller media companies. As reported by analyst Jason Kint and echoed by counterparts at the Interactive Advertising Bureau (IAB), 99% of that ad revenue growth went to Google and Facebook, and 1% went to what Kint called “Everybody Else.” The writing is no longer on the wall for media organizations: it’s on a sign with big red letters that spell “DANGER.”
Clearly, the big three of tech companies—Google, Amazon, and Facebook—have siphoned off profits from content creators in music, books, news, TV, and movies. Now, they are poised to make inroads into other parts of the economy such as grocery stores (Amazon, with its purchase of Whole Foods) and transportation (Alphabet’s Google, with the introduction of self‐driving cars). The comparative strength of these AI forerunners in turn “begets strength,” as venture capitalist Kai‐Fu Lee predicted in the New York Times. “The more data you have,” he wrote, “the better your product; the better your product, the more data you can collect; the more data you can collect, the more talent you can attract; the more talent you can attract, the better your product.”
Apart from the job‐killing aspect of artificial intelligence (think, self‐driving Ubers) is the more immediate concern: the concentration of profits in the hands of a few companies, with neither recourse nor competition. Take, for instance, Facebook’s and Google’s advertising revenues. When TV and newspapers were still dominant advertising platforms, there were third‐party monitors such as Nielsen or the Audit Bureau of Circulation to independently evaluate reach. Until recently, the dominant online platforms have avoided third‐party auditing. However, in 2017, Procter & Gamble, the largest purchaser of advertising in the world, began demanding that the digital giants provide independently audited measurements of ad effectiveness.
There are a couple of important takeaways here for media organizations. From the consumer point of view, the 40‐year‐old theory of Media System Dependency (MSD) still applies. In a nutshell, the theory developed by Sandra Ball‐Rokeach and Melvin DeFleur states that the more dependent people become on the media they consume to have their individual needs fulfilled, the more important the media will be to people. That sounds intuitive, but consider MSD through the added dimension of social media. Social media not only provided yet another channel for publishers to share content; it empowered users to create and share their own content, making them both consumers and producers. The more dependent individuals are on social media, the more often they talk with others offline about the topics to which they pay attention to on social networking sites. What is more, habitual and heavy social media use fosters dependency on online media to the detriment of non‐online alternatives.
The second takeaway, then, is the new way media organizations, especially news organizations, think about their so‐called “competition.” Take Google, for example. Is it a media company’s friend or enemy? In the early days after Google went public in 2004, the technology behemoth fit the definition of friend. It simply aimed to move users, as the Wall Street Journal put it, “out of Google and to the right place on the web as fast as possible.” For media organizations building content for burgeoning digital audiences, Google helped build web traffic and get content in front of larger audiences than media companies could have dreamed of reaching on their own. For a time, this resulted in higher ad revenues, and the addition of AdSense allowed companies to place relevant ads on their websites.
It was a friendly collaboration so far. But it wasn’t long before Google, recognizing a lucrative opportunity, added to its own advertising business. First, it purchased the start‐up Where 2 Technologies based in Sydney, Australia, and renamed it Google Maps. As it was, the free GPS app was optimized for local advertising; add in mobility with the birth of the Apple iPhone, and Google Maps exploded. Two years later, in 2006, Google bought yet another platform to leverage for advertising, YouTube. Next, it bought DoubleClick, giving Google the software to optimize and track display ads, enabling advertisers to measure the effectiveness of their rich media, search, and online ads.
By now, you are doubtless detecting a pattern. Somewhere along the line, Google wasn’t the media company’s friend anymore, and began to look more like an enemy. In a potential preview of government intervention to come, EU regulators in 2017 fined Alphabet $2.74 billion after concluding that Google favored its own ads over those of competitors, a finding the company disputed and appealed. In many cases in our networked world, how thinly drawn is the line between friend and enemy? And for media organizations that must contend with today’s technology giants—Google, Facebook, and Amazon—in order to survive, does the line become blurred? Let’s take a look at a new kind of collaboration, that’s neither friend nor enemy. In the snarky phrasing of Alexa Young’s bestselling young adult heroines, they are “frenemies.”
Contested Boundaries: Battle of the eBooks
It was a B‐school textbook case of frenemies: Amazon and Apple’s entry into the e‐reader market. The competition came with the emergence of technology allowing users to download book titles ranging from the classic (e.g., To Kill a Mockingbird) all the way to the pulpy (e.g., Faketastic, from the Frenemies novels.) Both Amazon and Apple wanted in. The first question: Was the market big enough for the two of them? The second question: Could one survive without the cooperation of the other, or to put it in B‐school‐speak, without “key vertical input?”
