Stop Thinking That Tech & Content Are Fighting Each Other

from the forward-thinking dept

The following is a guest post from Martin Thornkvist, who both runs a Swedish indie record label, and works for Media Evolution -- an organization designed to help its various members learn about and embrace new media innovation opportunities. This is cross-posted from his blog at Media Evolution, and raises a really good point. Too often people talk about technology and content as if the two are at war with each other, rather than recognizing how it's a complementary relationship.

The first quarter 2011 Apple made a profit of $26.74 billion $6 billion. An impressive 17% of that is from their latest product, the iPad. Having followed Apple's reports for some years it struck me just how unimportant content distribution is for them. In economic terms at least. 

The iTunes store counts for only 5% of Apple's overall profit. In light of that fact, I have a hard time understanding why they are upsetting content providers by increasing the areas where they take a cut of the revenue.

It's obvious that Apple, and other tech companies, are using content to sell hardware. And damn, they are good at making us buy new products each and every year.

Hook and bait

It's obvious that the main objective of dealing with content for Apple, and tech companies in general, is to boost hardware sales. These days you can't hear a mobile executive talk without mentioning the importance of building an ecosystem for content to sell handsets.

The fisherman needs both a hook and bait to catch a fish. The fish is too smart to go for a hook without bait, like customers with tech products. And the bait without a hook is a fiesta for the fish rather than the fisherman, kind of like being a fish in a bay of pirates.

When looking at the media landscape we can see that everybody wants to be the hook. The hooks are owning the customer and the ecosystem in which they interact. That means they can control price, pace of releases and the right to set the rules of the game

The media industries were used to being the hooks. That changed many years ago. Now, it's just about creating those alternative hooks of income streams yourself.

To many the question of being a hook or a bait is emotional. Everybody sees their work as the center of the media landscape and wants the rest to obey to their wills.

Stop making life hard for each other

Even though content distribution represents a small percentage of Apple's overall profit, they are making life hard for content producers by changing the rules of the game. Most recently they announced that for publishing companies to sell their subscriptions inside applications, they will take a 30% cut. It's still uncertain whether that counts for music apps like Spotify as well.

The content side is making it equally hard for tech companies that want to develop new media platforms. Music labels, film studios and book publishers can arguably be said to make it a nightmare to license their products. This is instead of acknowledging developers and engineers to be their best buddies to create new ways of providing content to customers, and eventually help them make money they badly need.

Interdependent relationship

We need to understand that technology is nothing without content and content would be nothing without technology. Technology and content for sure has an interdependent relationship.

For a long time the content producers had the upper hand. Right now the technology providers act like they have it. But in the long run they both need to cooperate to keep prospering.



Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Christopher Smith, Feb 24th, 2011 @ 11:38am

    The numbers are interesting, but looking at relative profits from each sector would be more revealing. Sure, iPhone sales are much larger than ITMS sales, but what are the profit margins on each?

     

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  2.  
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    Anonymous Coward, Feb 24th, 2011 @ 11:47am

    Apple is a hardware company...always has been and certainly will be into the forseeable future. Content (e.g., Apple OSs) have always been a means to an end...sell more electronic gizmos. Why people keep talking about Microsoft (content) and Apple (hardware) as if they are competitiors has always escaped me.

    The rub is "what about the converse?" How does a content company, and specifically "software", make its mark in the marketplace. Must it surrender its core skill, software, and join forces (e.g., corporate merger) with a hardware provider in order to survive? Frankly, I do not know the answer.

     

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  3.  
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    Anonymous Coward, Feb 24th, 2011 @ 11:57am

    "The first quarter 2011 Apple made a profit of $26.74 billion."

    Profit and Revenue are two different things.

     

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  4.  
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    Mike Masnick (profile), Feb 24th, 2011 @ 11:59am

    Re:

    Profit and Revenue are two different things.


    That was a mistake. The post has been updated.

     

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  5.  
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    Mike Masnick (profile), Feb 24th, 2011 @ 12:02pm

    Re:

    The numbers are interesting, but looking at relative profits from each sector would be more revealing. Sure, iPhone sales are much larger than ITMS sales, but what are the profit margins on each?

    That's a good point. I'm pretty sure the margins on hardware are higher than on the content. The exact margins aren't public, but it's known that on music, Apple's margin is somewhere around 30%, but its margins on iPhones are estimated to be about 50 to 60%.

