Jonathan Miller Preaches the Agnostic Gospel of the Cloud

Everything will be digital and only some of it will be free

Jonathan Miller is more determined than ever to crack interactive media's money-making code in his new job as News Corp.'s digital chief. He's got plenty of learning experience to draw from, both as a partner at venture capital firm Fuse Capital and as the chairman and CEO of Time Warner's AOL.

At this point, he's certain the answer will be a combination of paid and free advertising-supported content. We'll all know for sure in a few years.

How will advertising be different in all media forms in five years?
We will continue to see a share shift of ad dollars into digital media, following consumption, just as we have seen with newspapers. We haven't seen it happen yet in video because consumption patterns haven't changed much. Marketing will become more efficient, so I don't think we will see marketing budgets take off. I think they will become tighter in terms of how much they grow because of the increased efficiency in the marketplace. We'll see more competition than ever for the advertising dollars.

In the online world, we will see real premium experiences like Hulu and longer-tail environments like social networking. There will be a dichotomy of higher-order brand dollars to premium environments and to per-cap performance into the longer tail. But as Hulu has demonstrated, for a lot of reasons, video advertising will look and work a lot like television advertising.

Will the same type of measurement and accountability be required?
I'd rather call it efficiency, but yes, that's right. We have not yet seen the big hit in viewers take place that will lead to the big hit in advertising dollars going to national television.

Will that happen within the next decade?

What will the television experience be like then?
The teenagers who will become the mainstream adult viewers in that time frame will flow the content and communications they want on any screen they have with them. They're all just screens to them, whether it's a TV or an iPhone. Television will be the equivalent of a big interactive screen.

Who will be the big media players five to 10 years from now?
Five to 10 weeks, I might be able to answer that. Five to 10 quarters, I might be struggling. But five to 10 years?! That's hard.

The traditional media conglomerates combine content and distribution. That was part of the theory of media conglomerates. But more and more, they have been breaking down to either content or distribution. Comcast is primarily a distribution company; Time Warner is becoming primarily a content company.

News Corp. has both, and we will need to continue to play in both, because if you want to make more digital dimes, you will have to capture more of the distribution dollars. You need to be in both content and multiplatform content distribution because there is not enough money to go around.

To be in the distribution business through something like Hulu did not require a huge investment. You can be in it, but the associated cost is nowhere near what it has been.

What is changing most about media economics?
You can't anticipate all the changes and consequences over the next five years, but in the near-term, media companies must optimize their operating structure and operating cost for a potentially lower- and slower-growth revenue world. That's not just the product of the recession, it's the new digital reality. Each area of the media business has to go through a cost- structure transformation. You see it in the music business, and you're certainly going to see it in the newspaper business.

Doesn't that mean media's physical structure - TV stations, newspapers - will have to go?
Everything will be digital.

How will media companies make money five years from now?
There will be more pay and subscription, more multiple levels of niche marketing, various devices and consumption channels, and more low-cost channels. Part of the trick will be getting good at all of the above. It will no longer be as simple as making a movie, selling a DVD and the rights to HBO, and making 19 percent of the gross from a television network, so life is good. The media business will have many more points of consumption, and you will have to aggregate all of it. But in the end, we will not trade one to one - they will all have different values.

One of the key questions is whether content continues to grow and be differentiated and valuable enough to have true paying models. I think the answer is "Yes." We will see both subscription forms as well as micropayment transactions.  We are at that inflection point in the music industry where streaming forms are taking over from a la carte downloads. For a reasonable price going forward, consumers will be able to access their music of choice for every device and platform for one price, instead of paying for every a la carte download to captive devices.

What has been and will be the biggest disruptor in media?
The biggest disruptor so far has been the proliferation of content. The biggest disruptor going forward will be individuals having more control over the consumption and sharing of media.

After a period of commoditization, we're entering into a time when premium experiences like Hulu and great apps on the iPhone are becoming more valuable.  Beyond that, we will be dealing with the device-agnostic implications of the cloud. We're starting to see the arch toward the cloud being an organizing force in the music experience. When people look back, they will realize this was the year when we learned to stream content instead of downloading it.

Under that scenario, what happens to free, mass content?
There is no question that paid and free models will continue to coexist, and the majority of consumption will be in the free world. But a majority of the premium content consumption will be paid.

What's the future of privacy and personal security in all this?
Companies need to make these considerations, but the reality is: There are just going to be breaks. People aren't going to share, or aren't going to store, until they are comfortable.

How will television or film content change in five years?
In the future, the hits will still be great hits, and maybe even bigger hits than today, because content spreads like wildfire across the globe. But content generally will have to be made more cheaply. Part of what supports the media business content cost model now is the ability to package. Great content goes together with less successful content. It's unclear if we'll be able to package content in the same way five years from now and, therefore, support secondary product to the same extent.

The counterforce to that is targeting. If you can target consumers better than today, you can, theoretically, charge more, especially if content packages are broken up. The mid-level product in any of these industries could still cost as much to produce as a hit, but there will be no way to effectively monetize it. That kind of B-content will come under pressure. Consequently, I think there will be fewer films and television programs made. There will be a contraction.

How might content economics become more of a self-sustaining model five years from now?
Digital distribution allows you to have a direct relationship with the customer. By having some direct relationship, I can better understand and have direct pipelines to consumers, and I can leverage all of that for dollars. We're entering an era in which having these individual consumer relationships is mandatory. If there are less overall dollars available in any one sector or sliver of the industry, then we have to get more customers and dollars in every one of the places.

What kinds of properties will you invest in now in anticipation of major growth five years from now?
One that is missing today is video games. The actual time spent by people playing games is growing fast. Games will become the single greatest time activity commitment and more of an adjunct to other businesses. The ability to see better-quality games on mobile devices increases with greater bandwidth. I think we're about to see a real explosion of that.

Until now, games have been expensive to produce with good graphics in an immersive environment. As production, distribution, and storage costs come down, the number of games goes up. We will see a rapid increase in high-quality multiplayer games at lower costs. They will be an extension of other kinds of content like movies, TV programs, and music. Social networks like Facebook will open platforms that allow games creators to leverage millions of hits in a week.

How will social networks and search change everything?
Social activity also is in the process of becoming a dominant activity on the Web. It's not about search or Google, per se. As social networks become better at providing tools, the redistribution points for media will be personal distribution points. The entire media distribution chain will be lifted, so it will be important to be in the social networking business. While there is work to be done with MySpace, it is relevant to the media business.

Advertisers will want to be in environments they can trust, where they can get a response. Eventually, we will need points of aggregation of discrete environments where advertisers will be comfortable.

The code for local will be cracked over the next five years because it is the area of the most potential. It will get figured out. It has been cost-prohibitive, but that will change with the growth of self-service models and digitalization.

Behavioral targeting will create tremendous amounts of inventory led by the social networking sites, which should bring pricing down and provide alternatives to premium environments. Over the next five years, it will all have to be rebalanced.

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