A Tale of Two Economies, Michael Whalen on the Future of Media
Come back step, like to walk on air
Get back home where you belong
and don't you run off no more
Don't hang your head let the two-time roll
Grass shack nailed to a pine wood floor
Ask the time? Baby I don't know
Come back later, we'll let it show
And I say row, Jimmy row
Gonna get there?
I don't know
Seems a common way to go
Get down, row, row, row
"Row Jimmy Row"
Robert Hunter/Jerry Garcia
The Grateful Dead (1972)
In this issue of The Institutional Risk Analyst we feature a comment from Michael Whalen, two-time Emmy award winning composer, music supervisor and recording artist. He is also a professor at The City College of New York and NYU, a media consultant and an analyst for Fox Business. You can read #0000ff;">the earlier interview with Mike in The IRA library on #0000ff;">www.irabankratings.com. We start off with the great Robert Hunter song #0000ff;">"Row Jimmy Row," which was first performed February 9, 1973 at Rose Maples Pavilion, Stanford University. As one Dead Head commented years back, "We all work, supported by water (a powerful liquidity), never knowing, really, how we are doing, or where we are going." That certainly applies to a lot of the global economy today and especially the media business, as Michael explains.
Imagine that the micro economies for different sectors of business are like weather fronts, some huge, some small. Despite how the weather "feels" no weather lasts forever. Like weather, it takes some amount of months or years for the environment that created the economy to pass away.
In the media space, we have been experiencing one of the biggest changes in "weather" - ever. It started in the late 90s with the rise of the Internet being widely used by the public, the first peer to peer file sharing networks (Napster) and the first notion that not all digital media had to be paid for or that the dominate positions of the television networks and film studios would someday end.
The change accelerated by 2001, 9/11, the SAG strike and the dominate rise of cable TV (HBO) made the media playing field more dynamic and sacred cows were called into question. Ten years later, what we are seeing is the mechanics completely changed for how media is sold, paid for and how it is exploited. Whether or not everyone in media, its investors or it's "players" repositions themselves for the next 5 years of what might happen - I think it's time to get on the rain boots and get out the umbrella. Think Blade Runner, my brother's favorite movie. This is the story of the old economy that has already ended. With a hurricane suddenly approaching, this "new" economy has scared people in media who fully grasp what the radically different metrics and the social changes mean. This is a tale of two economies.
As with any moving weather systems, the two economies of today's media environment are overlapping. You can read in the entertainment trades every day the impact of these two ways of doing business living side by side are having on the media world. Look around, pieces of the economy of 15 years ago still exist - you buy a ticket and see a movie (you are playing a hell of a lot more for popcorn). You sit through commercials on TV and you see a program. You can even order a CD on amazon.com and get a physical full-bandwidth recording and the liner notes! These last "golden days" to quote "The Sound of Music" of the old economy is quickly disappearing but its effects will linger in the speaking and the behaviors of the "avoiders" for a little while longer.
The assumed ability to exploit media content into the new streaming platforms and have it paid commensurate with that content's likely budget (anything above nothing) and satisfy "old" income projections are all gone. As you can quickly deduce, it is in this overlapping and the two economies operating side by side that is the SOURCE of the overwhelming confusion and upset of analysts, pundits and long-time media watchers about the near-term and medium term future of media. Many of my colleagues and fellow media watchers would say that what I am about to write is completely insane, wacky, mad, irresponsible and utterly incorrect.
The overwhelming majority of media content being created now in 2011/2012 (film, television & music) is being BLINDLY financed with hopes that NEW reliable and profitable media streams will emerge quickly before the "old" income streams completely dry-up. This has caused near panic in Hollywood, New York, London and Bollywood as media makers and content producers plow headlong into the unknown -- before the project is cancelled or its budget slashed. In reality, many media producers right now have no idea how or to whom their work will be sold or licensed and for how much. They must use the paradigm of the past to describe a brand-new financial landscape that is both unknown and uncharted. Welcome to the new media economy.
Let me be clear: I am NOT talking about the huge "tent pole" movies being made right now, the successful television shows that have network funding or music being created by established artists and bands. These projects are becoming fewer and MUCH farther between. To invoke a line from the "Occupy Movement", we're talking about the other 99% of mediaâ€¦
Here's an example: in the new subscription based streaming paradigm there is NO WAY to predict or calculate sales on a per project or even a per USE basis. Further, royalty equations and blanket license fees being used by companies like #ff0000;">Netflix, Hulu.com and others have nothing to with actually paying the content creators for the use of their material. Why? At $8/month, how does Netflix expect to pay each content owner for the use of the material if 100 or more titles are viewed in a month? These deals also include "profit" sharing on ad sales which track the most popular pieces of streamed content, etc. Therefore, all content creators must choose to either be at the mercy of these indifferently created blanket licenses or to embark on a new path. Said another way, the recent blow-up at Netflix is but the first of several such tremors coming down the pike.