It will be more than just who has content

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CHICAGO -- The recent turn of events in the media world, as well as the latest financial disclosures from News Corp. and the Walt Disney Co. -- considered by Wall Street to be the leading traditional players in digital revenue and earnings growth -- shed light on the industry's efforts to develop new-media business models.

And the news is not all that good.

The bulk of new-media revenue generated by News Corp. and Disney is either the result of a rare original enterprise like MySpace, which is powered by its own momentum, or the monetizing of hit film and television content, which has historically driven their profits.

Neither of these revenue-generating approaches can be mandated or guaranteed, which leaves a huge portion of these and other companies' financial fortunes up for grabs, even at a time of exploding new economic opportunities.

Strapped by their inefficient response to a bustling marketplace, it is incumbent upon the powers that be at News Corp. and Disney to brainstorm new business propositions that can provide more constant revenue in a marketplace where peer sharing and piracy run rampant. No one is yet meeting that formidable challenge.

For the most part, these and other media giants are doing what they know best: creating content, only a relative small portion of which is good enough to profitably strip across all new and conventional media platforms when going by the same economics that have driven syndicated television and consumer products.

Their broader objective is to collectively generate more profits from new- and old-media venues to handily offset the underlying cost of content production, marketing and the inevitable, veritable losses.

The historical vulnerability of that objective makes it imperative for all media companies to develop and execute new business models and new related businesses, like matching their core competencies with the personal interests and immediate needs of consumers -- an exercise in lucrative relevance that doesn't really exist on the Web.

In line with most media giants' stubbornly simplistic way of thinking, selling hit content for VOD and iTunes downloads is fundamentally the successor distribution option to TV syndication and DVDs. Selling advertising on video Web sites isn't philosophically different than selling TV commercials except that it can importantly facilitate transactions between consumers and merchants.

So far, selling into a highly targeted, fractionalized marketplace rather than a bulk mass market promises to render more sale opportunities for more content, but it doesn't necessarily deliver lots more revenue.

At Disney's analyst meeting last week, CEO Robert Iger partly attributed the company's financial uptick to opting for the "quality" over quantity of heavily franchise-driven film projects. It's still the same crapshoot creative risk-taking. Disney fiscal first-quarter studio entertainment revenue grew 29% to $2.6 billion, exceeding analyst expectations, because of the home video releases of "Cars," "Pirates of the Caribbean: Dead Man's Chest" and the platinum version of "Little Mermaid" -- more than offsetting soft domestic boxoffice, theme park and consumer products returns.

The sustainability of such growth depends entirely on hit content and its stage of monetization, to which the revamped Disney.com and its family social networking and "windowing" is devoted, even if it unabashedly relies on conventional sensibilities. Iger contends that "well-timed, well-priced" content windows will combat piracy, but it might not necessarily produce a hefty new revenue line. A majority of the $700 million in digital revenue that Disney expects to generate in fiscal 2007 is related to new distribution windows that merely offset declines in the old.

Veteran analyst Spencer Wang of Bear Stearns puts it another way: Although Disney is firing on all cylinders, "reversion to the mean in the hit-driven entertainment business could suggest that there may be more downside risk as opposed to upside to future earnings." That can be said of Disney's peers as well.

In fact, no media company has devised a new form of monetization that skillfully uses, rather than depends upon, the mechanics of digital broadband interactivity to generate new, secure compensation for consumer and advertiser access to their content. Perhaps it is because they have not adjusted to or do not comprehend the more complex, drill-down aspects about where it's all going.

That's why Viacom, in its attempt to preserve the financial value of its content by ordering it removed from YouTube's unauthorized access, can't say what alternative user payment and advertiser business models it will embrace. To be fair, the same holds true for the leading media giants (Viacom, News Corp., Disney, NBC Universal and Time Warner included) that also are accusing Google from financially benefiting from the sale and sharing of pirated movies and other content.

While waging their piracy protests and continuing to sustain increased program content costs, these players also should be formulating new business propositions based on their understanding of -- not just their gut objection to -- their new digital broadband interactive reality.

For instance, it might be interesting to cross-pollinate the participatory users of IAC/InterActiveCorp's transactional service Web sites with related content, which clearly is driving Barry Diller's recent pursuit of limited interests in or acquisitions of "programming ideas" and Web sites. The longer, unique engagement of users on Match.com, Expedia.com, Citysearch.com, Ask.com and other Diller services can actually lead to a more penetrating content and advertising connection.

Some media companies already get that much, perhaps, by default. According to a Borrell Associates study due for release today, newspaper-related Web sites are making nearly three times what TV station sites make in online video because of their stronger relevant ties to consumers.

While News Corp.'s MySpace represents a new platform for bringing consumers together, its revenue growth is primarily based on the sale of branded (not search) advertising, revenue from which is growing from scratch about 30% every quarter and remains only about 1.5% of News Corp.'s overall revenue. That alone justifies MySpace's estimated 10 to 15 times revenue $15 billion valuation.

For now, News Corp.'s filmed entertainment division also has bolstered its balance sheet with a record quarter credited to Fox home entertainment hits ("X-Men" and "Ice Age" sequels) and boxoffice ("Borat" and "Night at the Museum").

If it is smart, News Corp. will offset the inevitable cyclical downturn of such performances by learning how to sustain the strong revenue growth from advertising that will drive profitability at Fox Interactive Media and mine social networks like MySpace in a way that is relevant and timely to users.

Truth be told, even the best of breed old-line media companies continue to operate the old-fashioned way, even though a rapidly changing marketplace demands otherwise, because the new business models for survival aren't yet clear or developed. MySpace represents the only new-media social networking platform at traditional media companies upon which new business models can be developed, particularly through partnerships with the likes of eBay and Google. For now, MySpace is growing on its own momentum (to $75 million in fiscal second-quarter revenue and anticipated 20-plus earnings margins in fiscal 2008), analysts say. It broke even on $325 million in revenue in fiscal 2007.

MySpace aside, media players generally are at the mercy of the online video aggregators with whom they are tangled in intensifying access disputes.

With Apple chief Steve Jobs doing an about-face on copyright matters to open wider his iTunes and a growing number of media chiefs condemning YouTube's unauthorized peer file-sharing and downloads, things are quickly transforming into a trial and error survival of the fittest rallying around the issue of payment.

Even if media companies assume that online video complements rather than replaces film and TV viewing, as a recent Leichtman Research Group report maintains, how to monetize the elusive sharing, storing, manipulation and modification that is online video remains a major stumbling block to devising new economic media models.

With all due respect to Iger and Rupert Murdoch, it no longer is a matter of the company with the most popular content wins. There is so much more than that about new interactive digital broadband media. That was succinctly stated last week by new NBC Uni chief Jeff Zucker, without apologies for not having the answers: "The issue is, how do we get that great content in front of new eyeballs, on new platforms, with new money attached?"
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