The Geeks Shall Inherit the Airwaves – Why Economics Are Killing ‘Old Media’

For a long time now I’ve been hearing people predicting the death of traditional media (you know: television, radio, books and newspapers). “Old Media is dead! Long live New Media!”

This is 50% crap, but it’s also 50% true. And since I’ve been fielding a lot of questions about this lately, let me see if I can break it down for outsiders in terms that are a little easier to understand and have some actual logic behind them.

The real magic of “new media” has nothing to do with the people. It is quite simply all about the delivery mechanism.

An Academic Explanation Using Simple Economics

In any industry, the cost of goods produced are ultimately borne by the buyers of the finished product. So, for example, if the price of steel goes up, the price of automobiles goes up as well.

But imagine a situation where a radical new material is developed that costs 1/100th the price of steel, but which is actually stronger, can be made in an ordinary kitchen, and can be used to build cars just as well!

What happens to the auto industry?

• Vendors who spent billions tooling up and staffing to work with the old technology have a huge investment problem on their hands. All of a sudden, their tools are essentially worthless.
• Their staff, which is equipped to deal with the old methods of production suddenly require massive retraining. They’ve essentially been obsoleted.
• Buyers learning of the new “upcoming” technology will stop purchasing the old stuff and begin waiting for the new ones.
• The value of obsolete products will plummet, and the price will follow.
• However, in the midst of industrial ruin and falling prices, an even greater demand for the new technology will emerge to fill the void. It’s simple supply and demand. As the price drops, more buyers emerge – but now they want the new stuff!

With the introduction of this disruptive new technology, the auto manufacturers who quickly recognize that the game has radically changed and who are tough enough to make very difficult decisions and retrain / retool for the future have a chance at survival (those who don’t will cease to exist). And because of the new radically decreased cost structure, new entrants will emerge in the market.

What’s All This Got To To With New Media?

Let’s apply the same exact logic to the Television industry. Consider that for most of the last century if you wanted to deliver programming to a large market, the barriers to entry were substantial.

• You had to purchase broadcast rights for airwaves from some governing body.
• Substantial investments in recording and broadcast equipment had to be made.
• Global reach required actual satellites! Mucho dinero!!!

Well, the good news is that the advertisers who supported the industry (the buyers) understood the cost to produce the end product and were willing to support it because there was, after all, no competing technology to deliver the same results.

But one day a few years ago, the industry woke up and learned that something had fundamentally changed. All of a sudden anyone with a camcorder, a computer, and an internet connection could reach the exact same audience – but for a tiny fraction of the cost! (The invention of the internet is like that new steel replacement we just discussed, for 1/100th the cost!)

The results of this radical change in technology? Well, its exactly the same as our auto industry above:

• Vendors who spent billions tooling up and staffing to work with the old technology have a huge investment problem on their hands. All of a sudden, their tools are essentially worthless.
• Their staff, which is equipped to deal with the old methods of production suddenly require massive retraining. They’ve essentially been obsoleted.
• Buyers learning of the new “upcoming” technology will stop purchasing the old stuff and begin waiting for the new ones.
• The value of obsolete products will plummet, and the price will follow.
• However, in the midst of industrial ruin and falling prices, an even greater demand for the new technology will emerge to fill the void. It’s simple supply and demand. As the price drops, more buyers emerge -but now they want the new stuff!

In this case, the buyers are simply the advertisers, who are deciding to hold off on the old advertising expenditures and shift some of that spend to the online medium to try and reach the same number of eyeballs at a dramatically reduced price.

The Real Impact of Decreasing Production Costs

Now, it’s not that the viewers or the advertisers have actually gone anywhere. In reality, there are more people willing to watch, and more people wanting to get their advertising message out now than ever before! But the reach of “new media” personalities has now matched their “traditional media” counterparts, and is threatening to overtake them. For example:

• I personally reach an audience of hundreds of thousands each month with this little blog.
• Cali Lewis reaches an audience of millions each month with GeekBrief.TV.
• Leo Laporte likely reaches tens of millions each month with his various shows.

But our costs to reach these eyeballs are radically lower, so advertisers now have the opportunity to pay a lot less to reach the same end goal, while Cali, Leo and I can easily maintain the same or greater margins for selling our services.

So, yes you will see new personalities emerge in the New Media era. These are the ones who recognized the change early, tackled the learning curve, and effectively carved out their space. But you’re also going to see the old personalities stick around, if they are able to adapt in the same ways.

As I said, it’s not about the people. It’s about their technology.

The End

Damn, that was a long winded explanation. I’ve got nothing left. But if you care to add to the story please drop a comment down in that little chatter box below cause I’d love to hear it.