The Clouds Are Gathering

As Distribution Moves To The "Clouds," How Will It Change Our Business?

In the wake of announcements and presentations at the NAB convention earlier this month, it has become clear that content management is moving to the clouds.  Microsoft, Cisco, IBM, Verizon, HP and others are all aggressively pursuing the development of cloud-based media management systems.  These companies are already pitching broadcasters and other content-owners on the merits of their respective cloud-based services.  So it's not too soon to ask the relevant question: "What are the implications of cloud-based content management for the entertainment industry?"

Let's start by agreeing on what we're talking about.  Cloud-based content services mean that the master copies of a large number of programs owned by various parties are all stored on massive servers operated by technology companies.  All of this content is accessed (whether for purposes of rental, purchase, streaming or download) directly through an interface operated by the third party technology provider.  Each content-owner's portal might be branded differently, but they will all probably operate in much the same way.

The reasoning for moving content to these types of services is pretty logical.   As more content is being delivered through digital streaming and downloads, individual content-owners and distributors will not have the internal resources to store, deliver and manage the greatly increased volume of traffic.  It would require huge amounts of storage and large "pipelines" to handle the fast movement of millions of large files.  Further, by outsourcing the process to technology specialists, the cost of programming and maintaining  a complex software interface could be amortized and shared among many companies.

Economically, it makes perfect sense.  Outsourcing incrementally increasing expenses which are outside of a company's core capability is generally an intelligent strategy.  So, is there a downside?  Perhaps.

I have never forgotten a discussion I had with Regis McKenna several years ago at CES.  He emphasized to me that the user experience is generally the single most important factor in the success or failure of any technology.  The reason that Apple products (and Netflix and Nintendo and Xbox and others) succeed is because they are fun and easy to use.  Successful technology products don't generally do more than their competitors; they just do it in a way that people like.

Applying this thought to cloud-based content distribution systems, I think that content-owners could lose much of their ability to customize the user experience.  If every owner and vendor of content looks and functions in essentially the same way, then the only differentiating factors are the actual programs and the prices.

Think of it this way. What if every store in a mall looked exactly the same, except it carried slightly different merchandise at slightly different prices?  No customized shopping experiences; just a different name on the door.  It would be very difficult to position your brand as a premium brand if you had no way to give customers a unique experience.  That could become a problem if all content distribution is controlled by a handful of companies.

When you commoditize anything, then price wars develop and margins go down.  The money content-owners save through outsourcing might not make it to the bottom line.  That means cloud-based systems could result in better prices for consumers and new profits for technology vendors, but perhaps little benefit for the content-owners.

That's one possible danger I see in content-owners outsourcing their customer interface functions.  Of course, if they can outsource pure technical functions (storage and delivery) and maintain control of the user experience -- and still save money -- that would be the best solution.

How do you see cloud-based systems changing our industry?  I'd love to hear some other thoughts.