Sunday, May 18, 2008

Is Production-Distribution Synergy Passe?

Distribution used to be a monopoly, and now it's much more competitive, which makes it less financially attractive, while making content (that benefits from the competition) more attractive.

-Dennis Leibowitz, managing general partner at media-focused hedge fund Act II Partnershedge fund Act II Partners

In George Szalai, "Media business synergy update: Distribution assets are sooo last year," The Hollywood Reporter, May 13, 2008

Most media executives seem to have cooled on the notion that a media conglomerate needs to connect a powerful content-production engine with a strong distribution abilities. "Nobody has brought up a Disney-Comcast merger for a while, and Murdoch said in February 2007 that News Corp. has no more need for a distribution play in the U.S. ... Similarly, Time Warner recently said it will spin off Time Warner Cable into a separate company." Executives are realizing that distribution is a capital-intensive business that has little common with content production. Moreover, whereas in the past they needed distribution channels to make sure their content could reach audiences, the rise of the internet and other digital platforms has made it easier than ever for producers to get on distribution platforms.

So, does that mean that content-distribution synergy as a strategy is a thing of the past? Certainly, it is still important in some traditional media, such as print magazines, theatrical movies, and broadcasting. And I would argue that distribution is still crucial in the digital world because high-profile distributors are still worth a lot. Author Szalai seems sometimes to be confusing distribution with exhibition. An ISP and a cable company are exhibitors. Internet sites and cable networks are distribution outlets. Owning them, or parts of them, may well still be crucial. MySpace, for example, has been an important distribution vehicle for News Corporation, and CBS has recognized the importance of grabbing part-ownership of some of the key sites it has decided to use to distribute programming; Joost is an example. Wayne Friedman points to the importance of the content-distribution nexis when discussing CBS' purchase of CNET Networks, (Media Daily News, May 15, 2008): "CNET Networks will help build CBS' distribution network of the CBS Audience Network, which is made up of more than 300 partner Web sites, reaching 82% of all online users in the United States."

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