We Don't Need No Stage!

February 23, 2009

telephone switchboard from the 50sAs a child growing up in Michigan in the 1950s, our telephone was connected to elaborate circuitry known as switchboards. The "operator" connected circuits as calls were made, and the technology to automate all that was just coming into being. These operators were often featured in television shows and films of the period, and they were just an accepted part of life.

A telephone call back then was a closed circuit from one point to another, and trust me, when the phone rang in my house, it was a very big deal. Depending on what you could afford, your circuit was often shared with others in what were known as "party lines." You'd pick up the phone to make a call only to discover that some other member of your "party" was using the line. Yikes!

So in telephony fifty years ago, the circuit and that which was being transmitted on the circuit were connected. The form was connected to its content, and this was the way of all communications. You could only watch Hollywood films at the theater. Ed Sullivan was on TV Sunday nights. Music was available on vinyl records. And so forth.

In 1960, scientists began experimenting with what's known as "packet switching" on telephone lines, where the data being transmitted was separated from the circuit and repackaged at the other end. Wikipedia describes it this way:

Packet switching is a network communications method that groups all transmitted data, irrespective of content, type, or structure into suitably-sized blocks, called packets. The network over which packets are transmitted is a shared network that routes each packet independently from all others and allocates transmission resources as needed. Principal goals of packet switching are to optimize utilization of available link capacity and to increase robustness of communication.

Packet switching is the foundation upon which the Internet is built. The breakthrough came when the Department of Defense used it to build ARPANET (Advanced Research Projects Agency Network), the precursor to the Internet.

Michael PowellThis ability to separate form from content is at the heart of all of the disruptive technologies and innovations that we have in communications today. Former FCC Chairman Michael Powell referred to it during a formal chat with students at Stanford University in 2004.

"...if you're the music industry, you're scared. And if you're the television studio, movie industry, you're scared. And if you're an incumbent infrastructure carrier, you'd better be scared. Because this application separation is the most important paradigm shift in the history of communications, and will change things forever... I have no problem if a big and venerable company no longer exists tomorrow, as long as that value is transferred somewhere else in the economy."

While there are certainly questions as to whether value is transferring or disappearing, there's no doubt that venerable institutions are in trouble today as the result of application separation. The issue, however, is not how to protect oneself from this disruption, but rather how to move forward within it. And the problem for everybody in the world of communications is that once you separate "content" from the form in which it is presented, you give up the ability to monetize any subsequent forms of presentation. "Content" has no value in and of itself. The value is always with the presentation, and this is the real problem in an unbundled world.

It's the single most significant issue confronting the copyright industry and copyright law in contemporary culture, for the ability to separate form from content didn't exist when original laws were written or the concept of copyright was even conceived. If you wrote a play, you made money through a stage. If you created the news, you needed a printing press to monetize it. If you wrote and performed a song, you needed a record. If you created a movie, you needed a theater.

Since all of that has changed, the ability to make money from content of all forms must be connected to the original content itself and not the form in which its presented, and this will require a major shift in the paradigms governing copyright. Formulas for determining value that are based on forms of presentation are simply unworkable, for the Web routes around such roadblocks, viewing them as impediments to the mission of putting packets together with consumers of packets. What difference would it make, for example, if a film was pirated, if the value of that film was connected directly to it, rather than associated with the form in which it was presented? This is a significant business challenge, but not one that is insurmountable. It simply takes a new pair of glasses.

Boxee LogoThis is at the heart of contemporary debate, and it is evidenced in the decision by the NBCU/News Corp streaming video platform Hulu.com to pull its videos from the online streaming browser Boxee. It wasn't Hulu's decision, for Hulu is merely a form of presentation; Hulu's "content partners" asked for it. But Boxee is also a form of presentation, and while Boxee actually enhances Hulu's content by optimizing it for viewing on a television set, Hulu's content partners view it as another way to squeeze profit from copyright.

Hulu has also removed its content from the CBS-owned video aggregator, TV.com, and the logic here is the same. Hulu thinks it can create sufficient scarcity to force people to its own property, where it can then make money. If their videos go elsewhere, they want compensation, but this is contrary to the nature of the Web.

There are currently three ways to make money via copyrighted "content." One, the consumer of that content pays directly (movies, books, subscriptions, etc.); two, a third-party pays to present the content to consumers (syndication); or three, a third-party pays in order to access the eyeballs of those who are consuming the content (advertising). These three methods all stem from the laws of mass marketing, but the Web is not a mass-marketing medium, no matter how much traditional media moguls say it is or try to enact laws that make it so. The one-to-many model simply doesn't work online, because connectivity is horizontal.

There is no stage in the online world, and value propositions based on such are unworkable. Content has been freed from the limitations of the stage, and the sooner we all accept that, the sooner we can get on with the task of creating ways to pay for the costs of creating content.

We must find a way to attach a value to original content in such a way that, no matter how it is consumed, the copyright owners are compensated. That value must be fair and, in the meritocracy that is the Web, be able to produce profit, if the users (a.k.a. "the people formerly known as the audience") deem it of sufficient quality. Most people think this should come in the form of micropayments, but that concept assumes a virtual box office, a bottle neck that the Web would view as inefficient and route around. It would also require an elaborate rights management system to protect the copyright owner, and this has already been deemed unworkable by the music industry.

