The tide has turned. People are switching from paying for a "pipe" (e.g., cable) to paying subscriptions for content available anywhere, like Netflix. And a new source of revenues is paying to participate. What's next?
In November 4, 2010, we learned that Netflix has a 20% share of prime time web traffic, causing some to speculate that internet usage isn't complementing traditional television viewership, but replacing it. Specifically, the Wall Street Journal reports that on-demand viewership of already aired primetime television shows are being watched online instead of on television during prime time. This makes sense when you consider the other not-widely-reported trend that young people who got used to watching TV on the internet during college aren't subscribing to cable when they graduate and move into an apartment. UPDATE: Fortune names Netflix CEO, Reed Hastings the #1 Businessperson of the year with 20 Million subscribers and $150 Million in net earnings on November 18, 2010, ranking him above #2 Ford CEO - Alan Mulally, #3 Steve Jobs and #4 Mark Zuckerberg. And on the same day, in the Financial Times, we learn that:
On November 8, 2010, we learned that people paying a premium for Massively Multi-Player On-line Games (MMOGs) is a growing trend, revealing that the "no one will pay" believers have made an assumption based on what people say, but not what they will do. (Note: the above link includes a comment stream between Paul Graham and me in which we disagree about the inevitability of the "no one will pay" assumption.)
Two Financial Times articles on November 8, 2011, one by Chris Nuttall and the other by Matthew Garrahan, reveal that the shift is significant and will spread quickly.
The shift is significant because Nuttall reports that after 2 years of ignoring digital trends to focus on retail sales declines in the Video Game market ("NPD, the official source for industry figures, has tended to ignore (digital) sales in the past as it has charted declines in hardware and software sales over the past two years."), attention is being paid to industry leaders', Activision Blizzard and Electronic Arts, reports that digital sales are up: "Last week, Activision reported 15 per cent growth in digital sales in the first nine months over 2009, while Electronic Arts, creator of the Medal of Honor game, reported 35 per cent growth over its past two quarters compared to the year before."
The shift will spread quickly for two reasons. First, Hollywood has already discovered it: Garrahan reports that "Sony Pictures Entertainment has . . . with its new movie The Green Hornet, starring Seth Rogen, launch(ed) a free game that can be upgraded for a small fee." Second, that deal finally establishes a marketing agency compensation model that rewards marketing performance: "Sony and Trigger will split the profits generated by players paying to upgrade the game." When the studio, and the agency business find an entirely new revenue stream and the customer is happy to pay, that's a trend which will be siezed upon.
This shift is not a surprise to Bruce Woodcock. He's been tracking MMOG subscriptions. As of 2008 they were 16 Million, quadrupling from about 4 Million in just 5 years since 2003. According to Bruce, NPD only just started tracking subscriptions in 2008.
Most are probably dubious about this "light at the end of the tunnel" right now with the unexpected Disney 3rd quarter profit decline (possibly due to an undisclosed decline in ESPN cable subscription revenue shares among their critical 18-34 male audience, as implied by the not-widely-reported trend discussed above?) and Viacom has writen-off and is selling Rock Band game creator, Harmonix.
But this bad outcome is likely the result of going against the tide (hoping customers will pay for what they bet on - continued cable subscriptions by ESPN and disc sales at retail by Viacom) instead of developing what customers will pay more for, as revealed by recent trends of Netflix for a la carte viewership and the dramatic growth in MMOG subscriptions.
The MMOG growth offers the most insight into the future because it suggests people will invest time and money to participate in new technology not just passively watch a TV show or movie for less by eliminating the redundancy of both a cable and ISP subscription.
You may be tempted to interpret the demand in MMOG's as meaning that all content from news to books to video should be transformed into games, but do think bigger. Consider what digital buyers are getting, that they couldn't get at retail. Digital buys are subscribing to play with others. When they upgrade they are paying to improve their performance so they can play with the players they aspire to play like. Camaraderie is the "something" people value enough to pay for online.
The Video Game business has discovered what movie theaters, live sports and concert events have known for a long time. There is a reason beyond "content" and "technology" motivating people pay a huge premium to attend an event at a theater or stadium when they could watch the same event in the comfort of their home with friends and family. Entertainment stimulates camaraderie with complete strangers who share a common passion, creating a possibility to participate in a community that has as much or more value as friends and family.
In the Comradity Vision for the Future of Media, we look to history to help us understand what it has taken to motivate the adoption of a technology which required more participation than a flip of a switch. For books to be widely adopted, the average guy had to invest the time and money to learn to read and interpret meaning. As experienced marketers, we suspect it takes confidence-building to convince the person that it is worth investing the time and money it learning what it takes to participate.
What's next is:
- traditional content creators integrate participation,
- search and marketing visualizes all participants and their roles to increase confidence in investing the money and time it takes to learn to participate,
- education enables people to learn from each other,
- venues integrate both physical and virtual participation,
- archives give the individual control over personal assets and their release.
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