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A Tale of Two Economies, Michael Whalen on the Future of Media
Julie catch a rabbit by his hair
Come back step, like to walk on air
Get back home where you belong
and don't you run off no more
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, 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 the earlier interview with Mike in The IRA library on www.irabankratings.com. We start off with the great Robert Hunter song "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 media…
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 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.
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I walked away from television 5 years ago. I don't have one in my house. I listen to broadcast radio or streaiming internet radio. I can't bear to listen to much broadcast radio, as there are more commercials than content and the content is usually crap, except for the weather and traffic.
Advertising diminishes the quality of life, that is what many years of consumming advertising has taught me. It doesn't enhance my lfe style or improve my understanding of the world, on the contrary it tries to sell me a false reality that confuses my understanding of the world and diminishes my life style.
The bulk of media is throw away content, like the crap CNBC spews daily, or all those "Flip your House" shows produced in the real estate bubble days. There is a world of difference between music and television, or television and movies.
Movies are stand alone entities that can be watched anytime, anywhere with todays technology, they tell a story and can entertain, educate, instruct and inform of us things we couldn't possibly know or do in our daily lives.
Music can be enjoyed while doing other tasks, writing, reading, cleaning, drinking etc.
Television demands our senses, cuts us off from the real world and focuses our consciousness inside the dream box, who's only goal is to keep us enraptured 24/7 forever. It wants us for no higher reason than to make us watch commercials, towards this end it will run a smattering of something that might be of fleeting interest, such as the news, or gossip, lots of gossip - the news is now mostly gossip and hype for the next show coming up or the evening lineup.
Television is only about filling time, dead air is lethal it breaks the spell and causes people to turn the channel or turn off the dream box. So the time must be filled with crap, lots of crap and if you watch it, you will get filled up on lots of crap and lose hours of your life everday. Hardly a fair trade.
Television is essentially societal poison with no redeeming value, now that media can be consumed via so many other vehicles. Television must change or die, it was the 1st one way internet, it has been replaced by the multiple way internet.
Time shifting and audience breakup has changed everything. There is no must see TV, like you had when the big 3 ruled, the audience is fragmented and therefore can wait to see what they want. I always watch shows on my schedule. If they crack down on the streaming, I will wait until the whole season goes on sale or borrow it from a friend, or get it from the Library. The model is broken and they need to find a way to make vewiers like me pay. The solution is simple charge a buck an episode or a buck a movie, other than that its total media nihilism.
the history of these things suggests that the golden age of digital media is about over. the internet as open facilitator is currently like the television and radio airwaves last century, a resource to be plundered by the corporate business model. soon the FCC will step in and carve up the bandwidth, regulate for content, and provide space for advertising. they might actually do some positive things too (althoughI doubt it) such as campaign election reform, in terms of televized debates (CNBC is already seeing that hosting a debate is good for business, BOOYAH)
to put your arms around this you have to understand advertising, how it works, why they do it, and appreciate that without advertising revenue Google wouldn't exist. short answer advertising will probably go the way of the dinosaur, and that negates any micromanaged media solutions.
additionally you have to appreciate that there is no NEW art out there waiting to take over. the good stuff is already on TV, (couple guys did some cut and paste animation and do their own voice over, you get South Park). the INDIE film movement is just remaking or even premaking what the rest of the system is already doing. Just like the end of the studio system freed up a lot of actors, this change should free up some directors, but the good ones make the films they want right now.
the motion picture experience is as quaint as riding a horse. the television experience provides the viewer with more freedom. all of these changes have an effect on the media business, and once they money no longer means anything in terms of quality, desirability, and advertising has no effect, then the old economy, the one we are living in will take a huge hit.
the cable companies have a term for people who cut off their service, because there are a lot of them, but the internet isn't going to change that, because the corporations still have power and money, but the product is less useful, less desirable, and that will change things.
