For the past 24 months, I’ve been seeing signs that a unique strategic challenge is emerging, one which will significantly impact every industry, including media, before the end of this decade: demand singularity.
We can already see that a form of ‘meta-convergence’ is happening in nearly all consumer industries, in that more and more companies are trying to be all things to all people. They are trying to sell everything to everyone.
Coca-Cola no longer sells just cola – it sells water, fruit juices, energy drinks and teas/coffees. Pepsi Co. is now the largest US vendor of potato crisps and similar snacks. McDonalds no longer sells just burgers, it sells salads, yoghurts, cereals, and cafe-style coffee. Woolworths doesn’t just sell groceries, it offers banking, petrol, electrical and whitegoods, music (including iTunes cards).
Today, there was news that the eponymous watchmaker, Tag Heuer, was moving into the eye glasses market!
We’re seeing a similar meta-convergence in the media space.
Newspaper companies, like Fairfax, now offer music, video news, audio programs and, elsewhere, movies-on-demand. Web publications are moving into print and vice versa (e.g. Sensis/Trading Post). Search engines are moving into rich media and broadcast media (Yahoo! + Google). Electronic games companies are moving into cinema. Outdoor advertising companies are embedding mobile media capabilities. The list goes on.
The root cause of this trend is economic.
Companies are leveraging technological efficiencies to re-engineer traditional value/supply chains, in an effort to squeeze additional profit or growth through ‘economies of scope’ (i.e. cost savings achieved by increasing the variety of goods and services produced using existing infrastructure/staff).
This trend is likely to continue (and accelerate) for the remainder of this decade.
If you project this trend linearly, the end result is that the economics of all business is turned on its head, as firms in each sector attempt to compete across the same product markets for the same share of consumers/attention/demand. And once they saturate their traditional industry sector, they will look to expand across other, non-traditional industry sectors and/or product segments.
We’ve already seen some examples of this with Virgin, which has its hand in multiple industry and product sectors. Equally, while companies like Coca-Cola are tapping into media offerings for brand/positioning reasons, it is not too much of a stretch of the imagination to see these companies leveraging their strong brands to push media products/services as a core business.
In this environment, strategically critical variables shift to the demand side of the value equation: as a media company, the key concern is no longer the entry of new competitors (i.e. increased supply) but, rather, dramatic reduction in consumer demand (as consumers are literally over-serviced).
If Joe Consumer’s choice of, say, TV channels expands to include not just your traditional Free-To-Air and Pay TV participants, but Nike TV, Microsoft TV, Coke TV etc., the supply-demand equation quickly inverts, and the ‘attention economy’ truly emerges.
Media companies would no longer anchor their competitive efforts purely to that part of consumers’ time/attention they traditionally sought (say, TV viewers). Rather, they must compete for the larger time/attention “budget” spent consuming all entertainment media options.
This has major ramifications when it comes to determining what constitutes a firms’ core capabilities and competencies, and where those resources are best deployed in pursuing market + growth opportunities.
Another challenge will be the impact on consumer-facing brands (or ‘brand equity’). How will consumers respond to, say, Nike’s brand should it launch major media initiatives? When is a shoe company no longer a shoe company?
The Bigger Question
All of this begs the (bigger) question: What does it mean to be a ‘media company’ if every consumer brand – Coke, Microsoft, Ford, Nokia etc. – also offers media products and services?
Media companies fight fiercely for a share of a very finite amount of consumer attention.It is already an ultra competitive environment.
But as more and more consumer companies start to expand their product/service sets to incorporate media-like offerings (Coke TV, Motorola iRadio, KMart radio, McDonalds In-Store TV etc.), already thin margins and fragmenting audiences will experience significant erosion.
The double-whammy, however, is that as these same consumer brands launch their own, direct-to-consumer media offerings, there will be a concomitant reduction in “traditional” media marketing spend.
This is not an immediate threat, but there seems to be a reasonably clear trend. At the top end of the media market, we’re seeing major mergers as incumbents try to assemble a broad portfolio of media offerings, so as to cover all media segments and protect revenue streams (as identified in my earlier post on Rupert Murdoch’s strategy in buying Dow Jones).
The logical next step would be mergers between major consumer/lifestyle brands and major media companies. Once we see this, it will be solid evidence that the trend has become a reality.