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Why New Media Services are Different

While the internet has taken on a major role in the distribution and promotion of video, audio and print content in close approximations to their traditional forms, arguably the most successful, and certainly the most noticed web-based media services are those that are indigenous to the web. Prominent among them are blogs, social networking sites such as MySpace and FaceBook, content sharing sites like YouTube, Revver and Flickr, various types of peer-to-peer file sharing services, and iTunes. Organizationally, each of these media services represents a substantial departure from its closest offline counterpart. In addition, the success of these ventures was totally unanticipated by those who started with old media as their models and its is probably fair to say that for the most part the success of the most visible new services cannot be attributed to the foresight of especially shrewd entrepreneurs. Rather the web constitutes a perfect environment for low cost and often spontaneous experimentation and today’s surprise successes are those few among the multitudes of contenders that found responsive audiences. Nevertheless, the question remains as to why the new services are organized so differently from more traditional offline businesses offering similar content. The new media services listed above are all internet-based, so it is hard not to suspect that the differences between new and old media services reflect in large part differences in the media technologies they employ. This paper will argue that the forms new internet-based media services have taken can be explained in part (with hindsight) as consequences of: (1) the relaxation of cost constraints that limited the forms old media might profitably take, (2) the two-way character of the internet, and (3) the development of low-cost and effective aids to user search. While demand-side considerations have undoubtedly also significantly contributed to the character of web-based media services (e.g., the dominance of singles over album sales in online music transactions), this paper will focus largely on the impacts of cost considerations, including those flowing from the two-way character of the net. The approach is to first develop a rather stark model of a commercial video service relying on traditional multichannel cable technology to deliver multiple channels of content simultaneously to viewers. The model is then modified to allow viewers to use an IP-based link to directly access the content at the video storage facility maintained by the provider as is done when accessing videos on an online video sharing service. The cost characteristics of the two architectures are then examined for their implications for strategic choices regarding programming and program acquisition. I then ask to what extent the findings of this analysis can be generalized to either help explain observed differences between the online and offline versions versions of other media services, such as newspapers and magazines, or to predict ways in which the business models underlying these services might diverge in the future. The remainder of this paper is organized as follows. Section II describes in general terms critical differences between a cable-like multichannel video service and a hypothetical online counterpart for such a service and discusses at an intuitive level some of the implications of these differences for strategic choices regarding content acquisition and programming strategy. A simple model capturing the features of interest is presented and analyzed in Section III. This model is modified for application to an online video service in Section IV, where the basic descriptions of program acquisition and programming strategies generated by the two versions of the model are also compared and discussed along with implications for comparisons of online and offline business models for delivering other types of media content. The paper is summarized and concluded in Section V, which also includes a brief discussion of the importance of search and recommendation/referral technologies to the success of online media services.