The Internet & Media Connection: Where is the Value?

by Sean Chercover

"Convergence." Without doubt, it is the catchword of NAB 2000. Spoken by Internet entrepreneurs, it sounds like a mantra. Uttered by traditional broadcasters, it sometimes sounds like a curse. Many of the more than 1,000 broadcasters who attended this Super Session came with the attitude of participants in a nervous courtship. As the session began, exactly who was doing the courting was unclear.

Keynote #1 — Steve Canepa, IBM

Steve Canepa is IBM's Vice President of Marketing, Global Media and Entertainment. He has worked both sides of the street. He believes the digital world is here now, and insists that those who resist convergence will soon be road-kill.

"Traditionally, the customer was at the end of a long distribution infrastructure. In the old model, newspapers were written and edited...CDs were pressed with a pre-selected number of songs in a pre-selected order, and then distributed through a physical infrastructure to the consumer. In the Web world, consumers can, and will, make these editorial and packaging decisions for themselves."

This evolution can be seen, according to Canepa, as a move from a push model, where content was prepared and sent to market, to a pull model, "…where consumers will reach into your infrastructure and take what they want, when and where they want it…now, the consumer is at the front end."

Traditional media is based on a one-to-many business model. Everyone gets the same product, in the same format, over the same distribution channel. In contrast, the interactivity of the Internet allows a one-to-one model. Each user can select, or program, the content that he or she receives. But with convergence, Canepa tells us that the market will evolve to a many-to-many model. "Many versions of your content being distributed over many distribution networks (traditional broadcast; broadband; wireless; satellite) in many formats to many target devices (PCs; set-top boxes; PDAs; cellular phones and devices that have yet to be invented)."

Although we will see multiple networks serving multiple devices, Canepa insists that it is the content that will tie everything together. And content re-purposing is the key to profitability in the digital world. In the traditional model, it works like this: Let's say you have four documentaries about children living in four different countries. You notice that in each documentary, there are scenes of children playing sports. So you cull that footage and create a program about children and sports. In the digital world, he says, you go many steps further.

Canepa calls it the "Digital Studio Model". As an example, he cites the popular video game, Mortal Kombat. The content of this game has been re-purposed into many formats and delivered over many distribution channels. In essence, the makers of this game have spawned a studio, with no back lots, and minimal expense.

"Your goal should be to create a content factory…In the digital world, brand is not about specific products, it is about affinities," says Canepa. "If you think of customers as buyers, you're in a lot of trouble…because customers are really a source of information; a way to target your offerings and leverage your business models. And, unlike traditional broadcasting, the interactivity of the digital world gives you the information you need about your customers."

The Companies' Views

James Moroney, of Dallas, TX, is the president of Belo Interactive, which creates Web sites for television stations and newspapers. In the following panel discussion, he supports Steve Canepa's views. "The most intense brand-loyalty in television is between viewers and their favorite news anchors. But the TV station, existing in a one-way medium, learns nothing about its customers." Moroney uses this example to explain the value of the Internet to his clients. On the Web, user personalization allows the station to get this information. "The station's Web site offers an opt-in for permission-based marketing; e-mail reminders that push viewers back to programming on the station that is targeted to the viewer's interests."

While valuable as a marketing tool for the local station, the Web site must be much more, insists Moroney. The station's site must offer original content that goes beyond the broadcast. He suggests expanding the news coverage with background information, reporters' notes and video that did not make it to air. Recently, MySanAntonio.com, a site managed by Belo Interactive, offered a live Webcast of an editorial board meeting, to give customers an inside view of how journalists make their decisions. "In the end, only one or two local news and information sites per market will survive. If you see your site as a side-business, you're pouring money down a rat-hole and you'll never get it back…you won't be one of the one or two left."

Ross Levinsohn, vice president & executive producer at Alta Vista, says that the same limited thinking has hampered many Internet sites. "Had the original owner of Alta Vista seen it as a core company, rather than a side-business, we could've been Yahoo!" While strong local television station Web sites can survive as local portals, Levinsohn suggests that the networks will have to merge with strong Internet concerns. "AOL and TimeWarner did the right thing," he says, "in the future, we'll see ABC and CBS doing something similar, from a different angle...Alta Vista knows that, in three years or so, we're likely to merge with a traditional broadcast network." The Internet is about frequency and distribution, he says, but you must have the content. That's why the marriage makes sense. "In the end, I believe there will be only seven or eight ubur-portals," says Levinsohn, "the rest will be vertically integrated, or cease to exist."

