Big Media Wakes Up

'The network as most people know it is finished' says Warren Littlefield, former president of NBC. ('Media Executive Content Strategies' Computer User.com, document currently unavailable). According to Wired, 'the days of new and traditional media outlets operating separately are numbered.' For Big Media the digital age represents both a threat to their market dominance and simultaneously a new and highly lucrative means of reaching audiences. Network technology may allow new broadcasters to target previously untapped niche markets, but Big Media seeks to retain the mass audience as it makes the transition to digital. The Internet may allow anyone to be a broadcaster, but niche programming will only ever command niche audiences. Big Media has big content, and a massive customer base to draw upon. Interactivity for Big Media is not the democratisation of distribution, but the fusion of commerce and entertainment. Why restrict yourself to just selling advertising space, when you can sell products direct to the consumer? As Suzanne Stefenac, senior VP at RespondTV (a service provider for traditional media companies developing 'interactive' programming) says, 'television is the big aggregator. On a good ER night, you can have 20 million viewers. By using the web, you can sell to those people, so these two mediums bring a lot to each other.'

Furthermore Big Media has the financial muscle necessary to aggressively promote their products in a highly competitive new media environment. Small producers lack the marketing clout required to make their presence known on a large scale. For new media products to be financially successful they still require traditional promotion. Technologically unsophisticated methods such as billboards and print advertising will continue to be relevant in the digital age, perhaps even more so as the novelty of interactivity wears increasingly thin. Consolidating Big Media's position still further is its ownership of the physical means of distribution. Real Networks may provide the software, but Time Warner owns a lot of cable. Sun provides the mechanics of set top boxes, but Rupert Murdoch controls the satellites.

This is not to suggest that the traditional media companies are the only heavyweights in the distribution game; Microsoft has bought heavily into cable and wireless communication systems, as has AOL. Excite has expanded its operations into providing both cable and DSL services. The strength of the technology firms' hand cannot be underestimated; in a sense they are the big broadcasters as for example Microsoft Network and AOL content becomes increasingly sophisticated. It is this realisation that provoked such actions as the AOL merger with Time Warner, and Murdoch's negotiaitions with Internet portal Yahoo.

Big Media has pursued two different strategies for capitalising on the changing environment: The first method is to bring old media on line by distributing content via the Internet, as Time Warner has chosen to do with AOL. The alternative is to start at the television end and add interactivity as Murdoch has chosen to do with Sky Digital. The two methods illustrate the opposing conceptualisations of the new media environment. Broadcasting via the Internet is about convergence, as the PC assumes the role of a cross media platform and communications device. The digital television model is, despite its claims of interactivity, essentially divergent as it does not bring the full capabilities of the Internet to the TV screen. These two examples will each be considered in detail, with consideration of their position in the convergence and divergence debate.

 

 

Convergent Media: AOL Time Warner

On Monday 10^th of January 2000 AOL and Time Warner announced a proposed $163 billion merger that was immediately heralded as a landmark in media convergence. AOL is the world's largest ISP with more than 22 million subscribers. Time Warner has over 120 million subscribers to its magazines and cable services, and owns the United States second largest cable service. Interestingly AOL had a far larger stock market valuation than Time Warner, despite lower revenues. The merger involved risk for both sides as AOL chanced damaging its market valuation by attaching itself to a slower growing media company, whilst Time Warner subjected itself to the stock market volatility characteristic of Internet companies. The market judged it a success however, and Time Warner's stock leapt 45% which amounted to a personal windfall of $3 billion for TW Vice President Ted Turner. The expected market valuation of the colossal new firm, upon merger completion (estimated by the end of 2000) is expected to top $350 billion.

The deal perfectly demonstrates the need for new media to acquire content and old media to get online. Time Warner's roster includes household names such as Warner Brothers, Loony Tunes, CNN and Time Magazine, but the company lacks online presence (as demonstrated by the failure of its Pathfinder Internet portal). AOL has massive online popularity, with some 57 million unique visitors to its websites in February alone. It is this union of content and connectivity that epitomises the convergence process. In the words of Steve Case, AOL CEO, 'No company will be able to better capitalise on the convergence of entertainment, communications and commerce.' As technology news specialists ZDNet describe it, (reflecting perhaps popular ambivalence to current new media offerings), 'finally a reason to use interactive TV.'

