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Stanford GSB News

 

The Rules Are Being Rewritten
in Today's New Media Industries

April 4, 2000

GRADUATE SCHOOL OF BUSINESS — Televisions developing computer-like interactivity, personal computers becoming entertainment platforms, and books going electronic are some of the trends fueling today's new media revolution. Among the high-stakes riddles puzzling industry leaders: If media are converging, what will they converge to?

"We're not even close to having worked through this renaissance of creative exploration," said Richard Gingras, editor-in-chief of Excite@Home. "It's continuing to change at every layer." Gingras was one of more than 80 players in the forefront of today's changing media industry speaking April 1 at a day-long conference The Future of Content, organized by students at the Stanford Business School.

Microsoft-backed WebTV, which has one million subscribers, expected the number of interactive set top boxes to reach 50-60 million within five years, according to Phil Goldman, general manager of Microsoft's TV platform division.

TV's move to interactivity, however, undermines its main source of revenue — selling airtime during commercial breaks that viewers cannot control. "TV could become like the Internet industry where nobody can figure out what the business model is," said Allan Thygesen, MBA '88, an executive vice president at Wink, an interactive TV company.

Making the case for the PC, Macromedia chairman and chief executive Rob Burgess noted that his Shockwave software was already enabling entertainment on the Internet, without waiting for broadband. He showed off clips that were debuting on the Internet, including a short cartoon called Stainboy, a superhero farce by Hollywood director Tim Burton of Batman and Sleepy Hollow fame.

Speakers agreed, however, that both TV and PC would continue to have their place in the home, together with other devices such as palmtops and cellular phones.

"TV is a lean-back experience and the PC is a lean-forward experience," said Joseph Horowitz, venture capitalist and chairman of Geocast. Broadband, he added, does not mean simply an increase in speed, but also that the network connection is always on, turning the computer into an "information appliance" and enabling various new uses.

Leo Hindery, MBA '71, chief executive of long-distance telecommunications firm Global Crossing, estimated that 40-50 million U.S. households would be plugged into higher-speed data services within three to four years. About a third of such connections would be wireless, he said.

He forecast further consolidation in the media industries, particularly among technology and supplier firms. Last year's acquisition of General Instrument Corp. by Motorola was just the start, he said: "You should expect a robust, active summer and fall by companies of the likes of Microsoft, Motorola, Cisco and Lucent, all of whom intend to be very active in this space."

It is still too early to tell what content and services would succeed, speakers said. But AOL's vice president for programming platforms, Bill Youstra, MBA '92, noted: "The one common thread is that it's got to be convenient." Formats that require consumers to "jump through too many hoops" would fail, he said.

Expect battles for access into homes and contests between competing technical standards and business models. However, do not bet against those with brand named products and first-mover advantages, panelists added.

Also discussed was the relationship between Internet upstarts and traditional media companies. Michael Robertson — whose MP3.com music provider faces a multi-billion-dollar suit filed by recording giants over its Web-based service — argued that the music industry was denying itself up to $60 billion in yearly business by putting all its eggs in high-priced compact disks. The movie industry, by contrast, aged its products over time, from theatrical release to videotapes and ultimately free TV. His service is trying to apply the same model to music. "That's how you fight piracy, by hitting all the price points," he said.

MP3.com, Robertson said, showed the worth of first-mover advantage. It has 10 million registered users and receives more than 140,000 unique visitors per day.

Speakers agreed that established media brands have high value. Traditional publishing houses, for example, account for most electronic books sold by online distributor NuvoMedia, said its chief executive Martin Eberhard. Consumers need filters. In a real bookstore, books are already filtered by the costly decision to print them. E-publishing, however, allows anyone to market a book. "So consumers look for brand name publishers even more on the Net than in a bookstore," Eberhard said.

Attendees were also reminded not to ignore traditional norms of behavior when using the Net to personalize customer service.

"If you don't recognize someone after meeting them several times, it's one of the most insulting things you can do to them," said Clifford Nass, a Stanford communications professor and a founder of interface design firm Netsage.

On the other hand, trust has to be built over time, cautioned Brad Husick, a vice president at Vignette Corp. "Just because you buy something from them doesn't entitle them to have a personal relationship with you at home."

The conference, attended by more than 400 students and professionals, was the brainchild of students in the business school's arts, media and entertainment club. The organizers are hoping to make it an annual forum for exploring the business issues around media convergence.

by Cherian George