The blogosphere has been engaged all week about the $1 billion Viacom suit against Google. Even for jaded media and technology executives, $1 billion can still get attention. Unfortunately, most of the commentary seems to be missing the real strategic point.
Watching the press releases fly back and forth between Viacom and Google, I am reminded of Kabuki theater – actors engaging in highly stylized and scripted movements. Let’s acknowledge first of all that this lawsuit is largely a negotiating ploy applied by Viacom in an effort to extract more cash payments from Google for access to its copyrighted material. It is unlikely ever to reach the courtroom.
Most of the commentary in the blogosphere acknowledges this, but chooses to focus on the copyright issues raised by the lawsuit. You can always trust copyright to get people on both sides of the debate to hit the keyboards. Reason rapidly gives way to emotion as both sides insist that creative talent and innovation will wither away if their particular view of copyright is not upheld. As Fred Wilson notes, copyright is not just a political issue, it has become a religious issue, calling forth all the fervor that theological debates can generate.
I take a somewhat jaundiced view of all this, although I will be the first to acknowledge that our intellectual property rights regimes need some serious re-thinking. Ultimately, I view this as a contractual, rather than a legislative, issue and I expect that appropriate contractual forms will emerge in response to shifting market forces. As Umair Haque notes, our current view of property rights “is based on an industrial-era understanding of economics that’s utterly obsolete.” Umair has a nice paper on “New Strategies for Property Rights” that outlines both the challenges and opportunities in this area.
Before moving beyond the copyright issues, though, I want to savor briefly the irony that the DMCA, a piece of legislation that represented a victory for copyright hawks, actually contained a few “safe harbors” that are now providing refuge for Google in its dispute with Viacom. No doubt the copyright hawks will mobilize their lobbying forces to try to close these safe harbors, sooner rather than later.
Rather than getting distracted by copyright issues, I want to explore in a little more detail the strategic issues percolating beneath the current negotiations between Google and Viacom. There is a very real possibility that Viacom may win the battle, at least in the sense of extracting more payments from Google for access to its content, but then go on to lose the war.
Justin Fox in a recent column notes that Sumner Redstone, the founder of Viacom, is credited with coining the phrase “content is king.” This is a perspective that has long dominated the media industry, even though one can challenge whether it has ever been true. Certainly, the ability to extract more payments from Google will reinforce the belief that content still is king.
That would be a shame, because it would make it more difficult to focus on the real opportunities in the media business. Don’t get me wrong – content, especially high quality content, will always have value. But, on a relative basis, the opportunities for value creation are shifting. As content proliferates, the ability to help audiences connect with content that matters the most to them will become the real sweet spot of the media industry.
As I have observed about companies more generally, media companies are an unnatural bundle of three very different kinds of businesses – product innovation and commercialization businesses, customer relationship businesses and infrastructure management businesses. By proclaiming that content is king, Redstone plants himself firmly in the product innovation and commercialization business in terms of mindset, even though Viacom today is involved in all three of these business areas.
All media companies are ultimately going to have to choose what business they are really in. If they choose to focus on content, or the product innovation and commercialization business, they will face increasing challenges in building a sustainable and scalable business. I advise large media companies that, if they don’t want to shrink in size and profitability over time, they would be better off building out their customer relationship business and, over time, shedding the other two businesses.
From my experience, if you want to transition from a content business to customer relationship business in the media industry, you need to start focusing on content platforms. In a traditional content business, you rely on professionals to deliver content that is meant to be experienced exactly as produced. Content platforms still rely on professionals, but the role of professionals in a platform business is to catalyze further contributions by a growing range of third parties, including audience members. A platform is meant to be built on and will rapidly evolve over time. A product, once produced, never changes.
As I have written before:
Products are designed to be used on a standalone basis – you buy it and you view it or listen to it in the specific way the content creator intended. Platforms are designed to be built upon – they create opportunities for the original creator, third parties or the customers themselves to extend, enhance and tailor the content in ways that the original creator never anticipated. Offered as a platform, content can create far more value than any equivalent standalone product.
What do content platforms include? They may start with content produced by the platform owner, but that is just the beginning. Content platforms point to other content and resources available anywhere on the net that are relevant to the focus of the platform – a key role of a content platform is to “curate” content, helping audience members to connect with high quality and relevant resources. Platforms also provide tools for participants to comment on and add to content that is already available – everything from tagging to discussion boards to content production tools. In the process, they provide environments for complex webs of relationships to be built among people who share an interest in the content, whether they are participating in its production or simply experiencing it.
If done well, content platforms provide a natural transition to audience platforms. It’s a subtle shift, but an important one. In content platforms, the primary focus is still on the content. In audience platforms, the primary focus is on understanding the needs and interests of a specific audience segment and using that understanding to help audience members increase their “return on attention”.
This, by the way, is the challenge that YouTube faces. YouTube in many respects is a rich content platform (although it is missing some key elements like pointing to content that is not available on YouTube and providing rich discussion environments that go beyond comment posting and tagging). The risk for content platforms over time is that they get pushed into the background, evolving as infrastructure management businesses, rather than becoming true customer relationship businesses – but that’s the focus for another blog.
In this respect, YouTube’s acquisition by Google is not helpful since Google is genetically very far from being a customer relationship business. If I had to predict, I would wager that YouTube ends up becoming an infrastructure management business – a powerful and scalable repository for video content that gets accessed by a growing array of customer relationship businesses that do a better job of tailoring video content (and integrating it with a broad array of other media) to address the needs of specific audience segments.
Without effective competition from large media companies on the customer relationship business front, Google is likely to become complacent and settle into what it knows best – infrastructure management business. There’s nothing wrong with that, if it is an explicit choice with a clear understanding of the consequences.
So, here’s one risk for Viacom – by “winning” in this latest negotiating round with Google, it becomes even more deeply entrenched in the content business rather than taking more aggressive steps towards becoming a customer relationship business. Redstone should be careful to make sure that, if content is king, it is not King Louis XVI on the eve of the French Revolution.
But, there’s another, deeper risk as well. Viacom’s suit reflects a mindset that is all too prevalent in executive boardrooms across all industries today. For too many executives, existing stocks of knowledge represent the primary source of value – this is why they spend so much time on intellectual property protection and related issues like defending copyrights. It’s a problem because it inevitably focuses on defensive strategies – protecting what has already been created.
In rapidly changing environments, the focus of value creation rapidly shifts from existing stocks of knowledge to effectively participating in diverse flows of new knowledge and rapidly learning from these flows. If you’re focused on defending what you already know, the chances are you will not devote adequate attention on strategies to learn more rapidly – or recognize that you need to share your existing intellectual property in order to participate in a broader range of flows. If Viacom “wins” this latest negotiating round, it will feel vindicated in focusing on the value of its existing properties and potentially feel less urgency about participating in, much less shaping, new flows.
Once again, the image of King Louis XVI comes to mind, sitting in his palace in Versailles nervously peering out the windows at the milling masses below, not quite sure what they are unhappy about, and giving orders to his attendants to make sure that the gates are firmly locked. The media companies that shift away from defensive strategies to protect existing content and that find ways to engage audiences by increasing their return on attention will most likely navigate successfully through the turbulent times ahead.