It’s Not a Revenue Crisis

Some minimal coverage of topics at SXSWi today over on CNET.

For those who don’t follow the business, SXSWi is the “digital” portion of the South By SouthWest arts conference that happens in Austin, Texas. I wish I could have attended this year, but alas, no such smiling luck upon me this time. I’m sure I would have loved such provocative forums as “Old Media Finds New Voice Through Twitter.”

Anyone want to put odds on the more proper title of that forum being “Old Media PR Hacks Find New Medium to put out Old Message?”

But, the point is not to complain or make fun of, the primary thing in the article that caught my eye was this:

But however edgy some of the thinking may be at SXSWi, and however much its demographic may deviate from the U.S. population as a whole, the revenue crisis is real, and this is one of the places where it takes center stage. According to Avner Ronen, the sense of uncertainty over profits is what’s holding back some of the innovation that SXSWi’s masses are so eager to set in motion.

“That’s what’s scary for the media companies dealing with Boxee,” he said. “They saw what happened with newspapers. It’s unlike the record industry, it’s not like they fought it. They endorsed it, they executed very well against it, it’s just…the analog dollars to digital pennies thing.”

Here’s where things become… well, wonky. It’s NOT A REVENUE CRISIS. It’s a crisis of profit margins, and confidence in the product.

For big media companies with millions of dollars in executive overhead, the crisis isn’t that they’re not making enough, it’s that their overhead costs are too high in a market that is just now starting to more accurately reflect the world.

It wasn’t that 50 million people tuning in to watch M*A*S*H was because they all loved the show; it was also partly because it didn’t have much to compete with. I don’t even want to use the term “fractured demographic” because that implies that 18-49 Males is even a realistic map of that world. That is a REAL demographic measurement still in use today.

How many of you think that all 18-49 males are all the same, raise your hand. That’s what I thought. Mass media worked because of limited choice, not because it reflected the makeup of the audiences.

And we built infrastructure and command and control systems to support a fictional market; and now that we’ve finally started to see the amazing diversity of interests and groups in the world, you can’t cost effectively create content that large enough audiences will like; and generate enough revenues to spend $15-30 million a year just on your creative “overhead.”

One company I know, for instance, just hired it’s FIFTEENTH (15!!!) Creative exec. This is a company that develops primarily one kind of programming, and has only three shows on the air in the US. Just doing the math makes me ill. That’s well over $2.5m in salaries alone, and on shows where they make a production fee of maybe 10%… it’s just not good.

This scenario plays out over, and over, and over again at media companies. These kinds of structures will not stand the test of time. And it’s not like these huge overhead expenditures are “what you have to pay to keep top talent,” to use a phrase we keep hearing. Take a look at track records. Seriously, look. We have a “hit” subsidized business model at the large networks, studios and prodco’s. Those huge overheads still result in many a failure each year. And time and again, the same companies will hire people they “like” or have worked with and schmooze well with, regardless of the fact their last show was an utter disaster both in production, and in ratings. Just because you’ve “done” something, doesn’t mean you’ve done it well. We would do well to remember that.

There’s plenty of opportunity out there for leaner, meaner, just as creative and able to execute and make healthy profits off of revenues that the large companies say “isn’t enough.”

The fact is, the $$ can be enough in a well-managed enterprise (even though it may be “less than before”), you just have to be willing and able to adjust your cost and overhead structure to make the $$ work, and that’s a painful and difficult process. It’s especially terrifying for companies that are used to being big enough that they can point fingers at someone else in the company when one of their decisions goes wrong.

It may also mean you end up doing a lot of things yourself that in the past you would hire out while you sat in the corner office. Suck it up, rock at it, and keep moving.

Oh, and by the way, the Renaissance wasn’t the greatest period in arts in history because it made the most amount of money for it’s artists. It was because they were creating great art, and trying new forms of expression.

I firmly believe the “Golden Age” of artistic media lies ahead of us, not behind us.