The Year(s) Ahead in Media - Disintermediation
The Declining Role of Traditional Intermediaries
Note: This is the second post in a four-part series that discusses four tectonic trends (fragmentation, disintermediation, concentration and virtualization) that will determine the flow of value along the media value chain in coming years. Here’s part 1.
Tl;dr:
This post explores the second trend, disintermediation.
Disintermediation refers to the declining bargaining power of traditional intermediaries.
Many of the household names in media (film and TV studios, videogame publishers, newspapers, music labels) are intermediaries between creators and consumers. They have historically taken the lion’s share of value because they do things that have been hard for creators to do themselves: financing and coordinating production, marketing, monetization and distribution.
Technology is systematically making all these things easier for creators to do themselves, improving creators’ bargaining power or enabling them to circumvent these intermediaries altogether.
Some intermediaries still own or control very valuable IP, they are marketing machines and many creators will still want the validation of working with them, but on the margin, they are getting squeezed.
And the clear arc of technology is that it will continue to marginalize them. For instance, GenAI will democratize high-quality production tools and NFTs may democratize access to capital.
In the next post, we’ll examine the third trend, concentration.
2. Disintermediation: Declining Bargaining Power of Traditional Intermediaries
Not only is attention fragmenting, but for related reasons, the bargaining power of traditional intermediaries is also declining.
Historically, the most powerful and valuable companies in the media value chain— household names like Disney, Warner Bros., Netflix or The New York Times, and many others—have been intermediaries between creators and consumers. For the most part, they don’t make the content, they attract the creators who make the content, provide them the resources they need to make it, and then get that content to consumers.
These companies have extracted the lion’s share of value from the value chain because they do things that have traditionally been very hard for creators to do themselves, namely finance production, manage the production process, find creative collaborators, run expensive marketing campaigns and maintain costly distribution networks and monetization infrastructure. Their relative bargaining power is under pressure for the same reasons that the quantity of content has exploded: technology is lowering the barriers to production, marketing, distribution and monetization and making it easier for creators to do all these things themselves.
Technology is systematically making it easier for creators to circumvent intermediaries.
As is the case for the other trends I’m discussing in this series of posts, it is gradual and, year-to-year, its effects often subtle. I am not arguing that studios, labels and publishers will have no value in the future. They may own or control very valuable IP (that no creator can access without them), they are marketing machines and many creators will still want the validation of working with established, household brands. On the margin, however, their bargaining power is waning.
A couple of charts showing the historical and evolving media supply chain should help illustrate the point.
The Traditional Media Value Chain
Generically, the media value chain can be broken into four main categories: creators (actors, writers, directors/showrunners, videogame developers or designers, musicians, composers, photographers, etc.); publishers or producers (studios, music labels, videogame publishers, newspapers, etc.); aggregators or distributors (online aggregators, retailers, cable/satellite/telco distributors, movie theaters, TV stations, etc.); and consumers.
Note that some companies own assets along the chain. For instance, Comcast owns a film studio (Universal Filmed Entertainment Group), a streaming service (Peacock), cable networks (USA, MSNBC and many more) and cable systems (Xfinity). The New York Times is a publisher and also distributes direct-to-consumer. Also, in some cases creators are full-time employees (like most newspaper journalists), sometimes they are independent contractors (like actors) and sometimes they are a hybrid of the two, like a musician under contract to deliver a certain number of albums to a label. But the functional separations still hold, regardless of the org structure or reporting lines.
Figure 18 maps this value chain against the product development process I showed in part 1, illustrating which participants are responsible for which steps in the process and where there is overlap in responsibility. Some of this mapping is obvious. As shown, creators come up with the ideas and produce the final product. Producers/publishers also help with production, such as by providing financing, facilities, equipment and production personnel; pulling together other creatives to collaborate; and offering creative input. They also do most of the marketing. Aggregator/distributors also perform some marketing functions; they package and curate content; they distribute it; and they monetize by selling to customers or through advertising. Consumers consume.
Figure 18. The Historical Media Value Chain
Source: Author.
If you were to put the logos of prominent media companies into this chart, it would look something like Figure 19. This underscores the point I made above: the most powerful and valuable companies in media are essentially intermediaries between creators and consumers.
Figure 19. The Historical Media Value Chain (Redux)
Note: Logo placements are directional and not meant to reflect the full scope of each company’s activities. Source: Author.
The Emerging Media Value Chain
This emerging value chain looks like Figure 20.
The idea here is that the role of both creators and consumers is expanding. Creators are moving down the stack. They now have access to a wide array of creation tools that lower the barriers to production; they can market using their own social followings; and they can distribute and monetize across a wide array of self-service platforms. The role of consumers is also expanding. As most consumption now occurs on networks, consumers today are influencing marketing, distribution and even potentially production.
The clear arc of technology is that it will continue to supplant intermediaries.
Figure 20. The Emerging Media Value Chain
Source: Author.
A Slow, Steady Squeeze
As I mentioned above, this trend is gradual and manifests itself in subtle ways. But technology will continue to marginalize the intermediaries because all these tools will keep getting better and new tools will emerge.
For instance, as I described in Will Radio Save the Video Star?, the major music labels have been surprisingly resilient even as the supply of independent music has exploded. But it has become more competitive and costly to sign new talent, who may walk in the door with a couple of hits, tens or hundreds of thousands of social followers and the temerity to bargain for the eventual reversion of their masters or buyout clauses.
Third party game publishers are also facing more challenges attracting developers, who are better able to self distribute than ever on Steam or app stores.
Journalists can build a brand on established publications, then leave the publication and launch their own newsletters.
This shift in bargaining power hasn’t happened to the same degree yet in film or TV, but if GenAI can meaningfully reduce production costs and/or NFTs can democratize access to capital, eventually top talent will be more empowered to extract better economics from studios or circumvent them entirely.
The next post tackles the third trend, the role of networks in concentrating both power and attention. The last post will address the fourth trend, virtualization, and weave the four trends together.
Thanks Doug. Good read, with clarity.
Keep thinking about this with consolation and studios licensing films back to Netflix