Column: Incredible Shrinking Digital Profits
Forget Judge Stanton.
The real power in the digital media business lies with Anthony J. DiClemente.
Mr. DiClemente is not the judge in Viacom’s $1 billion copyright infringement lawsuit against Google. Rather, he is the author of a recent Lehman Brothers report that undressed the biggest media companies in the world and exposed their lack of preparation for the digital future.
That eviscerating report last week sent media stocks tumbling as he lowered ratings and price targets for Walt Disney, Time Warner, News Corp, CBS and Viacom.
Mr. DiClemente lays outs a litany of concerns. He’s worried about piracy. He thinks margins for studios are going way down. And to top it off, digital sales just won’t make up for the loss in revenues from traditional hard goods, like DVDs.
That’s because consumers, for instance, will start opting to rent movies digitally rather than buy them or see them in the theater when given the choice. Consumers might still watch the same stuff, or even more, but they’ll be choosing the cheaper options. Which means your profits go shrinky-dink.
So is he right?
Um, yes. The economics are shifting. And if networks and studios don’t get that, I’d be happy to introduce them to executives in the music business. Now its TV’s turn to take its whipping in a digital world.
But is entertainment programming actually less valuable? Maybe. Let’s face it--content is a lot less scarce in the new digital economy, and ubiquity brings down prices and cost. That’s a bummer for the studios, networks and media giants.
However, the indies, the little guys, the scrappy content creators who know how to produce good stuff on a smaller budget, are positioned to do just fine. Because they don’t need to be paid as much. They don’t need to charge as much. They can get by on a lot less and still make a living, probably even a nice living. And also a nice profit for the venture capitalists that invest in them.