This is a presentation by Jeffrey Cole -- Director of the Annenberg Center for the Digital Future.   The center runs 30 worldwide panels where they gather research on evolving media preferences and behaviors.  Each panel has 2,000 members drawn from a variety of demographics.  The idea is to watch the emergence of new media as it is happening and as it is being consumed by these 60,000 panel members.

One of the main points raised in The State of the Mediasphere is that most formats (with the notable exception of TV) will remain viable but in a smaller-than-present-day form.   This isn’t too surprising but the stats are interesting:

Theatrical Movies are still profitable but have progressively gotten smaller as other choices have proliferated. Ticket Sales(in the English speaking world) in 1946 totaled 4.3 billion  sold whereas in 2007 (with double the population) there were only 1.4 billion tickets sold… The market for theatrical releases have shrunk yet movies are still profitable and drive the home DVD market.   1946 was a peak year since TV came on strong in the 50s and eroded some of the market.

News business will continue its migration to an online operating model: Cole makes an argument that as newspapers move online they will shed the roughly 70% of operating costs that are attributed to printing and distribution (these costs are near-zero in the online world).  I think this is a bit of a glossing over of the current state of collapse in the news business but I agree with the ultimate analysis that the news business will survive as a business — if not as a shadow of it’s former size and dominance.   Looking at Schibsted as a model newspapers can see some of their future.

Music Business is the big loser. We are moving to a world of singles -- not albums -- which drastically reduces profits.  Also, digitization has dramatically affected CD buying.  In the ’80s a successful album routinely hit 15 million copies.  More recently the top sellers attest to the continued erosion in the market.

• 2005 -- Mariah Carey’s Emancipation of Mimi  4.9 million
• 2006 -- Disney’s High School Musical -- 3.9 million copies
• 2007 -- Josh Groban’s Christmas Album 3.7 million

Cole makes a great point about Sony’s music division killing their internal effort to develop an iPod-like device (before the iPod was even in the market).  As the digitization of content was eroding their business model, old music businesses decided to litigate rather than innovate.

“Television” wins big: Echoing a recent Kevin Kelly piece in the NY Times (Screens are Everywhere)  “television will escape the home” and go mobile.  Video content will be free of device constraints and shown wherever we happen to be -  or based on personal preferences (big new movies will enjoy a first viewing on large screen TV or theater -- second viewing on mobile phone etc.).

How do we make money from digital content? 2005 marked a change in people’s behavior around free content.  First, there were the big issues around trust and spyware when getting content from P2P services like Kazaa and Limewire.   Suddenly, “stealing” content had serious perceived drawbacks.  This intersected with the first time that a simple, convenient platform for  music became available; namely iTunes.  Apple created a virtuous circle -- connecting an intuitive piece of desktop software (iTunes) with an elegant device (the iPod) and a shopping destination (iTunes store) that all worked together.  There is an enormously instructive lesson in this for companies.   The music industry reacted to a changing environment by creating litigation and by publicly branding as “criminals” people that they felt should be purchasing their CDs.   It appears likely now in retrospect that they misjudged — people weren’t really “stealing” music so much as migrating to a convenient method of getting music online.   iTunes and Amazon are both successful (if not much smaller) models.   Cole states that he forecasts the disappearance of paid music in the near future.  He forecasts an ad supported model -  I personally don’t see that coming in the near term.

Subscription burnout: According to Cole the average American spends $260 per month on communication services (The poorest among us still average $180 per month) that did not exist a generation ago (mobile phones, data plans, Internet, Cable TV etc.).  The big point here is not how much money this represents but the fact that we are maxing out on what we can charge people in subscription fees.  In Cole’s opinion it is still advertising that will drive the revenues from online content.   Users are increasingly willing to pay for content but he points to advertising as the key revenue driver.    Subscription based services for content is going to continue to be a hard sell (look to the death of Times Select etc.).

What then the future of advertising? With the rise of social networking and communities, advertisting is likely to get more targeted and personal.  This has HUGE ramifications over how Sales and Marketing do their jobs, engage their customers on a personal level, and measure their success.  Since this mode of “intimate advertising” requires a higher level of consideration -- it also involves a higher transaction cost.  The higher transaction cost will require more measurable results… This last point is part of the massive transition companies are making from impersonal mass broadcast models to targeted social group models of interacting with their customers.   This transition requires a transformation of most of the fundamental precepts of the corporation; from a legal framework of relationship to a social model of trust and intimacy.  More on that in an upcoming post.

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