Thoughts on the BearStearns UGC and entertainment industry analysis

BearStearns has posted an analyst opinion on “User Generated Content” and the entertainment industry. The report can be found here ( link ). I dug through and decided the analysis should come with some caveats, printed below.

Right off the bat. An important quote: “The risk, in our opinion, is that as digital revenues increase, core revenues for entertainment companies decelerate more rapidly than we currently expect.”

Which is exactly the scenario that kicked the music industry in the ass.


Not a truly userful understanding of the scale and scope of user generated participation in online media. In fact, to assert this kind of fabricated “growth” they assert is dangerous.

They suggest that UGC (User Generated Content) accounts for 13% of internet page views, up from 0-1% in 2004. 1300% percent growth over three years for a sector. Their conception of UGC is completely flawed however, and this representation of the internet will lead to all sorts of similar, bogus conclusions. I have to be honest. It seems pretty naive to assert that less than 1% of internet page views, only three years ago, were the consequent of user generated media. What we have instead is simply a measure of the growth of the five sites/networks in their index. Online, UGC always has been big, always will be big.

UGC has been the heart of the WWW since the beginning. The big brands after this beginning were Tripod, GeoCities, and a host of others.. the “Homepage” phenomenon. Combined with every site of every other netizen that contains text, audio, video, etc. Similar pages have and will continue to comprise a larger proportion of views than estimated in this report. Simply put, do a web search. More than 13% of the results come from sources other than the search engine itself, or a major media company partner.

> Paradox of Choice
This cry for filters, editors, recommendation agents and such is old. It is neither new nor informative. You basically have to live under a rock to conclude anything else.

The paradox in this industry is that the value of the editor and the filter has not arrived consistently, and has often been collected by the aggregator alone, or not collected at all. Acquisitions in this area ebb and flow. From Firefly and others, to the fizzles in 2001 (you know who you are), to the big hits like

The “wealth of networks” is being earned by only a small section of the network. Even though the “wisdom of crowds” is being produced by an increasingly large crowd. Which Last.FM users got stock? This is where media companies, who usually played the editors as well, get screwed.

> Content and kingship
whatever. Since the beginning of media time media companies have developed content while owning “infrastructure.” From studios with theatres to labels with radio stations. The business has always been choppy. The challenge is when top-line industry revenue falls. Integration is simply a question of how you define the industry.

> Response to change
Three platitudes exist in this section, leading to doing nothing specific: (1) build organically (2) acquire (3) partner. The only other choice i can think of could be (4) do nothing, which the authors clearly just chose to leave out. The business book section of your local bookstore is fully stocked on platitudes. I know HBR has at least four leading off the july/august edition.

However, the warning against building organically seems all so reasonable, yet so painful for media companies to accept.

>Offsetting initiatives
Total advertising dollars have slowly climbed over the last five years. The percentages in the report play with you head. Core + Online = Total. Total is nothing other than Core + Online, and therefore, as long as total advertising dollars increase, newspapers (or whatever they will become) can always grow revenue.

More on the Paradox of Choice

The BS report included a section on the Paradox of Choice, and the necessity for editors and filters in a world of bazillion media files.  I felt that this call for action was a bit less creative than appropriate.  The call for editor/filter is a consistent call in the media industry.  And for some odd reason, firms and applications that provide these services have had a tough time.  I figure this is the more paradoxical challenge – a sustainable market for filters.
What I meant by the editor comment has two fronts.

> On the first front.
Media companies have historically also enjoyed playing the editor/filter, or having direct access to these influential nodes of culture.  So News Corp was both a producer of books, a publisher of papers, a network of stations, etc.  Even without the inbred connections of conglomeration, the network of peeps involved in this system were closely connected.  Kinda like the Wired Mafia (or the apparent hollywood-level Mafia of my alma mater, Northwestern)- the network of individuals who worked for Wired at the origins that now consistently re-appear, often working together or influencing the attention paid to each other’s work.

As the market for being the editor/filter has fragmented, media companies face a very realistic state of uncertainty.  What was somewhat of a Pipeline, is now more like a Pachinko game.  Furthermore, retailers have stepped up into the editor/filter position, either by way of their own products, or licensed systems. As such, the editors are bit less reliable in terms of their tendency to get with the program, as it were.

> On the second front.
Recommendation systems have a had a rough life.  Part of this challenge emerges since editors/filters face the same kind of competition for attention that media companies do.  Consumers have a wide set of options, and experience media reviews in somewhat of a wall of sound.  Knowing full well that “media” is most likely an experience good, we are faced with probably hundreds of options for filters.  On one site, AggregateKnowledge is doing the work.  On another, Amazons littlee collaborative elves are tossing out useless suggestions.

The real “wisdom” in this system most likely resides in our networks of relationships.  We tend to hang out with people who have similar interests, or (oddly) usefully opposing or idiosyncratic interests.  Even if we do not always share interests, trust has been developed at a level no media company could probably attain.

You will never organize this network like labor, however.  Instead, it becomes embedded within some other service and the aggregator of people and their opinions captures the value of the crowd and (otherwise) crowded wisdom.  For the rest of us, its a sort of social exchange in which we happily participate.