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.

Onward.

> UGC
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 Last.fm.

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.

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