In the beginning, Jeff Bezos launched the e‐book customer’s best friend, the Amazon Kindle, a monochromatic but highly functional gadget that debuted in 2007. All was well until 2010, when Steve Jobs introduced the popular, multi‐talented new girl at school, Apple’s first‐generation iPad, which included the iBook interface with iTunes. The rivalry for readers’ attention was on, but with a complicating factor: each rival had something the other wanted and needed. Amazon wanted access to the growing community of iPad users. iPad owners wanted to use their Apple‐made tablets to read titles they bought from Amazon’s well‐stocked e‐library.
The partial solution? In an almost‐classic case of collaboration, Amazon created a Kindle app for the iPad and other Apple devices. Apple, in turn, allowed the app, despite its history of spurning third‐party apps on its devices (think, Google Voice.) But we did say almost classic collaboration. Apple stopped short of making iBook accessible to Kindle users. In other words, the new girl had her limits, and that, in short, is the definition of frenemies. The two rival platforms sought a certain degree of compatibility to expand their individual resources and capabilities. Together, they gained more value than they could have apart, competing head‐to‐head. But that is not to say that they liked it.
It’s that ambivalence—the blurring of conventional lines between competitors—that characterizes contested boundaries. As media companies navigate the complex, interconnected world, it is important to understand what makes a good media partnership, which we define as an alliance between two or more entities for a specific purpose. This alliance may be a contractual, exclusive relationship, or it can be merely a mutually beneficial relationship that expands the media company’s resources and/or capabilities, in the manner of the e‐book example. A few FAQs:
- What kinds of media organizations can partner? These can include advertisers, freelancers, distributors, contractors, and suppliers.
- What is a competitor? This is an entity that supplies a similar product or service, which offers either advertisers or audiences an alternative.
- So, my competitor is my enemy? This is where the media industry gets tricky. An enemy may be non‐conventional and not a competitor, as such. A threat can emerge when a different industry—say, a technology company like Google—encroaches on the boundaries of media organizations through shared or similar activities. That’s when things become contested. One‐time friends become enemies. Former enemies join forces. Think of it as high school, but with a better lunch menu.
- So how does this work out (or not work out) across the market? From a media publisher’s point of view, the interdependence with online platforms, as well as entertainment content creators has come with strategic, economic, and distribution challenges caused by contested boundaries. In business, a contested boundary occurs when two or more entities dispute, contend, or compete in a perceived or real market. For media organizations, the growing interdependence with online and content creation firms has created four primary contested boundaries. These give the leaders on each platform (and the leaders’ challengers) the chance to become the platform that media organizations rely on to reach customers. But again, that reliance is problematic, hence the “contested” part.
Display Advertising
For a case in point, referring to Table 9.1, let’s look at the first and probably most significant boundary that media companies contest with Google and Facebook: display advertising. Display advertising is a type of online advertising that comes in several forms, including banner ads, rich media (e.g., video, audio), and other interactive elements, positioned in a variety of locations on a website. In the United States, digital display ad spending eclipsed search ad spending for the first time in 2017. Digital made up 36.7% of total media ad spending in 2016 and will account for around half by 2021. Mobile is likely to be the main driver of this growth, commanding more than 70% of digital spending.
Table 9.1 Media revenue contested boundaries.
| Media revenue contested boundaries | Leading platform | Challenger platform |
| Display advertising | ||
| Retail advertising | Amazon | |
| Mobile search & apps | Apple | |
| Entertainment | Netflix | Amazon |
How has Facebook garnered such a large share of the display advertising market and how has this created media interdependence? Display advertising was not the reason Mark Zuckerberg created Facebook, but as the largest news, entertainment, and information distribution platform in the world, it has a massive audience of users that advertisers are keen to target.
In what advertisers consider the demographic sweet spot of millennials, more than 60% get their news from social media, and Facebook provides a sizeable and growing share of Internet traffic, with 1.28 billion daily users, as of 2017. As we saw with Google, Facebook’s growth has sprouted new revenue‐producing tools for advertisers. For example, Facebook’s ad network retargets based on user characteristics, attitudes, and behavior, seeking greater refinement to reach highly targeted audiences. For media organizations, this means that advertisers that may have traditionally advertised through media now go directly to users through platforms. So, while Facebook may have started as a friend to media organizations, allowing them to distribute their content to targeted audiences through collaboration, media organizations increasingly view Facebook as the enemy, poaching display ad dollars that were once the lifeblood of media organizations.
