The Bundling Blindfold

Content ain’t king, cash is. And yet when it comes to digital media, the outlook for paid content looks at best contradictory, and at worst, bleak. Consumers will happily pay a small fortune for a downloadable ring tone, but consider 99c for an entire track from the iTunes store to be the height of generosity. The question left begging is vital for all media owners. Why does the choice of medium dictate not only the form of content but also its perceived value?

The means by which we consume news and entertainment are legion. And so are the disparities when it comes to consumer willingness to pay for content. On the Web, despite a few bold holdouts, the prevailing expectation is that news should be free. A similar story applies to other broadcast channels such as radio and free to air television networks. Print is a medium in evolution. Most major newspapers carry a nominal cover price, but one that exists mainly as a toll to be subdivided amongst the various channel partners (distributors, newsagents, supermarkets) who ensure continued circulation levels. With the rise of free Metro commuter editions and the continuing strength of free suburban publications, it is not inconceivable that the print channel will eventually shift from its current business model.

There are a few places where subscription models have worked. One is mobile. Telco operators in partnership with other media owners have experimented with a variety of content charging models. Sometimes the price of news and entertainment are bundled into the access fee, and sometimes they sold as discrete modules. There are also an increasing number of people around the world who pay a monthly fee to watch subscription television, and hence pay for their content consumption. But are Telcos and PayTV companies really charging for content or just network access? In my view, it is the latter. By maintaining a walled garden network, operators are free to structure access tiers linked to content consumption. The reason why this doesn’t work for web content is that there are so many alternative ways of accessing the Internet, that no one broadband service provider can hope to put a wall around exclusive content. For a long time AOL tried to turn the Web into a gated community. As it turned out, life was elsewhere.

So, if consumers are prepared to pay for distribution but not for content – is that good news? Not really. Audiences have a skewed view of the true marginal cost of delivery channels. The web seems cheap, mobile seems expensive and print half way between. In actual fact, the bandwidth cost of hosting streaming videos on your website can be enormous via the public internet, whilst the actual marginal costs of delivering the same information via mobile can be nominal if you own the network. The real problem is that over time, the catch 22 of the digital revolution is that the way you deliver content becomes commoditised and subject to competition. Sure, not everyone can afford to maintain a satellite network. But what happens when you can deliver television channels via broadband, or mobile telephone calls via 802.11 enabled PDAs?

That’s why the big opportunity for media companies is to find ways to bundle their content into subscription packages that span channels and incorporate a variety of access technologies. Bundling is the key. The three elements to the bundle would need to be transport, content and identity. Transport ensures that distribution is seamless and ubiquitous, content is the lure to attract and excite consumers and identity is the magic ingredient which allows advertisers and programmers to get a clear picture of customer content preferences independent of platform. Imagine if Fox or Viacom offered consumers around the world an integrated package that included unlimited access to blockbuster movies, television programs, games and news content. Fox may brand the bundle, but there would need to be negotiated access to other content aggregators such as Sony, Time Warner and other smaller independents who would thrive on the referred business. 

Just like a Pay TV subscription, you wouldn’t need to purchase your content items separate to your access bill – they would be bundled with an appropriate mobile, broadband or even a DVD rental plan to let you choose your preferred channel of consumption. Nobody worries about data costs when they flick channels on a satellite plan, and nor will consumers of the future as they switch between access networks.

The compelling part of this approach is that media companies no longer need to worry about how to arbitrage between different charging regimes or getting web content models to work. By reselling universal access, access becomes irrelevant. And when faced with the choice of an infinite number of plans, providers and platforms – who wouldn’t choose the brands they trust? Forget AT&T or Vodafone. It is about the Simpsons and the Sopranos.

Comments

[Mark Wells]

The missing ingredient in the ideas mix here is DRM. Universal content models can't work unless the content can be protected, this is why we don't have a Simpsons download service yet - and quite likley never will, because ubiquitous, uncrackable DRM doesn't currently exist.

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