Tuesday, June 26, 2007

If You Got The Time, Peeps...I Got The Reads...

This post is mostly about some food for thought. Rolling Stone magazine has a nice piece in the latest issue HERE about the Record Industry's Decline...and it reads like a pre-history of what's been happening and will continue to happen to the TV industry.

Overall CD sales have plummeted sixteen percent for the year so far -- and that's after seven years of near-constant erosion. In the face of widespread piracy, consumers' growing preference for low-profit-margin digital singles over albums, and other woes, the record business has plunged into a historic decline.

The major labels are struggling to reinvent their business models, even as some wonder whether it's too late. "The record business is over," says music attorney Peter Paterno, who represents Metallica and Dr. Dre. "The labels have wonderful assets -- they just can't make any money off them." One senior music-industry source who requested anonymity went further: "Here we have a business that's dying. There won't be any major labels pretty soon."

Could that mean there might not be any major TV production companies soon? Anyhow, the decline is due primarily to CD sales decline, much like the demise of conventional TV is attributed to perceived declining TV show viewership. And so what was the music biz's response?

Just a few years ago, many industry executives thought their problems could be solved by bigger hits. "There wasn't anything a good hit couldn't fix for these guys," says a source who worked closely with top executives earlier this decade. "They felt like things were bad and getting worse, but I'm not sure they had the bandwidth to figure out how to fix it. Now, very few of those people are still heads of the companies."

More record executives now seem to understand that their problems are structural: The Internet appears to be the most consequential technological shift for the business of selling music since the 1920s, when phonograph records replaced sheet music as the industry's profit center. "We have to collectively understand that times have changed,"

All sound familiar? I'm sure it does. Networks are still pinning too much on creating 'big hits'...take away the latest flavour of the month (American/Canadian Idol) and there's no such thing anymore. Just a lot of little hits...with the term hit needing to be redefined. But the paragraph that struck a chord with me was this...

Despite the industry's woes, people are listening to at least as much music as ever. Consumers have bought more than 100 million iPods since their November 2001 introduction, and the touring business is thriving, earning a record $437 million last year. And according to research organization NPD Group, listenership to recorded music -- whether from CDs, downloads, video games, satellite radio, terrestrial radio, online streams or other sources -- has increased since 2002. The problem the business faces is how to turn that interest into money. "How is it that the people that make the product of music are going bankrupt, while the use of the product is skyrocketing?" asks the Firm's Kwatinetz. "The model is wrong."

Yes there's been fragmentation and gaming and the Internet but I think most of us know that lots and lots of people are also still watching TV shows, just at different times and in different ways.

So the music biz recognizes the problem is the system and the way it is/was structured, but what are they going to do about it? HERE's what some of the music industry leaders are suggesting, including ad-supported music, consumers become retailers, labels change their stripes...

"The notion of a company that is only in the business of selling recorded music is an artifact of the physical world. In the next year or two, as physical growth continues to lag, the labels' pain will just get so great, they'll move to a more rational approach: The smarter way for music companies to work as venture capitalists, where they help to support bands through recording contracts, tour support, licensing, helping them artistically, essentially as business partners. If the artists succeed, the labels succeed. In a digital world that's the only way to align the interest between the label and the artists and it's been surprising to me how slowly the industry has been to
embrace it."

...and peer to peer goes legit....

"Tens of billions of songs are downloaded for free by people all over the world, representing a huge market - not in changing their behavior, but in creating businesses around that fact. People that provide access to networks are the logical place for payments to be administered: Today you pay your cable company, not only for bits and bites, but for services like HBO or a tier of basic cable. It's in everyone's interest to administer payment there, with royalty payments made from pools of money collected based on stat rates or voluntary rates. You'll have Time Warners and Comcasts and Verizons working with content companies to convert these marketplaces without trying to change customer behavior."

Again, these are the kinds of ideas and suggestions that are constantly heard in TV circles these days. And now we have a recap of the Green Report from this years Banff (sorry couldn't link it)...

The future of TV? On-demand, and Online

By James Lewis — Created 06/22/2007 - 8:13am

Perhaps the most telling aspect of the final session at this year's Banff World Television Festival, billed as a critical look at ‘The Future of Television,' was that it ended with an hour-long talk about the Internet.

The panel discussion aimed to address three key questions raised by Nordicity Group Ltd.'s Banff Green Paper 2007: The Future of Television in Canada, a document prepared in conjunction with the "town hall" session closing the festival. Those questions: Is the broadcasting system collapsing? Is the new broadcast paradigm a "zero-sum" game, where the real winners come from outside the regulated system? Finally, what does broadcast regulation and policy look like in this new world?

Some on the panel were blunt when addressing the first of that trio. "I'd say about 20% of the industry is toast," said Telus Corp. VP of broadband and video policy Michael Hennessy, later revising that estimate to as much as 35%.

Hennessy urged producers and programmers to fight back by identifying and winning a core audience. "At the end of the day everything is becoming so discretionary," he said, adding that those services catering to a special-interest niche audience will likely find enough support to survive.

Norm Bolen, executive VP of content at Alliance Atlantis Communications Inc., agreed the future was uncertain for television: while the current crop of TV services appears to be holding its own - more so on the specialty channel side than conventional broadcasters - "there's no guarantee that it won't collapse," he said.

One of the biggest challenges: keeping the traditional programming rights model intact in the Internet era, including Canadian broadcasters' lucrative right to simulcast US programming. "Some of these threats are killers for our business model," Bolen added.

While some might hold out hope for Canadians to rebuild their presence on emerging platforms, here the picture is equally grim, according to Bolen. "What are we doing in these spaces? We're getting crushed," he said. In the case of such platforms as video on demand, "Our content is not seen as the premium content that's going to drive these services - it's just not," he said.