As of 2017, this situation has reached critical mass, and this created new complications. As legacy news companies continued to bleed journalism jobs, just as Facebook and Google’s parent company posted record profits, new threats emerged to the other parts of the picture: news consumers, and by extension, advertisers themselves. For consumers, the threat was both “fake news” propagated by political operatives or simple pranksters, neither of which a platform like Facebook was equipped to combat. And for advertisers? As New York Times CEO Mark Thompson told investors, the threat was that companies would find their display ads next to “dishonest or tawdry content.” (This turned out to be a problem for Google’s automated auction system for selling ads at the beginning of YouTube videos. Major advertisers pulled their spots after discovering that they ran at the beginning of videos that contained hate speech, racist, or otherwise disreputable content, a problem Google promised to fix with new screening technology.) The question still to be resolved was whether friends who had become enemies could become friends again. If a duopoly such as Facebook and Google relies on premium content it gets for free (such as quality journalism), what happens when the supply of that content dries up?
Retail Advertising and Cookies
The second contested boundary for media organizations is with Amazon and Facebook for online retail advertising. Online retail advertising, which seeks to sell small quantities of goods for personal use, is dominated by Amazon. What do we mean by “dominated?” As of 2017, Amazon has $80 billion in online sales; that’s about six times the figure posted by the number two online retailer Walmart, with $13 billion.
A site like Amazon is a place where partner retailers can operate, subsuming traditional media inserts and other forms of media advertising. Today, online retail advertising is facilitated by retargeting from browser cookies, small traces of data a website sends to a user’s computer to help the site remember the user’s browsing activity and form fields such as names and credit card numbers. Miguel Helft and Tanzina Vega’s 2010 article in the New York Times explained that behavioral retargeting (or simply retargeting) is a means for advertisers to appeal to consumers based on their previous actions. An online digital action is generally a browser page request that returns the page with a cookie sent from the server and stored in the user's web browser. The cookie is then used for future marketing purposes. For example, imagine that you searched for Nike sneakers on Amazon, closed the Amazon browser, then a few days later, visited the ESPN website. It’s no coincidence that the ESPN page includes an Amazon ad featuring the precise Nike sneakers for which you shopped earlier. Through the magic of cookies, you’ve been retargeted.
Retargeting through cookies is not new, but worth noting is Amazon’s continuing dominance of the domain, despite some forays by Facebook into the realm. With Amazon’s extensive advertising network and retargeting technology, as well as delivery capabilities that can be used effectively by advertiser/retail partners, media organizations are competing even in local markets for these online retail display advertising dollars. That makes, Amazon (and to a lesser degree, Facebook) a “frenemy” of media organizations, because both compete for the same revenues.
The Mobile Market
The pitched battle for the mobile search market has multiple fronts, each hotly contested. A little background: ever since 2015, smartphones have outpaced all other searches, surpassing projected growth rates. As for retail, according to forecasts in the Forrester report, purchases made through consumers’ smartphones were estimated at $60 billion in 2016, and by 2021 are projected to hit $152 billion in purchases, about a quarter of all online retail. Perhaps even more noteworthy is the estimated trillion‐dollar role mobile searches already play in influencing offline purchases. That means comparing prices, reading product reviews, checking store hours, item availability, and coupons. This is a win for Google, right? Yes—and no.
Where the blurred lines exist are between browsers like Google, websites such as Amazon, and associated apps consumers can download like Amazon Shopping or Etsy. So, let’s say you want to buy a fidget spinner through your phone. Sure, you can Google “fidget spinner,” and, on any given day, the search engine will return 43.1 million results in .56 seconds, with the top results being a row of “Product Listing Ads” including seven nearby retailers (assuming your phone’s location is turned on). But there are other options for the fidget‐spinner shopper. You can bypass the Google browser and go straight to your Amazon Shopping app, complete a one‐click purchase, and save 78% without going anywhere. Or maybe that’s too much work. Why not just ask Siri?
So, quicker than we can say, “Hey, Siri, find me a fidget spinner”—or whatever the next Hula‐Hoop fad might be—we see the increasingly contested (and sophisticated) overlap between browser, app, and retail advertiser. Because mobile search is often locally triggered, local businesses are investing more advertising dollars into mobile search and apps because users that are searching are more transaction‐oriented; that is, they know what they want to buy, and a search provides the means to do so. And with mobile search becoming increasingly voice‐activated, and more and more dominated by Siri through the Apple Ad Network, Google, Apple, Amazon, and others further become frenemies of media organizations. The platforms help engage audiences with relevant content, but compete for advertising dollars.
