TOC Capitalism, the Media and the stonebreaker Your Turn

French have an attitude problem, says top US banker. While Martin Arnold and Peggy Hollinger record French business leaders' concerns about Ms Ségolène Royal's electoral program (*), Joe Perella's interview by David Wighton (**) goes on to mention how wealthy French leave their country to escape its tax burden. It all looks so familiar. As a French who lives in the Greater Boston area, I have witnessed my share of wealthy citizens of Massachusetts slipping across the border to New Hampshire for tax relief. Does it make Boston unfit for capitalism?

The matter is, capitalism has an aptitude problem. Joe Perella is right to stress how good capitalism is at value creation. If we feel poorer when our neighbor becomes richer, it's pure Envy, a Capital Vice (1). But I would submit that capitalism is not so great at value redistribution, witness Paul Krugman's description (***) of how health insurance schemes and care providers in the United States sink an unconscionable percentage of the total health bill into fighting one another about care reimbursement.

This double-edged aspect of capitalism, I almost said Janus-like but will not be caught mixing my fillips (see 2/13/07 fillip), this double-edged aspect I say goes a long way in explaining the struggles of today's Information Age. For next to the resounding successes of Internet entrepreneurs, we observe the lamentable excesses of Media business leaders, negotiating and litigating their share of the pie away. Joshua Chaffin, Aline van Duyn and Richard Waters have provided us with an in-depth analysis of the current disputes centered around Apple and YouTube (****)(*****).

It is hard to allocate value along the chain from creative content to consumer entertainment because no market exists so far to set the price. Instead of Adam Smith's invisible hand we get business leaders' loud mouths. As Joshua Chaffin and Richard Waters point out, the disputes between old and new media are not so much about the amount of money behind current deals as about business models, which will govern future money flows.

From this long term perspective, the authors missed an important point. According to them, video content providers need to decide whether to take YouTube and such similar ventures as a marketing or a distribution channel. Legitimate today, this distinction is doomed to decline. When on the Internet information is just a click away, distribution must seamlessly follow marketing lest the consumer click past. When I search on Google and encounter links to the Financial Times for example, I ignore them. For they only lead to a virtual cash register, a non-starter when similar information can be had elsewhere for free. It will be the same for videos even if new venues today favor clips over movies.

Content providers who still cling to an ideal of enduring control over their production must understand that information, if not secret, inevitably becomes public and free. They got the US Congress to extend corporate copyrights to 95 years in 1998. Pure hubris in hindsight. No amount of Digital Rights Management will enforce it as Bill Gates and Steve Jobs recently told us and, sixteen months after Grokster's demise, litigation has yet to eliminate piracy.

The speed at which free formats propagate is what matters. How to manage distribution in the meantime is what will determine success (see 2/13/07 fillip). I see promise in the Sacramento Bee model which sells political news alerts for four hours before offering them for free, according to Maria Aspan (******). Given that proprietary hardware too is clonable albeit at a slower pace, one could even say Steve Jobs pioneered the strategy: create a stream of fashionable objects and sell them at a premium for a few years. Does the iPhone signal that time is running out for the iPod?

Marketing innovation is in much demand between these two extremes as, for a given content, free propagation speed depends not on technical factors alone, but also on popular appeal. My conjecture is that it puts a bound on the total revenue stream a title can bring its provider rather than on the life span of the protection. Obscure creators should still benefit from the so-called long tail of publishing. The real losers are cozy business models bent on milking libraries of past golden titles one day short of eternity.

Behind the current disputes, advertising is the prize worth fighting for. Galling as it is for the providers, whose own content creates the opportunity, the search engines have the upper hand. Ad skipping technology and the rise of information on demand progressively deprive traditional audio and video channels of their ability to insert revenue-producing ads into content streams. Time-based advertising cedes to space-based forms, not of course the old newsprint model, but the contextual format made possible by search engines. Take a broad view and ask yourself: isn't iTune a search engine with an index focused on music and extended to videos?

Business titans should beware however lest in their eagerness to win the fight they lose sight of reality. The ultimate power belongs to individual artists and consumers. Between them, media act as recommendation mechanisms based, old media, on expert authority and, new media, popularity (see 8/22/06 and 12/05/06 fillips). Both media types add real, complementary value. But the value behind advertising stems from consumers' limited time and confidential information (see 2/06/07 fillip). Trying to split the spoils without the consumers' consent is a high risk game.

Nothing compares to a child's first encounter with a captivating story (2). Imagine then a lowly stonebreaker toiling away at the base of a mountain in Japan. Lusting for ever greater power and granted the wish to become whatever he wants, he gets transformed into the local lord, the mikado, the sun itself, the stormy clouds, the mighty mountain and, you have already guessed and are thus deprived of wonderment, a stonebreaker at last. In a pronaocracy (see 12/19/06 fillip), a consumer's time and privacy are prey to mighty companies (see 7/25/06 fillip) which lobby to get favorable laws (see 10/23/06 fillip) passed by sovereign parliaments, whose members must beg the votes of the same consumer.

The trick, for there is a trick, is that the lowly get a voice only when they band together. What damage indeed can a lonely stonebreaker inflict on a mountain? The candidate from the left will call it organizing the people, the candidate from the right organizing the market. May I tax Nicolas Sarkozy and Ségolène Royal of taking a bold position on eprivacy to give citizens clear title to their personal data and, as a first step, stop the practice of bundling opt-in authorizations with commercial transactions (3)?

Joe Perella would be the first to come and invest in a more efficient delivery of entertainment and advertising value.

Philippe Coueignoux

  • (*) ................. Business leaders warn on Royal victory, by Martin Arnold and Peggy Hollinger (Financial Times) - February 15, 2007
  • (**) .............. French have an attitude problem, says top US banker, by David Wighton (Financial Times) - February 15, 2007
  • (***) ............ The Health Care Racket, by Paul Krugman (New-York Times) - February 16, 2007
  • (****) ......... The price of rights: old and new media tangle over splitting the digital spoils,
    ...................... by Joshua Chaffin and Richard Waters (Financial Times) - February 16, 2007
  • (*****) ....... Entrepreneurs change the rules to cash in on clips, by Richard Waters and Aline van Duyn (Financial Times) - February 16, 2007
  • (******) .... One Paper Hopes Fans of Politics Will Pay Up, by Maria Aspan (New-York Times) - January 29, 2007
  • (1) for more thoughts on the Deadly Sins, see 5/2/06 fillip. For the complete list, see the Wikipedia
  • (2) "Ramouki le casseur de pierres" by Emile Bergerat, in Conteurs Francais d'aujourd'hui by R Michaud. In English see this introduction
  • (3) e.g. forced me to opt-in for their marketing spam the last time I made an online reservation (see 6/27/06 fillip)
February 2007
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