In "The Remarkable Opportunities of Unbundled Media" in 2005, I wrote of six ways to make money in a truly unbundled, application separation world, and these still make sense today.

  1. Ads in or around the unbundled items
  2. Expand distribution channels and the number and type of items offered
  3. Charge for some unbundled items
  4. Ads as unbundled items
  5. Helping users rebundle
  6. Smart Aggregators and Ad feeds

Of these, I believe number four and number six hold the greatest revenue possibilities for media companies. Already, consumer industries are creating their own media for distribution, and this will be a growing business, perhaps even harkening back to the day when advertisers paid for their own programs that were distributed via the fledgling broadcast networks. Number six is so potentially lucrative that it alone could support the artistic endeavors that drive media companies in a mass marketing world.

There is also considerable potential in number five, and this is what Hulu, TV.com and Boxee both help consumers do. Getting into this business is smart for media companies who want in on the new distribution models, but (so far), they're blinded by the old mass media scarcity concept, which is what produces the kinds of problems we're seeing with Hulu's "content partners." If you seriously want a share of helping users rebundle, then you must be prepared to put your own material out there for rebundling by others, too.

In Media 2.0, the stage is separate from the play itself, and enterprises that support this will prosper.

This is the only thing that makes sense to the Web, and what's stopping it is the fear of the copyright industry, a fear based in the misguided belief that it will destroy the money tree known as charging for every form of presentation. The only group that would be impacted by such a system are the lawyers paid to ferret out "offenders" who are simply trying to find a better way to serve the wants and needs of the people.

Like compound interest, residual payments for copyright are the Eighth Wonder of the World. They are built on assumptions that must be challenged in today's world, for they are formulas that support greed and nothing else. It's one thing to prevent other big institutional players from making money off the work of others — which is the intent of copyright — but it's entirely different when copyright law is used to prevent what essentially amounts to sharing. The latest silliness from the RIAA is that they "own" the music you buy, and that you are merely purchasing the right to listen to it. This is the ludicrous end of trying to control the forms in which products are consumed (I own the socks; you're purchasing the right to wear them). The people formerly known as the audience have figured out that the music's the thing, not the packages in which it comes.

The worst thing about such assumptions is that clinging to them prevents us from moving forward with the new.

Copyright owners should be able to set the price for consumption of their goods and services, but once that price is set, it shouldn't matter which channels or forms I choose to consume those goods and services. It's called commerce. You sell; I buy. It's mine. Application separation indeed changes everything, but it does not necessarily follow that it has to mean a loss for the people who create that which has been separated. This is doable for the artists of society, but artists are generally terrible business people, so the business of creativity has had very little to do with creativity or the artists themselves. It has become the purview of smart business people who view creative endeavors as their property.

NBCU's Jeff ZuckerNBC President and CEO Jeff Zucker is in the business of art, and his views are shared by those within his community. Hulu.com is one of his babies, and he is well-aware of this whole application separation business as it relates to his ability to make money for NBCU. In a 2007 speech, he made a statement that has been parroted by the mass media crowd ever since. Zucker said that the industry had to "effectively monetize" digital media "so that we do not end up trading analog dollars for digital pennies."

There is a huge difference between analog dollars and digital pennies, but it has nothing to do with value, for analog dollars come in opaque boxes while digital pennies are transparent. This is a greater fear for the mass marketing world than the actual dollars versus pennies argument, for atomized and transparent content does not play well with blue smoke and mirrors — the kind of stuff that these businesses use to create wealth for themselves.

So Zucker's statement is more precisely that he doesn't want to trade opaque dollars for transparent pennies, and this is the problem for all mass media that is supported by advertising. Whether it's print or broadcast, the opaque nature of the sale is what allows the media companies to grow their businesses, and the more opaque, the better. The old saw about not knowing which 50 percent of the audience sees your ad is what has built media empires, despite the metrics of circulation or program ratings. There are uncertainties built into such measurements that can be exploited to hide realities that the publisher or programmer would rather keep hidden.

But application separation allows extreme precision, and this is both the great strength and the great weakness of the Web. The ability to serve and track ads separate from the pages on which they are served has changed the balance of power in the publisher-advertiser relationship, and those opaque dollars are flying out the window with remarkable speed.

With transparency comes the ability to determine costs, and this terrifies those whose business models are built on opaque sales. After all, if one can determine cost, one can determine profit, and that's a public relations nightmare that high margin companies can't afford.

Another problem for the "analog dollars and digital pennies" argument is that at the heart of the personal media revolution is a satisfaction with those pennies. It's a growth market for those with low barriers to entry, including costs. Mass media does not want to truthfully examine costs, for those costs support the infrastructure that allows for the making of money in the first place. A printing press used to be a license to print money. Same with a broadcast tower (and license). All that has changed, and to the new participants in the media game, those pennies look like a lot of money.

The stage has long been a necessary part of our culture, and in some ways, it'll always be with us. However, it's importance as the gathering place for crowds has been replaced by entirely new methods that cater to the wants and needs of the people formerly known as its audience

We don't need no stage anymore.