But CRTC associate executive director of broadcasting Scott Hutton, who appeared before the House of Commons Standing Committee on Canadian Heritage earlier this year [1] to provide insight into how technology is changing both public and private television, vigorously defended the Canadian broadcasting system and its future prospects.

"Our industry is certainly not collapsing, and anyone who's seen our regulatory decisions lately and our reports to the minister will see that," Hutton said. "Our industry has been faced with a number of threats since we've been here, and we've always survived and adapted and succeeded."

Lucie Lalumiere, VP and GM of interactive at Corus Entertainment Inc.'s television division, said that not only is YTV competing with Canadian-produced kids content online, it has to contend with foreign unregulated Internet content as well. "I do believe we're challenged, but there's lots of opportunity," she said.

And Lalumiere challenged an earlier assertion by Marcela Kadanka, senior director of arts and entertainment at CBC Television, who said that specialty broadcasters will suffer most from the emergence of video on demand and other competing discretionary services. "We believe that specialty is much better positioned than conventional," Lalumiere said.

But Directors Guild of Canada general counsel and director of regulatory affairs Monique Lafontaine argued from the audience that the respective bids for CHUM Ltd.'s assets tendered by CTVglobemedia and Rogers Communications Inc. - both of which offer a healthy premium over independent valuations - prove there is value left in conventional television.

And while nearly all panel members believed that broadcast regulation needs fine-tuning, there was some disagreement on what form it should take. "Some people, like the Ted Rogers of the world, are going to win big, because they keep taking risks," said Telus' Hennessy. Others, however, "are hoping that the regulator will come in with a new fund or something to save them."

Valerie Creighton, president of the Canadian Television Fund, admitted that Canadian producers and broadcasters do enjoy "a protected environment," but added that's not necessarily a bad thing. In fact, she said, "we're lucky to have it," and international producers envy the support their Canadian counterparts receive from government.

But the CRTC's Hutton warned that the environment that nurtures Canadian producers will likely have to change. "You [will] probably have to move from protection to promotion," he said.
Although he agreed that all stakeholders must try to create a new model together, Mario Mota, senior director of broadcast relations and research at the Canadian Film and Television Production Association, rejected the notion that producers were protected and coddled by the system to a greater extent than broadcasters. "We know the economic value of simulcasting and simultaneous substitution [to broadcasters]," he said. "Maybe we need to throw that out.

"Take a real hard look at the Canadian content in deep prime time - it's almost nonexistent," Mota continued. "Canadian broadcasters have an addiction to foreign programming, particularly US." But, he added, it's not because Cancon is inferior: "When all the elements are there, I'll put Canadian content against any in the world."

Hennessy admitted that the quality of Canadian productions has increased dramatically. "The stuff that we're funding is as good as the stuff from the US and UK," he said. "It's not ‘I can tell that's Canadian' anymore."

"The stuff that we're creating here [in Canada] is compelling, it's ground-breaking," echoed marblemedia partner and producer Mark Bishop. Case in point: marblemedia's own Shorts in Motion: The Art of Seduction, which won nominations at the Canadian New Media Awards, the International Interactive Emmy Awards, and the Banff World Television Awards.

Shorts in Motion is the type of homegrown content that Canadians can excel at in a brave new multi-platform world, Bishop said. "It was built for mobile, but it was able to go online, it was TV content, it was theatrical," he said.

Corus' Lalumiere also pressed for more tax shelters and credits for funding Canadian productions, which make it more compelling for private broadcasters to satisfy the demand for capital left unfilled by the limited number of publicly funded programs.

Alliance Atlantis' Bolen, meanwhile, urged all sides in the debate to get together and hammer out a cohesive plan for addressing new technologies and opportunities. "We need a strategy, [and] we don't even have a process for creating a strategy," he said. "If you don't know where you're going, you're going to get there."

But Hennessy cautioned against building reliance on external funding into such a plan, and noted that dialogue is good, but doesn't accomplish anything in and of itself.

"You've got to start thinking like people in a market, because there's not going to be anyone to help out for much longer," he said. "The ones who are sitting in the room, talking, are going to be toast."

Anyway, you should get the picture...there are clearly a lot of similarities between the two situations. And I believe the TV industry will ultimately learn and benefit from the music industry's woes. And though networks and media conglomerates may be able to survive in the short term by merging and repackaging programming to fulfill their mandates and continue to supply something to the consumer, in Canada especially they've got to start 'producing' a lot more original product and then releasing and distributing it within the changing parameters of a new business model and different industry system.

So please let's not spend the next two years only forming committees and undertaking studies and generating more reports. Puhleazze. Otherwise, we'll be reading a version of this Rolling Stone article in Playback in a couple years.

Yes, there needs to be a plan..but less talk, more rock...


Jason Chesworth said...

Thanks for this. A good read, and valuable insights as well.

Big changes brewing for sure. Went to the NSFDC "Business Issues 2007" seminar in February and heard many of the same ideas with "we need a plan" tacked onto the end of every statement....yikes...

Jill Golick said...

Outside my house a huge fight has broken out as a cable company rep attempts to cut off someone's cable and the neighbours won't let him on the property. People resent the profits the big companies are making selling tv signals.

A lot of people figure it's okay to take tv content without paying for it. Partly because the model used to be for tv to be free. Partly because the companies have made such enormous profits for doing so little.

I believe that we need a whole new economic model already. There are lots of p2p types who would be willing to pay for product if they knew they money would go to the artists who created the work instead of straight to the big corporations.

Maybe the internet will be the great equalizer. I hope so.

ConstantMotion said...

Good recap. FYI - if you're ever referencing the state of the ad-supported music industry in your blog, you should check in with Ad-Supported Music Central blog:

It's the top resource for ad-supported music news and commentary.