Battelle's Packaged Goods Media v. Conversational Media: Part Two

Battelle’s second installment of his theory of media’s evolution from the traditional “packaged goods” approach to the “conversational media” approach of blogs, social media, and community-generated content platforms: Searchblog. This installment explores why it’s so difficult for the leaders in traditional media to lead in the new approach — another case of what Clay Christensen calls the Innovator’s Dilemma:

“The reason media companies must own or control their content, distribution and advertising relationships comes down to simple economics – it’s extremely expensive to build or buy access to audiences in the PGM world. When you spend tons of capital to create and distribute intellectual property, you must control that property in order to justify your capital expenses.

“Take a look at the economics of nearly every traditional media business, and you will see that the majority of its operating costs have to do with either consumer marketing (acquiring audience), or manufacturing and distribution (creating the package – not the content, mind you, but the package the content is in – and delivering that package to the audience). Content creation – the actual product – represents a minority of operating costs.

“In the publishing business, for example, editorial costs are rarely more than 15-20% of operating expenses. Consumer marketing costs – the expense of acquiring and maintaining an audience – can run from 20% to 75% of operating expenses, depending on the life cycle of the product (circulation costs are highest in the first few years of a product’s lifecycle). Manufacturing and distribution costs run another 20% to 35% of total expenses.

“In other words, marketing, manufacturing and distribution of Packaged Goods Media usually swallows around 70 to 85% of total expenses. And those expenses are large – at Wired and the Industry Standard, for example, our budgets for these line items were in the tens of millions each. For traditional newspapers like The New York Times, it’s in the hundreds of millions of dollars. With those kinds of investments, one needs necessarily to control the intellectual property at the heart of it all.”

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