Video on Demand
Perhaps nowhere do these contested boundaries appear in more dramatic relief than in the entertainment sector. Whereas media organizations once had a friendly collaboration with streaming services like Netflix, Amazon Instant Video, and Hulu, now these services appear as threats. They have increasingly become producers of original content, with such commercial and critical hits as House of Cards, Orange Is the New Black, Transparent, and The Handmaid’s Tale. So even as the Internet streaming services helped media companies such as CBS or AMC distribute to new audiences of cable “supplementers,” “cord‐cutters,” and “cord‐nevers,” Netflix and its imitators have now encroached into production, technological innovation, marketing strategies, and partnerships that shrink media audiences and therefore negatively impact advertising revenues.
How does this occur? Netflix, for one, in 2017 planned to spend $6 billion on programming, second only to ESPN ($7 billion) but well ahead of NBC ($3.4 billion.) That spend builds for Netflix a competitive advantage that becomes self‐fulfilling. Attracting more subscribers enables Netflix to afford more content. In a similar move, Amazon Studios released the Oscar‐winning Manchester by the Sea, its first feature film in theaters (simultaneously streamed). The streaming services’ moves into premium original content in turn attract even more subscribers, what Business Insider termed “a vicious cycle,” the self‐perpetuating pattern.
Netflix, moreover, is expanding beyond just movies and television series, and has committed to purchasing non‐sports content that has high quality programming and good pricing. In a final turn of the screw, that includes journalism. For example, transformational original content included Making a Murderer and The Keepers, documentary series that, in a previous era, would have been the domain of news media organizations’ investigative reporting. Or, consider other video content from independent filmmakers that distribute their work to a Netflix or an Amazon, competing with human interest stories featured by traditional news media outlets on their (owned) platforms. For these reasons, we can expect Netflix and Amazon to expand even beyond entertainment content, becoming frenemies of a host of media organizations by drawing audiences away with potentially more relevant and engaging video content.
The New Economics of Networks and Networking
The baffle of overlapping and competing interests, like the rat’s nest of wires tangled up behind your entertainment center, can only lead us to one thing: The 4‐Hour Workweek. Well, maybe not literally, but the case study of how first‐time author and time‐management guru Tim Ferriss landed his bold self‐help guide on every bestseller list is a story of how to leverage what we call the “snowball” effect.
A little more than a decade ago, Ferriss was laboring in obscurity running a nutrition supplement company, with nothing to suggest that he was about to become an international author with a book translated into 35 languages. Without the benefit of offline advertising or public relations, Ferriss catapulted his book to success with some key strategies. First, he created a viral idea that appealed to a perceived problem in the lives of a specific demographic—tech‐savvy young men on the East and West Coast—and gave the problem a name: “lifestyle design.” Second, before launching 4HWW, he elicited a strong emotional response (both for and against his ideas.) Third, he found out where his demographic went online, chose the least crowded channels, and made personal connections with the influencers in these channels. He spoke at SXSW. He fostered demographic communities around the book via forums, for example, “4HWW for Programmers” or “4HWW for Students.” In fact, the book started as blog, then became a book that was heavily promoted by influential bloggers and YouTube celebrities. As these networks began to gain traction and momentum, 4HWW was featured on The Today Show and Amazon. The 4HWW phenomenon, which led to a “4‐Hour” empire of related rapid‐learning titles (The 4‐Hour Body, The 4‐Hour Chef, Tools of Titans) is an example of snowball growth. In this model, media organizations build agile, organic networks to take advantage of relevant content that they may promote, aggregate, or reconstruct to engage audiences.
As we’ve discussed in previous chapters, the fundamental shift in media from scarcity to abundance in the twenty‐first century has dramatically changed the economics of media. In short, the abundance (and consumption of) new micro‐media are unbundled from the traditional media model of content aggregation. This inverted media economy, in which content is abundant and attention is scarce, has also driven advertising prices dramatically lower. The reason? We have a greater supply of content, coupled with people consuming more media, particularly online (see Chapter 8 Reaching Current and New Customers). This, in turn, has driven ad prices lower.
Micro‐content has, in large part, driven the expansion of networks and networking by media organizations to work with online partners and entities that are creators, aggregators, micro‐platforms, and re‐constructors, to reach audiences. This differs dramatically from the era of content scarcity, when media organizations would create and promote their own content with a monopolistic “if we build it, they will come” mentality. This approach initially had very high value and low output, but output was expanded through exclusive line extensions (e.g., blockbuster growth).