I'd much rather pay a buck for a good ballgame than be forced to sit through insulting commercials.
two questions: do you think a ballgame is entertainment, and do you consider commercials for beer and hummers less than insulting, or what is an insulting commercial (auto insurance commercials are the best, don't you think?)
Ah has to be feminine hygiene products, nothing like the thought of an itchy infected pussy to make dinner more appetizing. Or laxative commercials during dinner. But the ones I detest most are the prescription drug ads, especially the smarmy het fests for erectile dysfunction. I do not need the image of some dude boning his wife in a bathtub on the beach. Besides we all know that by the time a guy has such problems he is actually paying hookers because he can't stand his baggy old wife.
I do not want hip hop or rap "music" in my home and when it comes on during programming or ads the channel gets turned. When did they decide that the more they jiggle the camera the more it makes them appear edgy and avante guard? It just gives me a headache. As much as I enjoy being entertained commercials are making TV stressful, that is the time to shut it down. The more people shut down the more ads they post to compensate for the loss of viewers, a self reinforcing feedback loop.
Excellent article. Lots of good points.
I think this new reality bodes well for small indie filmmakers going forward. The technical and production costs associated with making a feature film have fallen dramatically in the last decade in particular and the quality of this new technology makes it virtually par with the quality you'll get in the traditional 35mm Panavision format at a fraction of the cost. Post production expenses are now pretty much the cost of a computer (if you have the editing skills).
The next step is to rethink the exhibitors role in the life of a film. And that's where the potential truly lives. If you can crack that nut...the world is your oyster.
Oddly enough...I find this article very encouraging.
Small...will be the next big thing. That's very exciting.
you still need actors, you need a script, lighting, sound, continuity. Somebody has to log the footage, It takes a lot of people to make a decent film, ie more than 2 guys sitting around an apartment talking into a camera on a tripod.
Post production is way more than editing, color grading, cgi, wire removal, voice over, redubbing audio, foley, background music, motion correction, its a lot of hats for one person
A good movie is a lot of hard work and talent, a great movie is all that and a whole lot of magic, ie luck, chemistry, talent and time.
Media does not exist in a vacuum. If the amount of disposable income declines as it appears to be doing in America, less dollars are available to be spent on entertainment through media. The distribution chain has been trying to deal with decreasing revenue via less patrons, by raising ticket prices for those remaining patrons. Eventually this kills your audience.
The real answer is most difficult and that is to find a way to help rebuild the American economy to raise the standard of living and the amount of disposable income available to more Americans.
For too long corporations have been cutting off their nose to spite their face, engendering ever more profit by offshoring and laying off their employees, who just happen to also be their customers. The cannabilaztion of economies of scale will ultimately result in one corporation owning everything on the planet and producing everything with robots, no one wins in this scenario.
This looks like any opportunity for someone to build a distribution chain for quality media custom made for niche audiences, ie railroad buffs, divers, midget porn, golfers, etc.
Good points.
However, they already did. Its called "youtube" and "livestream".
"Freedom of the press is limited to those who own one."
So sayeth the author Bill Bonner in:
Mobs, Messiahs abd Markets
Media will like any business try to get all it can from the end user (consumers like you and me) until it chokes the life out of the golden geese before it is forced to lower pricing to an equilibrium that we can support. Right now that is not a lot because media be it songs or movies or TV is a "luxury" item, it is highly prone to elasticity and substitution. I may do without the next Pirates of the Caribbean movie but I can't do without gas for my car.
What I am saying is that I am so sick of being aggressively advertized at for shit I do not need or want that I have been cutting down my exposure to it. And some of that is involuntary, many of the websites I used to consider staples on my favorites bookmarks now will not even load on my computer because of the many flash media ads trying to load simultaneously, I look at the processes graph for my computer when one of those sites it trying to load and it shows 200,000 KBPS traffic incoming and my computer just freezes. I have a two year old quad four Pentium desktop that I thought was so powerful when I bought it I would not need to upgrade for several years but like a backed up toilet it is now overflowing and I refuse to blow another couple grand on a better one because they will just wreck that one as well. I have a Sony home theater system, Sony Bravia TV, and Sony PS3 for playing games and BluRay. But, their advertising has become so obnoxious that I will not rent any BluRay products and I will never do business with Sony again.
