Wednesday, March 01, 2006

Technology as a disruptor

Disclosure: I hold no shares or interest in any of the companies I talk about here. This is an amateur's opinion. Hang yourself on it - I am not responsible.

In the past few years, the commercialization and corporatization of all entertainment forms has led to a drastic reduction in standards of mass entertainment all around. After the Telecommunications Act of 1996 , many radio stations in the US are controlled by one of two big conglomerates - ClearChannel or Infinity. (There are places where they own all the FM stations in the market between them).

This means that music heard from coast to coast is identical with no variations. Playlists change very infrequently. In fact, if you are in an interior small town, there is a good likelihood that the local DJ who you think lives up on Walnut Street may be living in the Upper East Side in Manhattan. They have taken you for a ride, localizing the DJ without hiring a local DJ. In addition, they have been found guilty of accepting money and other considerations for playing music. Tie it in with venues owned by sister companies, ticketing by another group company, and we have the dreaded 'c' word - cartel.

The music companies themselves have merged and married among themselves, and there are only four major record labels left. They control the majority of what goes on in the mainstream industry. MTV and VH1 are no better (Viacom owns Infinity, MTV and VH1), turning into celebrity reality channels with gems like "Laguna Beach" and "Celebreality", losing the reason they became such phenomena in the first place. It isn't about the music anymore, is it? Do you remember the time when MTV was cool because of its music? Heck, I cut my teeth on MTV India in the early 90s.

As always, in a free market, the solution should present itself, right? The problem is, when there is an oligopoly of this kind, with no real enforcement of laws and wink-wink,nudge-nudge considerations, there is nothing of that sort. These people have a stranglehold on the airwaves.

Technology and free markets however make for a formidable combination. Enter satellite radio. Satellite radio has over 10 million subscribers in the US. We know this number because these people pay around $10 a month to either one of the two major providers, Sirus or XM. At an average of 2.5 people per family, it means satellite radio reaches 8% of the US population. Not a bad number, come to think of it.

I personally feel that technology at times may provide a left-field facilitator for opening up markets in such situations. Maybe satellite radio is not significant enough. However if the affluent demographic shifts to satellite radio, they will take advertisers with them, forcing terrestrial radio to get better at their programming. With digital radio having the potential of doubling the number of local stations, there may still be hope.

Another classic case where technology and old-fashioned infrastructure (the kind we sorely need in India) has brought about a real revolution is movie rentals. Netflix presents an all-you-can-rent option for DVDs ranging from $10 a month (1 DVD out at a time) to $17 a month (3 DVDs out a time). DVDs are delivered to your home, and you choose movies and put them on your queue online. The great thing about this is, Netflix is likely to carry that obscure movie you desperately wanted to watch, while your local Blockbuster will not. In fact, Netflix made its cachet off stocking Spanish and Hindi movies for immigrants who did not have easy local access to these movies. It gives you a chance to pick up a rare movie that may not be in circulation. Of course, Netflix has taken this a step further with its ratings and recommendations system. There's a whole community it has generated - people who keep getting great movies in the mail simply because they were recommended by people with similar tastes. The Long Tail is put to work really well here.

This has forced Blockbuster to drop late fees, at one time a big revenue-earner for the company. They've started their own all-you-can-rent service, both in-store and mail-order. With the kind of DVDs available increasing, there is now a much better market for documentaries or off-beat TV shows.

IMO, in the popular arena, things are going to go downhill or remain stagnant in terms of quality. No business is going to spend $150 million on an experimental movie idea unless it had some hope that it could recover its money. Which explains the antiseptic cookie-cutter summer blockbuster. LoTR or some exceptional superhero capers notwithstanding, most films fall in this category.

The challenge for governments and lawmakers as always is to do the right things (get a great postal, road and connectivity system in place, for instance, or facilitate the happening of that). Remove obstacles. Watch the entrepreneurial spirit take over. For excitement, add a dash of tech bravado. For sizzle, add an IPO. Serve with a side of media hoopla, and soak in the praise. (Egads. Mixed metaphors going overboard here.)

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