• by Mark Walsh  @markfwal, February 22, 2007

To deal with threats from new digital competitors, IBM's media-consulting arm recommends that traditional media companies focus fanatically on consumers and embrace new technologies and business models.

In its new report, "Navigating the Media Divide," IBM says that mainstream media companies need to loosen their grip on proprietary content in order to capture young, tech-savvy consumers who have fueled the enormous growth of YouTube and other sites built on user-generated material.

Although traditional media revenues still dwarf those of new media, the latter category is expected to grow much faster--20% compared to 6% for old media from 2006 to 2010.

The study advises content owners and media distributors to cooperate in allowing the legal reuse of content for mash-ups, overdubs and other ways "that celebrate their favorite branded content in new and creative ways." It cites companies such as video-sharing site Revver and Al Gore's Current TV as companies that are already paying contributors for supplying programming.

In maintaining a focus on the consumer experience, media companies must also create new content tailored to the digital world rather than simply putting old wine in new bottles. That means going beyond traditional licensing to develop online subscriptions such as the popular Sony Online Entertainment Everquest games and new forms of marketing.

In that vein, the IBM report says media businesses should be thinking about how to take advantage of virtual worlds such as Second Life, which now has over 1 million "residents." Companies including Reuters, Starwood Hotels and Resorts and Circuit City have already set up shop there. IBM expects that "companies will soon be blending transactions across both worlds with purchases initiated in the virtual world that are fulfilled in real life."

When it comes to interactive advertising, IBM suggests that media companies should lead the way in devising new types of research and metrics for the digital era. The report calls for today's "disparate" ad management system to be replaced with a more transparent and streamlined process. One possible effect is a shift toward behavioral measurements and away from impressions.

As they experiment with new business models, such as offering content through more "open" Internet venues, they must figure out exactly what they want to achieve, whether branding or a new revenue stream. IBM also recommend using rapid pilot programs to test new business models and gather "'real life'" data on consumers.

Other recommendations in the report include converting consumer data into a competitive advantage, creating a Chief Consumer Officer post, shifting investment from traditional business to new models, and creating a flexible business design.