slicing the squid

Here's some Thursday wonk:

While performers and writers are bogged down in arcane details of web distribution, a change is on the horizon with far larger implications than the how-many-cents-per-download argument. Quoth the Economist:

Comcast, a big American cable operator [...] was close to a deal to acquire a majority stake in NBC Universal, a television and film outfit. The combination would rival Disney as the world’s biggest media firm.

The implications for creators of content -- and their consumers -- are huge.

Since the shift from solid distribution (i.e., paper books and plastic CDs/DVDs) to digital downloads, medial conglomerates have become obsessed -- Howard Hughes-style -- in ways to maintain their insanely high profit margins on a product that was cheap to reproduce and realtively easy control. With digital media, their stranglehold on distribution networks has collapsed. In a panic, they have actually cut their resources in what would arguably be their business' strongest selling point, i.e., production, while doing everything they can to antagonize performers and writers.

The WGA strike laid bare the conglomerates' position: the internet was exactly like old media, and just as media companies had gotten a sweetheart deal with writers and actors after the advent of the VCR, they expected the exact same treatment with the internet.

The difference, of course, was that videocassettes and DVDs still require an output of capital from consumers to obtain. Digital reproduction doesn't.

The last remaining advantage (for everyone who wasn't Viacom) was that the companies that finance the creation of content and the companies that distribute it (movie theaters, cable companies, et al) were distinct entities. Take a look at the ongoing wrangles between Apple Computer and the record industry if you need any evidence of how crucial that division of labor is: if EMI owned iTunes, we would all be paying a lot more than 99 cents for a download.

Comcast's proposed stitch up with NBC Universal would be catastrophic, as the company that finances the content and the company that delivers it would become one and the same. Since cable companies already hold monopolistic strangleholds on residential networks, there would be no need for them to negotiate prices favorably for consumers, or performer contracts, being the only game in town.

For evidence of the dangers, look at how regulators reacted a decade ago when Barnes and Noble tried to swallow up Ingraham, a major book distributor. There also the aim was to turn two links in the supply chain into one.

The Economist perhaps lays bare the true impetus behind this move: having lost the battle against technological progress, they're shooting for the next best thing -- gumming up the works:

There is, however, one extremely good reason for Comcast to do a deal. The big strategic problem facing media companies these days is how to move their products online while preserving margins—without swapping analogue dollars for digital pennies, as Jeff Zucker, NBC Universal’s boss, once put it. As one of the architects of Hulu, an online video service, NBC Universal has been deeply involved in these experiments. For their part, cable companies fear that people will become so accustomed to getting television and films online that they will drop their video subscriptions. A combined Comcast-NBC Universal would be able to exert a good deal of control over old media’s internet dreams, to say the least.