What is particularly interesting about the AOL Time Warner deal is the relative strength of Internet company AOL to media monolith Time Warner. As mentioned earlier, AOL enjoys higher valuation despite lower revenues as the market judges it upon predicted growth and potential future worth. For Time Warner a joint venture with AOL or some other Internet company was essential for future development. AOL has developed its own interactive television system (unsurprisingly named AOL TV), which will no doubt go head to head with Microsoft's Web TV Network, but clearly both sides of the merger see the Internet as integral to their broadcasting strategy. This is not the same as current digital television systems, where interactivity extends little beyond email, controlled commerce and near video on demand. AOL certainly has its critics, but it does offer full Internet access despite the sanitised portals, family friendly settings and heavily mediated channels. The same extends to AOL TV, which promises full web access, unlike for example Sky Open. In that sense their strategy is certainly towards convergence, as their Internet service is resplendent with Time Warner's televisual catalogue, and their TV service accesses the net in its entirety.

The AOL Time Warner merger looks to be indicative of an imminent trend. Lycos is the subject of speculation concerning big names such as NBC and CBS Viacom whilst Yahoo has already agreed to a joint venture with Murdoch owned Newscorp ('What the hell is Rupert up to?' 06/03/2000, The Guardian (New Media)). Whilst mega-mergers are seldom regarded as being in the consumer's interest, they seem to be the current vogue for ailing Old Media companies. Indeed the warm market response to the AOL Time Warner deal is likely to encourage such actions further. Consolidation of ownership therefore becomes an issue, particularly in the wake of Microsoft's anti-trust settlement. The AOL Time Warner deal will face scrutiny from various public bodies in the US, and has placated critics somewhat by pledging to open its broadband cable systems to other Internet service providers. Future changes in the media landscape may not be so accommodating.

 

 

Divergent Media: Sky Digital

In contrast to the AOL Time Warner merger, Sky's new media strategy has been to add interactivity to television, rather than distribute television via the net. The two approaches are symptomatic of the different media environments on either side of the Atlantic: In the United States digital television has been a little still born in comparison with the Internet, which has shown a growth unprecedented for any communications medium. In Europe, the relative reluctance of telecommunications providers to offer free local calls and broadband services has stifled the Internet revolution somewhat. Recent estimates suggest 44% of US households have Internet access to the UK's 18% (which is still the highest in Europe outside of Scandinavia). Despite the Internet's impressive growth, it would appear far from maturity. In contrast BSkyB already have a massive 1.8 million household customer base in the UK, and digital broadcasters as a whole reach some 8 million across Europe.

Digital television represents a much less radical change to the broadcasting environment than web based distribution. The compression techniques that allow digital transmission to occupy far less bandwidth (and therefore allow many more channels) than analogue appear impressive, with 200 channels currently available on Sky Digital compared to the usual 30 or 40 through analogue transmission. This increased number of channels allows rolling schedules that create a 'near video on demand' effect, with the same film commencing every half hour for example. However compared to the collective expansion of the Internet, the bandwidth is noticeably limited (one 2 hour film beginning every 15 minutes requires 8 channels. If only 5 films are shown simultaneously then 40 channels are required). Digital television is clearly no match in its present form for the media on demand available via the web. Its strength is in those areas where the Internet so often fails to live up to the hype: Production quality, ease of use and stability.

Even with a broadband connection, the Internet cannot match digital television in terms of quality. Low resolution three inch Real Player displays may be acceptable for home movie makers, but are hardly suitable for watching Hollywood blockbusters or Premiership Football. It is an argument against convergence; specialised tools produce better results than combination appliances. Hi-fi Midi systems may be simple to install and operate, but no audiophile would consider anything other than separate components. As Tom Standage notes, 'such hybrids are invariably jacks-of-all-trades and masters of none. How do you look up an address in an organiser if you're holding it to your ear?' The reasoning behind Sky's strategy is quite simply that computers are not televisions and televisions are not computers. Each is best suited for its own particular tasks, and whilst there will invariably be some crossover, a combined appliance will perform each role at best adequately. Why compromise on quality when both can co-exist? Convergence has not seen a single appliance dominate the kitchen, so why should it the living room?