     

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  6.  
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    Mike Masnick (profile), Feb 24th, 2011 @ 12:04pm

    Re:

    The rub is "what about the converse?" How does a content company, and specifically "software", make its mark in the marketplace. Must it surrender its core skill, software, and join forces (e.g., corporate merger) with a hardware provider in order to survive? Frankly, I do not know the answer

    They need to align themselves with a *scarcity*. Hardware is definitely one, but not the only one. Certainly companies like IBM and Red Hat have tremendous software capabilities, but they've set it up so their scarcity is service. Google is a software company, and its scarcity is user attention.

    There are lots of scarcities.

     

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  7.  
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    TimothyAWiseman (profile), Feb 24th, 2011 @ 12:32pm

    Technology nothing without content?

    "We need to understand that technology is nothing without content and content would be nothing without technology."

    I must respectfully disagree with the first part of this statement, though I agree with the bulk of your post.

    Technology without content remains an enabler and a tool to create, analyze, communicate, and more. Now, technology without content would be limited and reduced, but still very substantial.

    And if we take your "content" to mean "professionally produced content" then my disagreement becomes even stronger. A large portion of the best content I look it is produced by dedicated amateurs, many of whom have no monetary motivation at all, rather than by professionals.

     

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  8.  
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    Anonymous Coward, Feb 24th, 2011 @ 12:35pm

    Re: Re:

    Using Adobe as an example, I have tried long and hard to identify "scarcities" that do not involve subordinating themselves to a "scarcity" provider like a hardware manufacturer.

    Can you provide, perhaps, some better defined examples other than "hardware" and/or "service"?

     

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    Mike Masnick (profile), Feb 24th, 2011 @ 12:48pm

    Re: Re: Re:

    Using Adobe as an example, I have tried long and hard to identify "scarcities" that do not involve subordinating themselves to a "scarcity" provider like a hardware manufacturer.

    Can you provide, perhaps, some better defined examples other than "hardware" and/or "service"?


    Funny. I did exactly that for you when you made the same request a year or so ago. With Adobe there's a bunch of different opportunities. They're already starting to experiment with offering web-based tools which offer a variety of scarcities from services to ad revenue.

    But, more seriously, where I think Adobe is missing a huge opportunity is in doing lead generation around the people who know how to use its tools. Adobe can really create a great way to find people who know how to use photoshop/flash/flex/etc.

    There are a ton of different scarcities. I don't work with Adobe so I haven't spent the time to figure out all of them and how big they are, but I'd be happy to run a study if you'd like to pay us to do so.

     

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    Josh in CharlotteNC (profile), Feb 24th, 2011 @ 1:00pm

    Prisoner's Dilemma

    For anyone familiar with game theory, this sounds a lot like the Prisoner's Dilemma.

    http://en.wikipedia.org/wiki/Prisoner%27s_dilemma

    If tech and content would cooperate with each other, they both would make wads and wads of money (and consumer would win, too).

    If they don't cooperate, each make much less, and consumers lose out, too.

     

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    hobo, Feb 24th, 2011 @ 1:07pm

    Re: Prisoner's Dilemma

    Yes, but if only one wins (at the expense of the other) then it would make even more than if both cooperate - at least according to the classic prisoner's dilemma example. Companies who only see what profit others are making tend to miss what they could gain by cooperation.

    But I love a good prisoner's dilemma reference.

     

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  12.  
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    Greevar (profile), Feb 24th, 2011 @ 1:10pm

    Don't try to make this argument with content creators.

    They'll rip you a new one for even suggesting the idea of abandoning selling the bait without the hook to go with it. I know from experience talking to people at the Polycount forums, a forum for people in the games industry.

    "To many the question of being a hook or a bait is emotional. Everybody sees their work as the center of the media landscape and wants the rest to obey to their wills."

    They exemplify this attitude in spades. I've often suggested that they move their model to one that offers their skills for sale rather than the results of their skill. They didn't like that one bit. They accused me of supporting infringement and suggesting that I advocate they just let people "steal our work". Of course, they greatly misunderstand my ultimate goal, which is to change their source of revenue to one that isn't affected by file sharing. Unfortunately, they insist that the file sharing public should simply stop infringing and "just pay for it" so that the industry doesn't disappear. They're dreaming if they think their prostrations will persuade anyone from doing something so easy and convenient.

    The act of copying works for free is a luring one simply because it's low-risk, easy to do, and has a high payoff. The risk is low because copyright is nearly impossible to enforce against millions of anonymous users downloading content. IP addresses are not effective evidence for proving guilt. It's easy because well, it's easy. Anyone with a torrent client can browse the lists of unlimited volumes of content and get almost anything they desire fast and easy. The payoff is high, because in almost every instance, the content they acquire is completely without restrictions that bar them from using it and since the DRM is gone, it won't conflict with their other software.

