Thursday, December 15, 2005

The Commoditization of Media

Studios, networks, music labels and the like spend millions on particular movies, shows and bands to try to differentiate these "products" from other competiting ones (both direct and indirect). In most businesses, this type of marketing tries to build a brand that can desensitive the consumer from the underlying price of the product. For instance, you may buy a Coke and pay 33% more for the coke than for a similar Sam's Choice brand at Wal-mart. The marketing can also help drive sales and repeat business, but it is also a tool to drive pricing through a brand premium. Networks do this by being able to charge a higher price for ads when they attract more viewers. Now the video-on-demand, downloadable music and the Interent have come in full force and turned this practice upside down.

Consider that it used to be that unknown bands would sell their CDs for $6.99 while established bands would sell theirs for $13.99 - but now on iTunes, both sell songs for the same price $0.99. The effect is the commoditization of media. Unfortunately herein lies the problem, commoditization works for goods that a) all alike and the same and b) because they are the same (think salt, cotton, oil), price is the only factor that determines sales. However Madonna is not the same as the band in the garage next door. Producers of music and movies have had an enormous advantage of marketing stripped away from them!

Go to the store and buy a DVD -- chances are you will pay a higher price for a popular movie like Mr. and Mrs. Smith than you would for an unknown movie. However online, each is the same price to own! For those content owners and publishers that do not invest much in advertising, this commodity pricing can be an advantage for them as well as a disadvantage. It can be good, because the similar pricing can have the effect of rubbing off a strong brand on their own product. On the flipside, the companies lose control to lower price and spur sales that way. If both are the same price, consumers may tend toward the more well known brand.

Digital media publishers need to be conscious of the commoditization effect. To fight this, they need to be careful how they license their content to digital retailers. When negotiating, try to build in some ability to control the supply price which then would lead a retailer to raise their own prices. However when dealing with the major retailers, this may be quite difficult to do.

Another way to get around the commoditization problem is to practice product bundling, pre-sales, exclusive channel pricing, digital asset supply-chain management and more. Bundled products creates more skus, which leads to more price points. I suggest bundling products with concert tickets, DVDs and products than other digital downloads. Other digital downloads will carry the stigma of flat pricing. By bundling the product with something other than digital media blurs the line a little bit and gives the content provider more control over pricing.