Media Götterdämmerung

Two recent Marc Andreessen posts deserve your immediate attention. The first concerns the death of broadcast television.

Overall TV viewership has been in decline for the last few years as the Internet increasingly takes over the world. The writers’ strike makes that decline harder to measure in the present because you expect viewership to decline anyway when there are no new episodes of popular shows on the air. In fact, I think the writers’ strike may be causing people to underestimate the intrinsic rate of decline of the television industry.

Apart from Lost, I say good riddance. Then there is the news from Bentonville, which Andreessen found via SAI. Wal-Mart is axing about a thousand magazines from its shelves, including The New Yorker, Forbes, Fortune, and BusinessWeek.

No official word from Wal-Mart about the reasoning behind the move, but we don’t need one. Wal-Mart is ruthless about maximizing every inch of its floorspace, and it’s clearly decided that it’s only worth keeping a handful of magazine titles on its racks.

A delusional magazine industry type rationalizes to the NY Post’s Keith Kelly that this could be good for the business, since it will reduce clutter and give the remaining magazines it sells more prominence. But make no mistake – this is a disaster for the magazine world, which depends on Wal-Mart for an estimated 20% of retail sales.

What the heck is going on? The great John Robb explained it in a post titled US Defense: Step Functions vs. Organic Growth.

This debate reminds me of an experience I had back in 1993/94. At that time, technological advances in networking and computer technology had reached a critical point: the level at where a multi-use global interactive network could be built. Naturally, some of the incumbent monopoly network owners (telcos and cable companies) saw themselves as the primary beneficiaries and were abuzz about the of potential new revenue streams from broadband interactive TV networks (iTV). In response, new grand projects and gee-whiz prototypes of video on demand were being launched/announced nearly every month. …

However, it soon became apparent to me that this hype was going nowhere. The reason was simple: these systems required a huge upfront investment (measured in the hundreds of billions of dollars) on the promise of ill defined future benefits (revenue streams from interactive projects that were merely in the “visionary” stage). If looked at from 50,000 ft, the investment required to build the platform necessary to make this network viable for a transformative impact (large enough to attract a marketplace of participants) looked like a step function (see step function in diagram, where the vertical axis is the investment required and the horizontal is time). step1.jpg Naturally, the telcos and the cable companies declined to invest the money necessary. The business as usual crowd won — with good reason, it would have destroyed their profitability for the next decade (which was already at risk due to deregulation).

However, all was not lost. In parallel to this, online networks like AOL and CompuServe were plowing ahead, growing incrementally with each advance in modem technology (300 — 1,200 — 9,600 — 14,400 — etc.), building text services that could be delivered and monetized via these thin pipes. Soon, companies based on the open alternative to these closed networks (the Internet), took advantage of this technology to deliver similar services. The rest is history. We built the Internet. The lesson is that organic bottoms-up growth worked.

In other news, the New York Times, the most valuable and prestigious brand in the news business, has declined in value by 70 percent over the last five years.