Media needs to ask itself if the actors/artists and athletes they use to entertain us are really worth 20-30 million per movie, or sporting season. But while those costs are part of the problem the basic fault lay like every other business with leverage. They are as leveraged to the hilt as any other sector and now they have declining revenues to service the leverage.
NoScript extension is your friend.
boiltherich: Couldn't have said it better. Hubby still wants D.T.V.for sports but I cut off the feed to our second tv. Instead of watching commercials, I'd rather read -- it's revolutionary and a finger in the eye of marketers.
I agree completely and can use a personal real life example of one of my favorite TV shows on AMC, Walking Dead. I love the show but it's packed full of so many commercials that I can't even get into the show and enjoy it. However, if I wait 24 hours I can pay $2.99 for the full episode commercial free (and it's not a rental, I actually own that episode). If you multiply the season by $3 it seems expensive but it's commercial free for something I enjoy watching so the money to me is better spent on downloading the content and watching at my convenience uninterrupted.
Advertising is becoming so overbearing I can barely stand to watch the NFL or if I do, I have the games going and music in the background. If the NFL goes out of business, o'well. Time to change the business model...
Feature events, such as MNF are the worst, because the flow of the game is managed for the audience. If one team looks as though it's going to blow the other team out, the referees throw some flags. They aren't trying to determine the outcome they just want you, the viewer to stay on the edge of your seat and watch. To that end adding a few barely competent announcers encourages you, the audience to pay attention. Look he thought so and so had the ball but it was the other guy (Much as we love to blast Cramer, he gets a lot of eyes by being a loud buffoon who is usually wrong, or a character in Family Guy maybe)
Probably the most interesting abuse of the sports audience has to do with the Presidential elections, and especially the conventions. Televized coverage of campaigns and candidates remains a source for producers to make active choices. You think Gov Perry blew it last night, he didn't. He proved if anything that he isn't in love with his teleprompter, that he is real and unrehearsed. The difficulty with most criticism of media content, is that THEY'RE already ahead of you.
Advertising is becoming so overbearing I can barely stand to watch the NFL
Fully agreed. I ALWAYS mute commercials.
And I HATE the insane flashing. What idiocy are they teaching in film school?
Advertising these days borders on evil.
++++++++++++++++10000000%. I've got DishTV and have been thinking of signing off. I'm down to watching only a few channels. HBO and Showtime piss poor movies for months unending commercials with flashing lights/fast changing cameras/ and amphetamine mouth speakers has me staying away from anything with advertising most of the time. The more advertising the fewer watchers.
Well said.
No reason entertainers should not have their wages re-rationalized to reflect the new reality of less debt, and less income.
University of Maryland announced yesterday they were planning to reduce (about 1/2?) of their varsity sports programs. Seems their (former) cash cow, football, is not bringing in as much dough as it used to and so cant subsidize the other sports. Cry me a river.
Takeaway line: "in the absence of value - price matters'. The price falls to zero, what does this tell you?
In the future economy you make your own fun or you don't have any. Absent price, there is no media, no computers, nothing. Better buy a harmonica ...
Utterly miserable and useless 'Entertainment for sale', spam on a stick which is crammed down our throats is kaput in our post-industrial post-consumption world.
What comes next will have value or it won't exist. .
steve from virginia: "What comes next will have value or it won't exist. ."
I find that thought refreshing and hopeful.
Right on...I find that the free content on YouTube to be very entertaining and what is available is growing exponentially.
The other thing, at least from my perspective, is that real-lfe is becoming so bizarre as to out-do any of the fiction on TV. Who needs to pay to watch a drama when current events is moving so fast?
"What comes next will have value or it won't exist."
Just imagine if enough folks could be convinced to demand that of government.
http://www.brasschecktv.com/videos/news-media-corruption/if-you-ever-had...