    Nevertheless, they claim I'm speaking nonsense and trying to be a troll. I guess it's folly to try to persuade those that don't want to listen.

     

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  13.  
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    Woadan, Feb 24th, 2011 @ 1:29pm

    "For a long time the content producers had the upper hand. Right now the technology providers act like they have it. But in the long run they both need to cooperate to keep prospering."

    They also both need to realize that without the customer buying things, neither of them will exist.

     

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  14.  
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    Anonymous Coward, Feb 24th, 2011 @ 1:48pm

    Re: Prisoner's Dilemma

    This type of situation would ultimately create a bad environment for the consumer. If the content is tied to the platform then the customer has no choice but to buy the platform - i.e. its anti-competitive.

     

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    Lawrence D'Oliveiro, Feb 24th, 2011 @ 1:57pm

    Re: They also both need to realize that without the customer buying things, neither of them will exist.

    Corporatism in a nutshell.

     

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  16.  
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    Anonymous Coward, Feb 25th, 2011 @ 6:35am

    Re:

    They also both need to realize that without the customer buying things, neither of them will exist.

    try to explain that to the supporters of piracy.

    I think most people are upset because Apple is going down the walled garden for payments, basically saying you have to use our payments systems. That is forcing themselves as a middleman, and taking a princely amount of money for doing it. That is discouraging for everyone.

     

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  17.  
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    Dudley, Feb 25th, 2011 @ 10:56am

    Hard Time Understanding...

    I think its easy to have a hard time understanding why Apple would upset content producers if you think Apple is merely trying to be greedy and suck every penny out of every sector of its business. That time of blind greed would be stupid.

    Instead, consider Apple is looking toward the future, and is trying to craft a platform that is easy for consumers to use to get the information and content they want. They have an opportunity here. They can left every corner of the platform craft itself and generally make up its own rules (like Android) or they can pick portions of the platform (like App Store) where they want to guide the experience much more heavy-handedly... while opening the door through other portions of the platform (like Safari, allowing apps to sit on the homepage and access offline databases and media).

    Apple has a stark choice. They can let their platform run them, or they can run their platform. The whole subscription battle is huge, because its no stretch of the imagination that Apple is setting itself up to be the new age equivalent of a cable provider, with its own "channels", where the content providers set their prices but Apple takes a cut to cover the expenses associated with delivering a better platform and running a profitable business.

    Apple wants to make users deliriously happy. They're apparently willing to risk other parts of the equation just to connect the dots. Right now, subscribing to services through a dozen different outlets makes little sense other than that's the way its always been. The percentage Apple takes is something they seem to be trying to hold steady across the board. Once they show a crack, it will be challenged in each and every area.

     

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  18.  
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    Mike Stabile, Feb 26th, 2011 @ 2:34pm

    Re: Hard Time Understanding...

    Apple's move here not fighting the content producers. What they are doing is trying to force the other content distributors off their platform or take a large cut of the revenue.

    I think it is important to understand the relationships in play here

    content producers: music artists(recording labels), writers(publishers), newspapers, etc

    apple negotiates with these organizations to sell their content in iTunes Store.

    content distributors: Netflix, ebook stores, music streaming services, etc

    These companies negotiate with the content producers to sell their content in their stores

    Apple's new rules are targeted at the content distributors because Apple doesn't control those revenue streams. iTunes is about the only place the average user will download music. But streaming media is outside of their sphere at the moment. iBooks doesn't have enough content to compete with Amazon. So to push into these markets Apple is creating new rules to give them an absurd advantage. They figure they have a large enough userbase and their users are tied to their products because all of their content is purchased through iTunes store and and won't be available outside of iOS that there users won't leave.

    Also Apple has the best UI for purchasing content on iOS because their rules don't let other companies build apps with their own built-in purchasing tool. For example if you use the Barnes and noble app and you want to buy a book the app sends you to the B&N website to buy. It's clunky and not very friendly. B&N could build a smooth interface to let you buy right with in their app but Apple won't let them. To make matters worse the new rules won't even let B&N link to their website anymore. They must build into their own app an iTunes cash register. All of this so the user isn't confused. Because everything on iOS should be purchased through iTunes.

    About iTunes only being 5% of Apple's revenue. I think that is a point they are trying to change.

    What it comes down to is Apple wants the iTunes Store to be the only place you can purchase content on iOS.

    To me this is an anti-trust case. I know this all depends on how you define the market, which in this case should be iOS. A multi-platform software with a very large userbase with only one legal/allowed store with rules and setup locking users into their platform and store front.

     

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