An example of blockbuster growth is Bloomsbury’s publication, promotion, and release of Harry Potter and the Sorcerer’s Stone, first as a book, then as a movie, as a theme park, and as merchandise. Today, micro‐media is introduced with low value and output, but then experiences what is known as “snowball” growth or “virality.” This occurs when other content producers and aggregators share, repackage, or promote the content, eventually gaining enough popularity that a high‐traffic aggregator or media organization will feature the content.
Interestingly, snowball growth of micro‐content has slightly altered the Media 2.0 Supply and Demand economics in recent years, such that advertising prices are shifting upward (see Table 9.2). To illustrate, the cost per thousand (CPM) price of Google AdWords has supported the theory that as the demand for blockbusters drops, and a growing number of snowballs become viral and achieve scale, the demand curve becomes an “S” curve, pushing prices up, from approximately $4 CPM in 2011 to $12 CPM in 2015. The higher price available in a snowball economy is good news for media organizations, and a key reason that networking can enable more favorable economics.
Table 9.2 Increase in cost of Google AdWords: 2013–2016.
Source: Hochman (2015).
| Service | 2013 | 2014 | 2015 | 2016 |
| Cost per click (CPC) ($) | 0.92 | 1.02 | 1.58 | 2.14 |
| Click through rate (CTR) (%) | 0.50 | 0.90 | 0.80 | 1.16 |
| Cost per thousand impressions (CPM) ($) | 4.70 | 8.81 | 12.07 | 24.74 |
Two leading networking strategies that can enable snowball growth for media organizations are clustering and social exchanges. These strategies provide stability and scale to media organizations’ economies of production, distribution, and coordination without adding additional fixed and carrying costs of owned scale.
Clustering
Clustering is a traditional networking strategy whereby firms, generally from the same industry, locate together in close physical proximity. For example, Silicon Valley, located at the southern part of the San Francisco Bay area in Northern California, is home to many of the world’s largest high‐tech corporations and thousands of start‐up companies that have all “clustered” together as a means for small companies to enjoy some of the economies of scale usually reserved for larger firms. Even though clusters provide many benefits, the degree of interaction and subsequent advantages vary widely by the members of the clusters.
Media companies have a different definition of clustering from industrial or high‐tech companies, because mediated content distribution is not rooted in a physical location. Robert Picard describes mediated content as “motion pictures, television programs/videos, broadcasts, audio recordings, books, newspapers, magazines, games, photography and designs, websites and mobile content.” Picard finds that media clustering works well when contract labor and specialized services or skills are readily available when media organizations need to expand. For example, book publishers may rely on contract editors or writers when they have excessive book contracts to fulfill. Media organizations primarily cluster to gain ready access to labor (and to a lesser degree, specialized skills or techniques) so that when their business needs expand and contract, they can meet these needs on a contract or project basis. This enables media organizations to access talent and skills only when needed.
Similarly, advertising agencies may hire contract creatives, account managers, and researchers when they are pitching or have won new business. Because of the continual pattern of expansion and contraction, media service firms and individual contractors may locate near those media firms that may require their services, but because of the specialized production common in media industries, coupled with the development of digital and communication technologies, physical location is no longer a prerequisite for media clustering. Virtual clusters that depend more on social networks than location have emerged, enabling media organizations (mostly those associated with content production) to use clustering as an effective strategy to create interdependence in both local media and virtual clusters.
Social Exchanges
Social exchanges are based on Social Exchange Theory (SET), which sociologist George Homans developed in 1961. The purpose of a social exchange is to prompt and channel economic activity for members, and exchanges come in three forms: direct, generalized (indirect), or productive. A direct exchange occurs when each party’s outcome depends directly on the other’s behavior. These are the most commonly thought of exchanges, like trading favors. Conversely, the benefit of a generalized exchange is not reciprocal. The return on a generalized exchange is provided by someone else. Finally, a productive exchange relies on cooperation and participation made by both parties to achieve any benefit—like dancing or acting in a play. The social exchange theory suggests that parties create and preserve relationships for expected rewards and positive outcomes.
What, then, is the difference between a social exchange and clustering? Social exchanges are often formed on a relationship basis; clustering generally involves being part of a larger “many‐to‐many” network. Additionally, social exchanges often center on distribution and coordination, whereas clustering applies to production. For example, if a film script called for a particular prop, such as an automobile, the studio may call upon Ford for a product placement partnership in the film. As a member of the film studio’s exchange network, Ford’s relationship has created the opportunity for this product placement partnership exchange, which provides both economic as well as social outcomes.
