E-commerce, social networking, on-demand: It seems like every year or two, the media and communications industry discovers some new concept that's going to make everyone boatloads of money by virtue of its sheer awesomeness. But the latest buzzword is anything but new. It's content.
Yes, from Time Warner to Yahoo to right here at AOL, the media chieftains of the world are increasingly convinced that the business model of the future involves producing stuff that people want to watch, read, or otherwise feed into their brains. The latest to clamber onto the content-über-Alles bandwagon is Barry Diller's IAC, which, as BusinessWeek, notes, is placing some pretty heavy bets of late, backing celebrity editor Tina Brown of TheDailyBeast and former NBC executive Ben Silverman in a new $100 million production venture.
What makes this herd behavior somewhat perplexing is that there's never been a time when the ability to spin content into gold seemed more in doubt. In its annual media and communications sector forecast, private-equity firm Veronis Suhler Stevenson predicted that ad spending will decline 7.6 percent this year, and will continue to be challenged over the coming five years. Growth in the communications and information industries will be largely driven by gains in areas like education, event marketing, and video games, while most traditional areas of content -- newspapers, magazines, broadcast TV, music -- will contract. The big exception to this rule, though, is online media; ad spending on the internet is projected to grow 9.2 percent this year.
As ad spending withers, media companies are looking more and more at replacing it by persuading consumers to pay directly for content they consume digitally, whether that means getting them to purchase newspaper stories via Journalism Online or adding a subscription component to Hulu. There's a lot of excitement and intellectual ferment around these experiments, but it's far from clear which, if any of them, will work.
I'm not complaining. I have a job now because AOL, even more so than its immediate rivals, is convinced that generating high-quality, professionally produced content is the key to survival in the media marketplace of the future. Maybe the fact that we suddenly have so much competition is a sign that we're onto something. One thing's for sure: For now, no one seems to have any better ideas.
Why do investors make the decisions that they do?View Course »