Telepocalypse

Media junkie

I can highly recommend this tongue-in-cheek essay by Wall Street Journal writer Andy Kessler on satellite radio and media company dynamics. For the temporally challenged, here are the juciest bits, and my thoughts:

What do you call a media company with a million subscribers and $500 million in annual losses? A great start. Sirius Satellite Radio has set Wall Street on fire, commanding a $7.4 billion value by following in the greasy path set out long ago by the cable industry, grow first and ask questions later.

… Harassed by the FCC over unwritten additions to the seven dirty word list, the King of All Media Howard Stern was ready to escape the public airwaves. A very Sirius $500 million and an encrypted signal was all it really took to shake him (and Mel) out of Viacom’s control.

Although we colloquially refer to broadcast “networks”, in the mathematical sense they’re rather degenerate hub-and-spoke affairs. However, when you zoom out and look at the bigger picture, there is a “network” and a network effect behind this: word of mouth recommendations and discussions between viewers. Similar dynamics appear in other “bit distribution” industries like movie theatres.

Clayton Christensen suggested that innovators should be impatient for profit but patient for growth, because their disruption to established mainstream players will only grow from “substandard” niches. But for industries with strong network effects, the reverse may be true. He who crosses the prairie fastest gets the most corn in following years.

Sky TV’s cornering of the broadcast rights to English soccer ensured that to participate in the bar-room discussion of the big match you had to gain entry via their pay-TV system.

The lesson? Network effects may actually be external to the product itself, and may not be obvious.

Every successful media company is based on some restriction of trade – TV was a mandated oligopoly, cable has local franchise rights, movies control theaters, music controls retailers, etc.

The telecom version? The Paradox of the Best Network, and the Rise of the Stupid Un-Network (i.e. mesh) mean that all centralised network profits come from political mandate. The core competence of every telco over time drifts to the legal department.