The Art of Collaboration in a Competitive World
In a competitive world, media organizations need to identify and evaluate potential partnerships on the basis of value created or gained, while minimizing any negative impact from shared contested boundaries. For ad‐supported media companies, this means, as the PwC 2015 Media and Entertainment’s Key Trends puts it, the “development of a robust digital toolkit to build premium inventory whether in targeted and tagged site areas, interest‐specific e‐newsletters or registration‐required applications…that give consumers control, community and interactivity.” The process of identifying and evaluating potential partners is an art, rather than a science, and involves five integrated phases: (1) situation assessment; (2) target audience; (3) value creation; (4) economic evaluation; and (5) measurement.
- Situation assessment: In the first phase of network partnership identification and evaluation, the media organization creates a list of available firms that may be able to strategically complement the firm’s current resources and capabilities to achieve a given strategic objective. For each of the potential available firms, the media organization then assesses each one to determine the degree to which they may be able to depend upon, trust, and share a common economic or social commitment with the firm.
- Target audience: In the second phase of network partnership identification and evaluation, the media organization does an analysis of each firm’s target audience. This analysis can include both qualitative and quantitative research to fully understand the target audience perceptions, behaviors, and motivations. Collaboration is often more successful when the media organization and potential partner firm share a common target audience.
- Value creation: In the third phase, the media organization researches, conceptualizes, and evaluates the potential partner firms on the basis of value creation. That is, which resources and capabilities will the potential firm bring to the media organization and what will these capabilities create or add to the competitive position for the media organization? This portion of the value creation phase illustrates the rewards for both the potential firm and the media organization. The other important value to consider is the value to the target audience. The media organization must be able to identify how the target audience will be served by the proposed collaboration with the potential firm. This portion of the value creation phase is important because in today’s highly networked world, media organizations must create win‐win opportunities for both the firm and the target audience. Otherwise, the endeavor is unlikely to succeed.
- Economic evaluation: In the fourth phase, the media organization evaluates the economic benefit of the potential partner firm. This phase relies on the previous phases to ascertain approximate size, scope, and revenue generation, as well as estimating commensurate costs of the potential project to ascertain the net economic benefit to the media organization. It should be noted that not all partnerships in a networked world need to clear a standard profitability hurdle for the media organization. Some partnerships are created to initially build firm interdependence in nascent markets, with the goal of expanding the value creation in subsequent years when the market burgeons. For example, several media organizations including Condé Nast and Vice Media have expanded into augmented and virtual reality both for storytelling and as a possible avenue for selling future advertising. While they have forged partnerships with companies that make virtual reality headsets and software, they have yet to turn a profit from these ventures. These types of partnerships are investments in future growth, and should be considered thoughtfully during this phase of partnership identification and evaluation.
- Measurement: If the media organization determines the potential partnership is viable to execute strategically, operationally, and profitably, it proceeds to the fifth and final phase of network partnership identification and evaluation: measurement. In this phase, the media organization determines the metrics it will use to evaluate the effectiveness of the partnership.
By practicing the art of collaboration in a competitive world, media companies may move from creating impressions to building one‐to‐one relationships in real time, either directly or on behalf of advertisers. In a networked world, media organizations do not have to exclusively build or provide all resources and capabilities within their own organization. Rather, through thoughtful and effective partnering, partnerships serve to expand digital toolkits and offer more value to consumers.
Summary
In this chapter, we learned how best to partner with other media and technology companies. We detailed changes in the media landscape, explaining how it has shifted from “mass media” to “Me Media” and what this means for how media companies compete and collaborate with one another. Successful media entrepreneurs understand these dynamics and how theories such as Media System Dependency can drive their viability as a media organization. This theory takes on an additional layer of complexity in the Media 2.0 environment, where traditional publishers are even more dependent on platforms such as Google and Facebook, and the once‐clear distinction between “friends” and “enemies” becomes blurred.
In this new environment, the economics are the inverse of the old media world: content is abundant and attention is scarce. Micro‐content can balloon overnight, transitioning from a tweet to a blog to a podcast to a book. This dynamic—the snowball economy—can shift advertising prices upwards and has the potential to provide stability and scale to media organizations. In order to best compete in this competitive world, entrepreneurs must identify and evaluate potential partnerships, relying on five integrated phases where they consider situation assessment, target audience, value creation, economic evaluation, and measurement.