Control or collaboration?: The search for new co-operative sourcing structures

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As the digital marketplace evolves and unfolds, is it best to enter it through traditional command-and-control ownership of the various components required to deliver services to consumers? Or through a looser and more collaborative approach? The consensus at the European Media Leaders Summit was that the latter approach was the way forward -- reflecting the diversity of skills and assets needed to engage and monetise consumers effectively.

Speaking in the final session -- 'View from the Summit' -- on day two, Gerd Leonhard, Music & Media Futurist with www.mediafuturist.com, set out the limits of complete control in today's environment. "The challenge now is to monetise the behaviour people already have," he said. "In the past, record companies have lived on total control, and have made money by having absolute control of the artists. To make money from 'uncontrol' is a major challenge that Rupert Murdoch has picked up with MySpace. It's chaos -- users do what they want to do. So how do you sell chaos to advertisers?"

He continued: "If you assert absolute control these days you won't make a lot of money. Wanting to have a lot of control will keep the proposition from the consumer. For the music industry, digital music has been a disaster because of this. In the next six months we will see record companies dropping the whole idea of protection."

Deciding what you do best


The benefits of letting control of various processes migrate to where it really belongs pervaded the keynote address by Metro-Goldwyn-Mayer chairman and CEO Harry Sloan, in his account of the turnaround he had engineered at the studio. Mr Sloan recalled: "With Hollywood in turmoil and the major studio system being broken -- including MGM -- we had a good look at MGM and began by asking three simple questions: what is a major studio? What is it that a major studio does well? And what is it that it doesn't do well?"

He continued: "What do major studios not do well? Making movies. It's ironic that the people who created the industry are the worst at making movies. Independent producers operating outside the major studio system can make movies for 40% cheaper than the major studios." The result was a new approach to the studio business, based on outsourcing those elements that could be better handled by third parties.

"We are doing with 400 people what we used to do with 1,400," said Mr Sloan. "We developed a new model. It's completely possible to do a lot more with less, through outsourcing and 'studio lite' -- eliminating those things that major studios don't do well. Things like development, which goes to independent producers. Production, which goes to independent producers."

Consumers in control

Others speakers during the summit stressed that the need to cede absolute control also applies to companies' relationships with consumers, who now need to be presented with choices rather than spoon-fed content. And while engaging with consumers in the right way has become more difficult for media companies, it is hardly a new requirement. "Hasn't media always been about being able to deliver what the audience wants?" asked Patrick Rouvillois, vice-president of product marketing for Orange, speaking on developments in portals. "If you lose touch with your audience, then you lose that audience ... So the customer has always been in control. Media giants who don't listen to the customer don't stay giants for long."

Mr Rouvillois continued: "Doesn't fragmentation simply mean that the consumer has vastly increased choice? I don't think we will see the end of TV, radio or newspapers. The point is that people are becoming used to choosing -- finding and consuming what interests them in an increasing number of different ways."

This makes it sensible to pass some of the control for product and service development across to consumers themselves -- creating a collaborative development process that should meet consumer needs more closely and fully. Speaking in the panel entitled "Live from a bedroom near you," Belgacom Skynet chief executive officer Bart Becks said his company had taken just such a step.

"We have created a 'customer board' which has physical meetings every three months," said Mr Becks. "We also have bloggers' representatives who talk to our product managers. Then our customers and product managers together determine the roadmap of the service. That's very powerful because they are collaborating to design the service. From the beginning the users provide ideas about the new features they would like, and communicate right through the development phase up to launch. Then we discuss with them how we might combine advertising with it."

Thinking like new media

This more inclusive and less control-focused approach to developing content and services is a hallmark of new media companies -- and is something traditional broadcasters are learning fast as they build up their online activities. In the panel session on content-on-demand, Channel 4 New Media managing director Andy Taylor said his company focused on three forms of new media content: developing new media content around existing program brands; developing new media content unconnected to program brands; and migrating entire programs to the web.

"With all these services we have looked to move early," said Mr Taylor. "And when we have moved, we have found that the demand has been there. You have to approach new media with the mindset of a new media organization. For a broadcaster, everything has to be perfect before it goes out of the building. That is not the case with new media."

As a number of speakers pointed out, the underlying shift is that success in the digital ecosystem comes down not to ownership, but to relationships. "A media marketplace has many attributes," said Deborah Bothun, partner and Global Convergence Leader with PricewaterhouseCoopers. "The marketplace supports the interaction between devices, advertising, consumer profiles and content. But as it continues to evolve, it has several other attributes. It allows consumers payment model options: such as pay per use, subscriptions, ad supported, pay with profiles or other creative models such as payment with airline miles. Knowledge of consumer activity rather than exclusive ownership of content and distribution assets will become the basis of competition."

In the final panel session on day two, 'View from the Summit', Joseph Schull, managing director media & business services with Warburg Pincus for central and Eastern Europe, summed up the investor's perspective on the industry's shift from owning assets to building communities. In his view, the change had manifested itself clearly in new market dynamics.

"The barriers to entry will be different from in the past," said. "It used to be the capital requirement needed to enter an area. One of the features of the internet is that the capital requirements for entry are quite low. On the other hand, what we see with many new media companies is that once you establish a community, and liquidity if you are a marketplace, it's very difficult for anyone else to do the same in the same space. And the user base isn't really interested in new end providers because they have got what they need. So the ability to build a network will be the source of competitive advantage and stable franchises. How people get there is an open question."


Find out more about the European Media Leaders Summit 2006 at www.euromedialeaders.com. Or contact: Alex Maclean, Marketing Manager, Global Entertainment & Media practice, PricewaterhouseCoopers. Phone (44-20) 7804-3421; email: alexandra.r.maclean@uk.pwc.com.
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