Price Deflation in Media

A Stubbornly Persistent Consequence of Disruption

Source: ChatGPT 4o

I’m a little bit obsessed with this question: how do you know what’s important? As the volume of information increases, it’s an increasingly hard problem.

If you’re a student of anything that could be considered a system (like companies, industries, ecosystems, value chains, markets, networks, economies, culture, and geopolitics), part of the answer is to have a good mental model of that system. It should capture the most important concepts, assumptions, and causal relationships and explain how the system behaves and is likely to evolve over time. It gives you a filter to make sense of the daily deluge: does this support, contradict, or refine my model — or can I discard it as noise?

Putting it on paper keeps you honest. It exposes logical flaws and knowledge gaps. It encourages you to keep distilling it or, to paraphrase Einstein, to make it “as simple as possible, but no simpler.” It also forces you to revisit your assumptions and conclusions as facts change. The model should be a living, breathing thing.

The Mediator functions as my living, breathing mental model of the media business. I was recently talking to a media industry veteran and gave him my elevator pitch version (distilled from a recent presentation I posted online):

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Over the last 20 years, digitization and the internet caused the cost to distribute media to functionally move toward zero, lowering barriers to entry. This disruption ushered in the tectonic trends that dominate the media business today:

• Stagnation of time spent;

• Fragmentation of attention (owing both to a massive increase in content supply and the changing consumer definition of quality);

• Disintermediation of traditional intermediaries as technology makes it easier for creatives and creators to reach consumers directly; and

• Concentration of both power in a few platforms and attention in a few megahits due to the amplifying effects of the positive feedback loops online.

GenAI is now poised to cause the cost to create media to also plummet, which over the next decade could be as disruptive, if not more so.

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Without a beat, he replied, "Yeah, and one thing you're missing is that revenue per hour has compressed." My first thought was: [Expletive], how did I overlook that? It’s a big hole in my model.

I’ve written about this phenomenon in the video business a few times, like One Clear Casualty of the Streaming Wars: Profit and Video’s Fundamental Problem: It Over-monetizes. But it applies across media.

Deflation is another -ation that clearly belongs in the list.

Tl;dr:

• Disruption often causes structural price pressure.

• Sometimes lower prices boost demand substantially, both because of price elasticity and the development of new applications (the “Jevons paradox”). But this doesn’t apply to media, since time spent is already near saturation.

• That disruption causes price pressure in media isn’t a new idea. Jeff Zucker warned media companies about trading “analog dollars for digital dimes” in 2008. But what is perhaps surprising is the persistence of price pressure per unit of time.

• Below, I show that “traditional media” still monetizes much higher than “new media” per hour of consumption, ~20 or more years into the disruption of media distribution.

• In the U.S., linear video monetizes 50% higher than Netflix and 3X YouTube per hour; globally, on a per hour basis, console gaming monetizes 70% higher than PC and almost double mobile; and a purchased CD probably monetizes about 10X Spotify per hour.

• Does this matter? In the near term, the importance to each media vertical depends on the substitutability of new media for traditional and how far along we are in the disruption. So, it matters most in video, less in gaming, and least in music.

• The long-term implication is generalizable across media. This persistent, structural pressure on monetization is likely a harbinger of what will happen as GenAI lowers the cost to create content too.

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