Social media takes a big share of digital revenue from traditional media: John Rose

Rose, MD of The Boston Consulting Group, says the economics of distribution has changed dramatically with digital media

As digital media grows in India and the world, its importance in media and entertainment is increasing. John Rose, managing director and senior partner of New York-based The Boston Consulting Group talks about how broadband is disrupting media and entertainment. He tells Arnab Dutta, that traditional news media companies are not getting their due share of revenue from the online model of distribution. Edited excerpts:

What are the most significant changes you are observing in media and entertainment?
The media and entertainment is undergoing a transformation as digital medium is growing. The economics of distribution has changed dramatically. For all major traditional businesses like the print media companies, music or video content creators, huge investments are required to bring in the required change. Also, the investments that they had made in setting up infrastructure becomes less fruitful. As the product changes form – from physical to digital – relevance of set ups for publishing and people in logistics change.

Broadband internet has disrupted the way companies in media and entertainment used to run. In the old world publishers with set up for distribution were in command, now distribution is an unrelated thing. Industries, on the one hand, are going through structural change, on the other hand, innovation and value creation is becoming more important.

How does all these affect revenues of media companies?
The importance of various firms has changed depending on their role in the supply chain. For example, firms like Netflix who were not relevant may be a decade ago, are now worth more than most video content creating companies. If you are Spotify or Netflix your business is growing. But if you are Radio station operator, it’s shrinking.

The traditional media companies are getting much less from the total revenue pie of digital medium. In the physical world, a direct relation exists between the advertisers and content creator. But in the new world, where supply-side providers, demand-side providers and exchanges plays intermediaries, share of advertisement revenue goes down further for traditional players. Social media has taken some share from the pie. Firms like Twitter and Facebook are competing with news media.

Where does India stand in the digital transformation front?
As India is seeing an explosion in availability of smartphones and rolling out of high-speed internet broadband, the adoption of digital content will continue to be smartphone-centric. So India will be a mobile-first market and PC, tablets or television sets will be in the backseat. But an embedded approach towards management and protection of intellectual property is lacking. Unfortunately, less original content is created here compared to size and scale of the market in India. As concerns about protection of content prevail among companies globally, much less international content reaches here.

Isn’t the movie industry most affected due to lack of intellectual property law?
India has one of the most vibrant movie industry, but exports from that industry are very less. While in the evolved markets film revenue comes from a number of avenues, Indian producers are primarily dependent on collections from theaters. It is necessary to have a stringent law and its implementation. In the US, it took years to change the mind sets of consumers. Constant effort and execution of the law made that possible.