 

Ease of use is another obvious advantage for digital television. The Sky Digital package incorporates Sky Open, a user friendly interactive service. The complexity of computer networks and operating systems dictates that for some time yet, a great many people will have no inclination to go 'online'. At the same time however, many may be interested in the potential of home shopping, banking and entertainment. As interactive television is custom deigned for specific tasks, it's user interface can be much simpler than any PC operating system. A Gallup poll recently found that 42% of British consumers would favour a television for home shopping, compared to 26% in favour of PC's. Surprisingly this trend is not restricted to the older members of society; amongst 16 to 24 year olds some two thirds expressed a preference for interactive digital TV. The attraction of email via the television is instantly apparent to anyone has configured Internet and email accounts on a PC. With Sky's Open system offering in effect a 'plug in and play' service, getting the less technologically inclined 'connected' may appear a more realistic prospect. Sky's solution to such users is to provide hardware, software and support in one package, eliminating the need for such details as mail server addresses, TCP/IP settings and so on. Certainly Sky Digital's television advertising campaign is at present focussing on the simplicity and convenience of its email facility, which though lacking the full utility of a PC based service has a similar appeal to the enormous popular SMS messaging system on mobile phones (a technology the UK market has taken to with great gusto).

It is a similar argument with reliability that lends support to the case against convergence. As the joke goes: Bill Gates is in discussion with the CEO of General Motors. 'If the motor industry had advanced at the same rate as the personal computer industry,' he says, 'cars would travel at a thousand miles an hour, do a thousand miles to the gallon and cost less than a thousand dollars.' To which the CEO of General Motors replies: 'Yes, but who would want a car that crashes itself twice a day?' As Sky were quick to recognise, computer users have a very high 'threshold of pain', and are immensely forgiving of their chosen system's failings. In no other consumer market is such unreliability permitted, and it is this thinking that led Sky to reject Windows CE as its set top box operating system. They instead opted for a custom built OS from Microsoft arch rivals Sun. The logic is clear; television audiences may put up with poor reception, but they will not stand for total system failure or sudden unexplained disconnection. That is not to say digital television is without its glitches, rival OnDigital (of which BSkyB was a shareholder until a Monopolies and Mergers ruling) has been fraught with firmware problems which have seen them lose ground to Sky.

Despite the definite feasibility of pursuing a solely interactive television rather than Internet television approach, and after displaying intial relcutance, Murdoch is now warming to the web. Indeed this provides further evidence for a divergence of media, rather than a convergence as Murdoch extends his operations across multiple, not combined, platforms. In a similar fashion to AOL Time Warner, Murdoch owned News Corp has been flirting with Internet portal Yahoo. Again, despite much smaller revenues, the Internet firm is valued some $40 Billion higher than its old media counterpart. Both stand to benefit greatly: Yahoo's $6.1 billion acquisition of Broadcast.com has given it a massively popular platform to distribute media online, but it lacks really 'killer' content. News Corp's desire to get online with Yahoo reflects its relatively weak presence in the cable industry, particularly in the US, and gives it a platform to compete with AOL Time Warner ('Murdoch in talks with Yahoo' 29/02/2000, The Guardian (Finance)). By adopting both an Internet and an interactive TV strategy, Murdoch demonstrates the case for divergence. Sky's aim is to be ubiquitous on the computer, the television, on the mobile phone and to take advantage of commerce opportunities in each. Rather than force them all together, the divergence model allows for different networks for different devices. To directly replicate websites on mobile phones is to compromise their scope; to directly replicate television on a computer is to compromise its quality. Whilst a certain convergence may come in adopting a common language such as Java for all electronic appliances (rather than HTML / WML etc.), different webs of content will undoubtedly exist for different devices. Murdoch may favour one approach, but he's too canny an operator to neglect the others.