Disruptive Innovation and Media

Disruptive Innovation and Its Impact on the Media Industry

Disruptive innovation is a technology-driven paradigm shift that alters the economics and, potentially, business model underlying a business' products, services or operations. The term was coined by Clayton Christensen, author of The Innovator's Dilemma. The Internet and World Wide Web are prime examples of technologies that have spawned disruptive innovation in myriad markets. Examples include IP telephony (e.g. Vonage), downloadable music (e.g. iTunes), search advertising (e.g. Google), streaming media (e.g. Netflix), financial transactions (e.g. PayPal, E-trade), personal and business communication (e.g. gmail, Skype, Net Meeting) and electronic commerce (e.g. Amazon), just to name a few.

The entire media industry is in the midst of significant disruption resulting from the shift in content from analog to digital representation (digitization) and the ability of the Internet to deliver all forms of digital content together with real time, interactive capabilities. Digitization offers new ways for media companies to reduce costs and unlock more of the intrinsic value of their content. However, when coupled with the pervasive consumer adoption of the World Wide Web, digitization is also driving transformation in how media is delivered and consumed that is disrupting the fundamental nature of traditional media delivery channels and the relationships between purveyors of media content, advertisers and media consumers.

Media companies are grappling simultaneously with the challenges of automating and streamlining their operations, ferreting out new revenue opportunities and fending off a host of new competitors offering alternatives to media consumers. And the clincher is that the advertising model upon which much of media depends is being turned on its head by the Internet. The problem is no more apparent than in traditional print media, which is almost entirely dependent upon advertising dollars. Content historically read from the printed page has increasingly moved to the electronic Web page. Newspaper and magazine circulation is declining and, with it, advertising revenue. A simple question one might ask is why the advertising dollars don't follow print content to the Web.

The answer highlights the dilemma for newspapers: Dollars in newspaper advertising turn to nickels (or less) online.

To understand why this is the case, consider how advertising is delivered over the Web. An ad presented to an individual to read, view or listen to is called an impression. Advertisers pay varying amounts per impression, depending upon a variety of factors including the audience and modality. Each time a consumer clicks on a Web link there is an opportunity to present advertising impressions. Millions of people clicking on millions of links create billions of potential advertising impressions (inventory) each day.

Web site owners compete with each other to sell their inventory to advertisers. With a vast universe of impressions available, the laws of supply and demand reign and advertising costs less online than that delivered through paper, radio and television. Despite the efficiencies in production and distribution that newspapers gain from publishing online, there are still costs to produce quality content. Many of the newspapers' competitors, like YouTube, Facebook and Twitter, however, have very little or no cost to produce content. Their users create content for them, for free. As a result, these advertising competitors can sell their inventory for less than the newspapers and still make a profit.

The "net-net" is that it is unlikely that media companies can recoup the cost of creating content and make a profit from online advertising alone. A more likely scenario is a balance between advertising and subscription fees. Will consumers pay for content? We believe that for the right content at the right price, they will, and that this, in combination with advertising revenue, will provide a profitable online business model for media companies. That is the good news. The bad news is that we believe that not all media companies will successfully navigate the transition. There are likely to be fewer, perhaps far fewer, content providers in the future.

About Us:

West Indies Digital is a digital media advisory services and (soon to be) product company that assists media clients in transitioning to the digital age. These are very challenging and perilous times for the media industry. Digitization and the Internet are shaking the foundation of the advertising market and, with it, one of the primary media business models. The web as a content delivery vehicle has changed the playing field, introducing both new opportunities for growth and new threats to traditional media. Strategic decisions are being made now that will significantly impact a company's future.

West Indies Digital provides products and services to help digital media companies develop and grow one-time and subscription-based revenue models around the content they provide. The principals of West Indies Digital have decades of experience in the information technology industry. Their careers span the advent of disruptive innovation driven by the personal computer, graphical user interfaces, network computing, digital media, the Internet, hosted application services, software as a service and cloud computing. The principals have held senior executive positions with Fortune 500 companies such as IBM, GE, AT&T and Sun Microsystems as well as small, venture and private equity-backed companies. They have plied their skills with companies providing online services for print and broadcast media, online advertising, electronic commerce, network computing, and business and system software development. West Indies Digital principals are highly skilled in Internet and digital media strategy. We can help your company chart a successful path to the future of digital media.