Media Mayhem

John Ruffolo: While conventional media broadcasters and telecom carriers will be dealing with turmoil for some time, information-providers can look forward to a time when content will again be king.

Edge: The IT, media and telecom industries are undergoing massive change, which of the three would you say is the most unsettled?

John Ruffolo: I would say that the one that is most unsettling is the media industry. And it is not going to happen over a long period of time, it’s going to happen quickly. It’s interesting when you turn back the clock a little bit. In the late ‘90s, everybody talked about convergence with the poster child being BCE in Canada and AOL-Time Warner in the U.S. Eventually they fell apart. Interestingly, they weren’t wrong, their timing was just off. They were just moving far too quickly for the marketplace. All those predictions are happening now.

Edge: Who stands to win and who will lose?

Ruffolo: The value is coming back to the information-provider and content will again be king. If you are Bell or Telus, you are seeing your revenues drop like a rock because nobody is putting value in broadband per se. There are only a few content providers in Canada, and the big players are in L.A. and New York. The one that is going to be hit the hardest is television, and it is Google that is forcing this change. Just a year ago, I would have said that Google is a technology company that offers advertising, and now, I see it as an advertising company that has good technology. (The acquisition of) YouTube is just the beginning of the demise of commercial television. Nobody has any idea of what to do right now and how you manage the entire supply chain of the advertising industry.

Edge: It doesn’t help that media companies are themselves being disintermediated.

Ruffolo: If you are a Canadian or American network, they are absolutely terrified because they are asking what really is the value that they are providing.

Edge: In the early days of online, you would charge for content, will it change to an advertising model?

Ruffolo: Everyone is hungry for content but instead of blasting it out to a lot of people who don’t care, it will be a lot more targeted. You will see the equivalent of television networks on the Web. Google, Yahoo and Microsoft will become mini-broadcasters serving mini-communities over the Web, and you will be selling your content to these mini-communities. In the short term, it will be an adverting-based model and they will cut you a cheque.
Edge: But you can’t download a 30-minute television program on the Web as easily as you can turn on a TV.

Ruffolo: The people who are looking at TV on their computer really are the under 18 set. It still is too painful for most to search for content on the Web versus having a remote control in your hand. The second problem is that most television sets are not IPTV-enabled and there is nothing to watch yet. By 2010, we are actually predicting IPTV will be in full use. Will it exceed traditional TV? I don’t know. Also, right now the cable companies aren’t charging you on the amount of bandwidth you are using. They may be changing the business model to the more you view, the more you will be paying but their billing systems don’t consider that whatsoever.

Edge: With free long distance, telecom seems to be going the other way.

Ruffolo: You are getting the telcos reaching the bottom and saying, “Hey, wait a minute, shouldn’t I be charging for the bandwidth that you are chewing up,” But with Google and Skype giving it away, I think the (long distance voice) revenue model is dead.

Edge: If you are a traditional media company, how should you be embracing these new technologies?

Ruffolo: Do you give up your business model right now? Absolutely not. I will give you a good example. People have been predicting the death of the radio industry but it just had its most profitable year. When satellite radio came in, people said that’s it. But in Canada, their margins are 20 per cent pretax which is astronomical.
People misjudge the fact that whenever you go to a Skype or a YouTube, there are less distribution costs and you are able to reach a global audience. When you do a movie release, it is so complicated how you split the pie.
But if there are more eyeballs, and even if you get a smaller piece of the pie, the size of the pie may be increasing. There will be major losers and major winners and I don’t see anyone jumping out of the pack except Google and Microsoft, which is going to change their entire revenue model to give away software and to charge for advertising.

Edge: You think Microsoft will become a media-play that competes against all the regular broadcasters?

Ruffolo: They will become a media play. So it is with Google, which is a media company, a television company and an advertising company. It is a media conglomerate.

Edge: Where does this leave us in Canada where content is considered part of our culture and it needs to be protected, yet it is getting harder to do.

Ruffolo: The CRTC, as of right now, is dead. It’s down on one knee and will be completely irrelevant in three years time.

Edge: What would your advice then be to a traditional media player?

Ruffolo: Our advice is to number one, they are all completely in the same boat and all having anxiety over their current business. We tell them that it is going to happen and there is this inevitability and you can’t ignore it. Deny it as long as you want but your business is going to get hit at some point. So start placing some strategic bets.

Edge: And at the same time, all kinds of new players will emerge?

Ruffolo: We do the Fast 50 (Deloitte’s annual ranking of 50 up-and-coming high technology firms) and I hadn’t seen this trend before. A lot of digital media companies got blown away in 2001, and now we see them coming with a vengeance. These are early-stage boutiques creating a whole social revolution where the power is shifting in favour of this massive democracy on the Web. The issue now is who is going to make money off this social revolution.

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Jim Love, Chief Content Officer, IT World Canada

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