What If All Media is Marketing? (No Paywall)
The Logical Conclusion of Plummeting Creation Costs
I’m removing the paywall on this article for the next week. I originally published it on September 5 and have gotten a lot of questions since, so I’m making it temporarily available for anyone who’s interested. After October 3, the full post will be accessible only to members of the paid tier.
There are a lot of open questions about how GenAI will affect the media business (some of which I outlined in How Far Will AI Video Go? and a recent presentation). Most important, we don’t know how good the technology will get or to what degree consumers will accept it, and for which use cases. There are still critical legal questions around the way that AI models are trained. The copyrightability of AI-assisted or enhanced content hasn’t been tested at scale either.
But we can chart the general direction and think through the possible consequences. So, it’s worth asking: if over the next 5-10 years GenAI reduces the cost of content creation as much as the internet brought down the cost of content distribution, what happens? The short answer: most content won’t be profitable and value will shift to complements.
Tl;dr:
Strictly speaking, the internet disrupted media distribution. Content creation businesses only felt the indirect, upstream effects.
GenAI will deliver a direct hit. While a patchwork of technologies has chipped away at the barriers to creation too in some media formats—DAWs and sample marketplaces in music; cheaper cameras and editing software in video; free gaming engines, etc.—GenAI looks poised to completely collapse barriers to creation across media.
What happens then? Here’s a common pattern. When barriers collapse in a market, supply explodes, consumer price sensitivity increases, prices migrate toward marginal cost, and all the value shifts to the scarce complements. This has happened in markets as diverse as food, stock trading, digital photography, PCs, consumer electronics, and many others. In all cases, the commoditized product becomes a loss leader, customer acquisition cost (CAC), or, at best, marginally profitable and value shifts elsewhere.
If the same pattern plays out in media, most content may cease to be a profit center. Instead, it will become top-of-funnel to something else. Media will become marketing.
To be clear, there’s a difference between “media sells marketing” and “media is marketing.” Today, content is the product and one way it monetizes is by renting out the attention it generates—selling advertising. In this new model, content is the cost and the only sustainable profits will be for media companies to own the complements themselves.
This may sound extreme, but connecting some dots, we can see that this pattern has been happening in media for years. Prices are deflating. Consumer price sensitivity is increasing (see: struggling box office). Content is increasingly top-of-funnel for complements: Amazon and Apple monetize video through higher customer spend or ecosystem lock-in; recorded music is effectively promotion for concerts; mobile gaming is free-to-play and instead monetizes status or community; and the biggest creators (YouTubers, podcasters) are now making more selling snack foods, beverages, merchandise, courses, or live events, than the direct monetization of the content they create.
As this continues to play out, media companies will have to re-orient their businesses. What used to be called “ancillary” sales will now be primary. Fandoms, communities, franchises, merchandise, and live experiences will be the economic engines, not the content itself.
They will need to: 1) own the tried-and-true complements where possible—consumer products, live events and experiences, and transmedia exploitation; 2) create new scarce complements (such as those built on status and exclusive access); and 3) bundle these scarce complements to increase consumer lock-in.
Some media companies already think about content franchises holistically (Disney being the canonical example). Most don’t.
It’s an opportunity for media companies that can position themselves accordingly. For others, it will be a hard pivot.
The Internet Disrupted Media Distribution
Sometimes people say that "the internet disrupted music” or “Netflix disrupted Hollywood.” If we’re precise, neither is correct. The internet has not disrupted content creation businesses. The reason lies in the distinction between direct and indirect disruption.
Direct disruption occurs when a new competitor shows up with a cheaper, less performant product that is “good enough” for some of the incumbents’ customers and the incumbents can’t respond due to internal constraints. Indirect disruption occurs when one part of an ecosystem or value chain is disrupted and other parts feel the effects.
The internet disrupted distribution directly and content creation indirectly.
The difference is important to us because, for the most part, the internet disrupted media distribution directly and content creation indirectly. Consider music and video as two examples:
Music: iTunes and digital distribution disrupted traditional music distribution directly, especially music retailing. Tower Records, Virgin Megastore, and HMV went bankrupt. Major labels were adversely affected indirectly. They acquiesced to Apple’s demand to let iTunes unbundle albums into singles, which resulted in people spending less on recorded music. That hurt everyone in the value chain, including labels. But the labels were upstream from the disruption itself.
Video: Same thing goes for Hollywood studios. The advent of streaming, namely Netflix, directly disrupted video distribution: TV stations, pay TV distributors (cable, telecom, and DBS), movie theaters, and home entertainment retailers. TV stations have been slammed; DBS has been demolished (unlike cable and the telcos, it is not supported by comparatively healthy broadband and mobile businesses); many theater chains have struggled; and retailers like Blockbuster, Hollywood Video, and Redbox went under. Streaming didn’t disrupt the business of making movies and TV shows, but studios continue to feel the indirect effects of lower pay TV, home entertainment, and box office revenue. Again, they are upstream of the disruption.
When disruption hits one part of an ecosystem, that part will be the most adversely affected, but every other part may feel the indirect effects.
From this, we can draw a general rule: when disruption descends on one component of an ecosystem or value chain, the component that takes the direct hit will be the most adversely affected, even though everyone else may feel the indirect effects.
GenAI is a Direct Hit for Content Creation
The main story in media for the past two decades has been the plummeting costs of content distribution,1 but in recent years technology has been chipping away at the barriers to create content too. Unlike the disruption of distribution, which was uniform across media, this has been occurring unevenly across media formats—over different timelines, to different degrees, and due to a variety of different technologies…
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This occurred for two reasons, which I detailed in Chapter 3 of Infinite Content: the internet unbundled information from infrastructure, so it was no longer necessary to own the expensive cables, lines, towers, satellites, or retail stores to distribute media; and by virtualizing distribution into software, it put those costs on a downward sloping curve.
This is nothing we haven't seen before. Ticket sale-driven vaudeville acts gave way to corporate sponsorships to appear in regular radio hours and, eventually, TV shows. Colgate could get Abbott and Costello in front of a whole nation that way, free at point of consumption, wholly as a vehicle for ancillary promotion of toothpastes and soaps.
The golden age of postwar media definitely gave more power to the distributors than to the sponsors (to the point where letting you pull your ads if bad news about your company was running was a standard courtesy). But those years were directly born out of the sponsorship days, as multiple companies started fighting to back the most popular stars and shows of the day.
As the major holding companies scoop up influencers, I have no doubt that the T Mobile Kai Cenat Hour will give way to more robust systems of distribution and monetization of content, with higher quality ad placements than the IAB jokes the internet started out with.
Especially as young people seek out quality in a mess of AI slop, high engagement paid media will allow the best of the best to become entertainment institutions again. If we see this change for what it is, it's a fantastic opportunity for Unilever and other serious companies to be the Colgates of the next media generation.
This was great, there is almost the bones of a book in this post.