For Discovery Communications Senior Vice President Jeff Craig, the issue of convergence is centered on giving the consumer a richer, deeper experience. "Forty percent of American homes have a TV and a computer in the same room. Consumers are watching TV and simultaneously using complimentary content on the Web…the whole idea of, 'If you like the actor's hat, click on it and you can buy it,' is simplistic and shortsighted. That's not going to bring them back." Craig uses Discovery's site, instead, to expand content and give the user a "travel experience." Selling products on the site is potentially a good revenue-generator, he says, but only in the context of a rewarding experience.

Keynote #2 - Jerry Yang, Yahoo!

When Jerry Yang takes the stage, you can hear a pin drop. Co-creator and Chief Yahoo of the world's largest Internet site, he is a giant in the Web world. Yahoo! can be found in 22 countries and accessed in twelve languages. It draws more than 600 million page-views per day.

"Convergence," says Yang, "is an overloaded term. To me, it is simply the blurring of communications, content, commerce, computers and consumer electronics. The Internet has caused this blurring." He explains that there are three factors driving convergence:

1. Digitalization — the move from analog to digital allows media to be distributed through digital channels, to a wide variety of devices.
2. Bandwidth — cheaper and higher bandwidth will make the potential of convergence a reality for the mass market.
3. Mobility — people now expect to have instant access to information, wherever they are.

The value of convergence, says Yang, is that it offers better mechanisms for distribution of content, unlimited channels and access, more choice for consumers, and new partnerships for industry players. "The Internet is successful because it is horizontal. It is open to innovation, more so than any other industry. This must be maintained."

Yang breaks the post-convergence Internet into four categories:

Devices:

Distribution:

Integrators:

Content:

It is the Integrator, according to Yang, who adds the most value to the equation. As he sees it, the role of the Integrator is to provide information centralized on a network. The information is available to all devices, independent of distribution channel, and on all distribution channels, independent of device. Of course, Yahoo is an Integrator.

Of the 145 million Yahoo users, 65 million have broadband access. Currently, there are over 11 million total hours of audio and video programming available on the site. For broadband users, Yahoo provides a news Webcast with integrated text windows that change in sync with audio and video, live viewer polls, a personalized window, and advertising that is both Webcast and interactive. Yang insists that broadband is already changing how people consume information and entertainment. Yahoo recently acquired MyQuest and NetPhone, because, Yang says, "Voice on the Internet is coming soon…all phone calls will be local…chat will really be chat." Yang says he is most excited by, "the removal of geographic and time boundaries. The word broadcast is quickly being re-defined."

The Analysts' Views

Tom Wolzien comes from a television background at NBC, and is now senior media analyst at Sanford C. Bernstein & Company. He seems appalled by Jerry Yang's presentation. "Content doesn't just appear! Yahoo is trying to commodotize content, but content is actually the only factor that can be used to differentiate your brand. Tribune gets it, as a multimedia company."

Victor Miller, managing director of Bear, Sterns & Company, agrees. "Tribune does get it. And, in the end, those who have content win…those who don't may have to do something else, like datacasting."

Scott Cleland, founder & managing director of Legg Mason Precursor Group, adds that, by content, they mean quality, distinctive, exclusive content. "AOL/TimeWarner wins in the end, because they have the audience and the content." Cleland suggests that by controlling both ends of the distribution chain (TimeWarner for content and AOL for audience) they can squeeze to the middle and eventually dominate distribution, as well.

Wolzien suggests that 18 months down the line, we will see the fruits of the AOL/TW merger and the vertical integration of Tribune. At that time, the big networks will face increased pressure to partner with a major Internet presence. "Yahoo doesn't think it needs content. Alta Vista is a likely candidate; they get it. Most Internet companies still don't, and content is being ignored. In the meantime, the NAB and the big broadcasters have to get their act together. The broadcasters are asleep about getting a backchannel. They should be down at the FCC, banging their fists on the table, demanding some bandwidth for a backchannel."

With such an intense reaction from the wizards of Wall Street, maybe it's time to sell my Yahoo! stock. I wonder if Alta Vista has gone public...

Sean Chercover chercover@earthlink.net is a freelance writer and nonlinear editor. He doesn't really own Yahoo! stock.