Empires Fall

No, Content Isn't King

Information and entertainment are everywhere; it's the gatekeepers that matter now.
Photographer: Dan Kitwood/Getty Images
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Bill Gates helped popularize the phrase "content is king” for the internet era. It's a shorthand to explain the primacy of people and companies that create entertainment and information.

It’s also wrong.

Yes, content is important. That’s why AT&T is willing to spend $85 billion for Time Warner, a leading member of King Content. But the content empires can feel their influence waning. AT&T is the buyer, not Time Warner, just as Comcast was the acquirer in the last content mega-deal, for NBC Universal.

The distributors like Comcast, AT&T and whatever replaces them have won. Distribution -- not content -- is the new king.

Technology Rules

Six of the 10 largest companies in the world by stock market value are technology firms. None are traditional content companies.

Note: Stock market values as of Oct. 21.

The totality of news, information and entertainment still matters, but the scarcity that once made individual pieces of content valuable is gone. We’re awash in content. Sure, most of it is garbage, but this ubiquity splits people's time and money into a zillion pieces. What is scarce is any company that has the attention or money of hundreds of millions or billions of people.

Today those giant human aggregators are distributors -- new names plus old names like AT&T -- that are the gatekeepers to digital information, communication and entertainment. Own the distribution, and you decide what content matters.

Exhibit A of this new reality is Facebook, the world's fifth most valuable company. More than 1.7 billion people use Facebook each month. And they're drawn there by the content assembled and organized by Facebook. That sounds a lot like a cable company or a Big Three broadcast TV network of yore, doesn't it?

Except Facebook barely spends a dime for the programming 1  that fills all those untold hours. Instead, we all collectively provide Facebook with content, from cousin Ida's political rant to a recirculated news article. In aggregate, Facebook's content is valuable. But no photo, political rant or exploding watermelon video on its own is all that precious. Instead, the value resides in the company that collects it all and gathers a huge swath of humanity to look at it. 

Apple is a de facto distribution giant, too. Because it controls access to 1 billion Apple devices worldwide, 2  the company collects 30 cents of every dollar 3 spent on apps, TV and movie downloads and e-commerce purchases. Those uniquely favorable economic terms accrue to a uniquely powerful distributor. Just think, Comcast pays Disney so its TV customers can watch ESPN. But it's Disney that pays Apple in the form of revenue sharing so its apps or TV series can get to Apple's customers.

Even the old-fashioned, pipe-owning distributors have it pretty good. Time Warner's epic “Game of Thrones” on HBO isn't a hit unless it reaches people. Today that’s mostly over TV pipes controlled by the likes of Comcast and AT&T’s DirecTV; tomorrow that may be over internet and mobile pipes controlled by the likes of … Comcast and AT&T. 4

That’s not to say all is well in traditional distribution-land. Comcast, AT&T and Verizon can't find many new customers, and it's hard to keep charging people more money to use their networks. Distributors are looking to grow instead by branching into content, as AT&T, Comcast and Verizon 5 have done to varying degrees. And even younger companies like Google, Amazon and Apple are chasing programming from Time Warner and other content empires to turn into cable TV services for the new generation.

That zeal for popular programming has made it seem like the content empires can stay relevant forever. But how long does premium content stay premium? 6

Where Did the Viewers Go?

Even with the drama of the election season, aggregate ratings of five major cable TV network owners have declined this year.

Source: Nielsen data compiled by Bloomberg Intelligence

Note: Ratings are year-to-date through Sept. 30.

Television viewership numbers for the NFL (more King Content) are down so far this year. Ratings of the country’s five biggest cable networks have fallen by an aggregate 5 percent through Sept. 30 of this year, according to a Bloomberg Intelligence analysis 7 . Meanwhile, those new aggregators of attention -- Facebook and Google -- are absorbing more of viewers' time and nearly all new dollars spent on advertising. 

Tech Ate Media

Television, newspapers and other media industries are struggling with slow-to-declining advertising revenue. Google and Facebook are taking advantage.

Sources: Magna Global, Bloomberg Intelligence and Google filings.

Powerful distributors can also transform themselves into powerful content. Netflix used its presence in tens of millions of homes -- a smarter cable company -- to create a content empire from scratch. 8 Netflix may burn out, but the company shows how winning distribution lets a company dictate its future. 

Viewers' fickle attention is the core challenge for high-quality content makers like Time Warner. If “Game of Thrones” went away, we might miss it for a while, but then it’s on to the next Netflix show, Tasty food video, Kim Kardashian mobile game or a friend’s Snapchat story. There are few must-see anythings.

The content empires can't withstand this fragmentation. So all hail the distribution king. Please use your power wisely.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. It's worth noting that Facebook is opening its checkbook to encourage some news organizations and celebrities to make videos for Facebook's nascent live video streaming initiative. 

  2. There are likely even more people who don't own an Apple smartphone, computer or other device but have their credit cards saved with Apple's iTunes or App Store. That means Apple's distribution reach is even larger than the 1 billion Apple devices the company says are in active use. 

  3. Those once universal revenue-sharing terms are getting more complicated. 

  4. The smartest minds in the new economy are now trying to emulate the advantages that come from controlling access points to internet and mobile data. Google, Facebook and Microsoft are building their own undersea cables that bring internet to the world. Google and Facebook are beaming WiFi to remote corners of the globe. The tech superpowers know if they have a hand in the digital infrastructure, they can ensure that people will still use Google, Instagram and YouTube. 

  5. Verizon is essentially pursuing the same distribution-plus-content strategy as AT&T, but instead of spending $85 billion to own CNN and “Game of Thrones,” it’s paid a fraction of that to buy AOL, Yahoo and Complex Media and more. Time will tell whether AT&T will be justified in paying up for premium content.

  6. I'm not saying it's good for the world that premium news, information and entertainment is being devalued by ubiquity of content. 

  7. It's remarkable that cable TV ratings have declined this year, even during an election season that has drawn big viewership numbers for debates and for regular news programming. 

  8. Apple might do the same if it pivots from a Daddy Warbucks for the music industry into what people speculate are ambitions to make its own video programming based on music, or beyond. Or maybe Apple or Google will spend some of their billions on a content company, too. AT&T raced to get its Time Warner deal done to avoid just that. 

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net

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