The online money is in distribution, not content

Today, my column in the print supplement considers who really gets the money when everyone’s using an electronic newspaper (something like the Kindle, but better). It seems to me that you’ll make more money being the owner of the distribution system than the content generator:

I know that we keep hearing that “content is king”. But considering my future self on an icy platform holding a Kindle aloft trying to get a wireless signal (for even my station out in the country has a paper shop offering Wi-Fi), I realised that it won’t be the content creators who’ll have the chokehold; it’ll be the controllers of the distribution channels. In other words, distribution, not content, is king.

Here’s why. If people stop buying papers and buy Kindles (and, of course, future e-book readers) instead, they’ll need to be able to feed them. They’ll do that at home in the morning via their broadband connection, or on the station platform (perhaps to get that very latest update with audio and video) via its Wi-Fi, or from a mobile network. The content sources are as vast as the web; the distribution sources, limited to telecoms companies. Without the latter, your Kindle or its kith and kin is just a pricey place to rest your morning coffee. You pay for your broadband. You pay (probably) for the Wi-Fi. You pay for the 3G connection.


After all, at its heart the internet is a distribution medium. Who wouldn’t want to own it?

All this came to me from two minutes using a Kindle. Honest.

7 Comments

  1. Obviously I don’t need a Kindle, and I certainly can’t afford one right now. So that probably means I’m going to get one. How are they, Charles? And have you had any problems using what I imagine is a US Kindle in the UK?

  2. Hang on, but isn’t this entirely obvious? With a few exceptions, Waterstones, for example, who are in essence book distributors, make more money than any of their individual authors (content creators). I suspect the companies that run the vans that take the books to the bookshops make more money than most content creators!

    Or maybe I’m confused.

  3. Charles

    Thursday 10 January 2008 at 3:01 pm

    @byronicman – I don’t have a Kindle; what had to be cut from the column (for reasons of space – ah, print) was that it’s Alan Rusbridger’s. He gets all the cool stuff. So I didn’t do any of the content-acquiring stuff, just read it briefly in the office.

    @L – well, I don’t know: is it obvious? We’ve been hearing “content is king” so much (maybe it’s just me) that it’s taken as axiomatic. I realised that it isn’t. There are far more sources than distribution channels. Running a TV station used to be “a licence to print money” – but they used both to create and distribute. Now it seems like the whip hand is with the distributors (Channel 4) not the creators (independent production companies). Someone correct me if I’m wrong, but I had a gander at the FTSE 100, and the distribution companies there look a lot more solid than the content ones.

  4. Only up to a point. Charles.

    The creators naturally want to get the highest price they can for their material – and distributors will outbid each other to get the rights to carry popular material. They’ll even take a loss – paying more than the advertising/resale revenue the material generates.*

    But you forget exclusivity.

    The distributors need to be able to deliver an audience, and in a commoditized market, where they all offer the same thing (with neutrality guaranteed!) the customer has no loyalty to any distributor. Even distributors who have focussed on “captive” locations have found it very difficult to make money.

    So the “rules” of content haven’t really changed. The tragedy of the modern internet is that it guarantees that neither distributors nor creators will make very much money, and most will go broke trying. Only the huge aggregators, who have neither the expense of delivering bits, nor trying to make popular stuff, have really succeeded.

    * In TV-land, the distributor hopes that viewer inertia ensures audience don’t switch channels, and can therefore ask for higher advertising rates for the slots following the “hit” show. Similarly, a newspaper will pay a great deal for a popular scoop or serialization rights. But on the web, we’re only one click away from …

    … sorry, where was I?

  5. Charles

    Friday 11 January 2008 at 12:11 am

    @Andrew: distributors don’t need to deliver an audience. The audience comes to them, because it *wants* *stuff*. There’s a whole internet out there that people want to download. True, the customer has no loyalty to a distributor, but if you build it, they will come seeking a download through it. You just have to price it right, is all.

    Safer than chasing AdSense ads, seems to me. Bigger capex, but safer return.

  6. “… distributors don’t need to deliver an audience. The audience comes to them, because it *wants* *stuff*”

    The telecomms bubbles of the past decade prove that if you build it, and the internet is _all_ you have to offer, then they _won’t_ come.

    “There’s a whole internet out there that people want to download”

    Perhaps, but we also know that they aren’t prepared to pay for it. See my earlier comment for an explanation of why not.

    Normal economics has not been suspended.

  7. Charles

    Monday 14 January 2008 at 4:32 pm

    @Andrew: but wasn’t a lot of the 2000 telecoms bubble blown up because Bernie Ebbers et al suggested that the “time to double” (traffic) was just 100 days – whereas in reality that was growth of *capacity*, and it drew rivals in who put far too much in, thinking they were falling behind, and then had a lot of dark fibre because people weren’t yet on broadband?

    I’d suggest too that things are very different today than eight years ago (eight years!) when the tech bubble burst. Devices that can download data are more common – how many people do you see on the train who have BlackBerries compared to 8 years ago? More people know of YouTube et al. The iPlayer is the 8th most popular destination in the UK.

    We know that people aren’t prepared to pay for the content at the destination, but they have to pay the train fare, so to speak. Normal economics has certainly not been suspended; that’s why the typical citizen is paying directly for their mobile phone, broadband, and home phone line, but not necessarily any of the sites they view. (In fact the number of subscription sites is probably falling, n’est-ce-pas?)

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