Market Efficiencies for Online Content
The internet is collapsing the creative content supply chain
6 March 2001, 10 am GMT
by Paola Di Maio
The internet economy needs effective economic models, and despite the inherent communication efficiency of the medium, innovative business patterns are key.
The symbiotic relationship between online content and the new economy is the basis of the industry's strength and value. One can hardly be envisaged without the other.
Original content providers capitalise directly from the industry, by selling content, and secondary suppliers mediate the value chain by acquiring and reselling content or by providing services for the industry. All other businesses are content consumers, whose success relies on their ability to design effective content strategies.
Online content cannot be mass produced. Every bit of useful information carries a relatively high marginal value, proportional to its uniqueness and originality.
Content can be repourposed, repackaged and resold, but at the risk of reducing its quality. It follows the law of diminishing returns the less original the content, the less valuable it is.
In the quest for economic sense and profitability, the initial analysis should estimate and locate the demand and supply sides for content.
On the supply side, original content creators are individuals, or firms, who generate unique information items. These are researchers, writers and multimedia producers. In this segment, the content granularity is highest, with each item being virtually indivisible. Creators generate and own copyright, but its actual commercial value is relatively low and not yet realised, as it is the 'exploitability' of the content that carries its full monetisation potential.
Much as songwriters depend on record companies and associated promotional and distribution networks to generate the highest revenues, when it comes to content, next in the value chain are the commercial organisations who acquire the rights to such unique content, aggregate, brand and resell it. At this stage the branding and marketing expertise of the organisation adds distribution value to the content, which can now be exploited commercially to the mass markets for the highest returns.
To minimise the economic gap, primary content originators should ensure that they retain the right to retain a quota, possibly a royalty rate, to maintain some degree of economic control over the potentially unlimited resale value of the work. Other industry players acquire and resell content for smaller revenue margins. They do not own the copyright, but sometimes claim the right to host it on their own servers.
Among them are syndicators and aggregators, who basically provide a matching service between the supply and demand side. They are the real new entrants in the information markets, and it is due partly to them that the content industry is developing fast: with a real-time, automated information turnaround, the mass-market content value can quickly be capitalised.
The ability of original content generators to leverage the dissemination opportunity offered by the internet will be crucial in determining who gets the largest shares of the content profits. The biggest challenge for them is be to internalise the marketing and distribution processes by creating a trusted brand and establishing distribution networks that bypass or minimise the cuts taken by the middle players.
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