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Marketing: from telcos to media industry

19 July 2006 by Ch. Tronche | Filed under Economics.

“Help”, cry all the media industry as one, blaming the telcos to make money on their back. But there’s hope (?), marketing’s there to explain the difference, and may be teach us solutions.

[Note to non-european readers: this post reflects very much the situation in Europe in general, and in France in particular.]

As an introduction: I know I’m oversimplifying since I treat uniformly artists / editors / producers / distributors, but we can abstract this as “the media industry” on one hand and “the consumers” on the other.

The problem of the media industry is rooted in economy: the industry draws its profits from distribution, a part of the chain where it provides no added value in a digital world (quite the contrary, costs are higher than an “outcrowded”-style distribution like P2P).

The media industry’s decline will go on until this is understood. No levy will stop it, be it on internet access / DVDs / computers / phones / walkman / cameras / TVs / fridge, etc… (since there are more and more devices with embedded mass memory). The day a reasonnable price will be set for the added value provided by the media industry, everything will be fine: I’m convinced that a subscription site with full catalogue and no DRM for 4 € / month would rock (and ~20 € / month for movies). Consumers would prefer to pay, choose what they want and get it right here, right now, rather than trying to swap files with their buddies (and human nature is such that once people have paid for it, they’de be less willing to share it).

Charging 10 € for a movie download, while costs have clearly nothing to do with a same price DVD at Wal-Mart is just stealing (or ridiculously poor cost management), and consumers know it, or at least they can “feel” it. tf1vision moves [shipping the DVD in addition to the downloaded file for the same price] is quite smart in this respect. At least, things are changing.

However, media industry bosses don’t want to hear of a flat price, indeed that was a condition in one of the last round of media industry / ISPs negociations in France. This is because they have this delusion they’ll be able to increase their profit by increasing the price (something less easy with a flat monthly price), while the limiting factor is the consumers available budget, something the media industry cannot change. At least, they hope to increase their margin by making more luxurious products, with the consequence that less and less people could afford them.

And yet, their variable costs (distribution set aside) are close to zero.

Let’s contrast this with the ISPs or telcos situation: their variable costs are quite high (interconnection costs, paid for the volume, are an important part of their total costs). On the other hand, they provide internet access for a flat price ! For example, in France you get a 20 Mb/s DSL access for 15 € a month (or about 20 US$), and a full “triple-play” access DSL + unlimited telephony + IPTV with about 100 channels for a flat 30 € / month. But ISPs have done the marketing work to build other sources of revenues, and to fine-tune the price so they can make a profit.

And what business is increasing, what business is decreasing ?

Try to take some lessons, the media industry.


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