There’s no doubt about it…the changes that are occurring in the television business are happening so fast that you sometimes feel like you need a crash course in Media Acceleration 101. There are so many industry pundits making big predictions and throwing around a lot of scary statistics, but what does it all mean? I decided to go “back to school” and seek out the wisdom of Carnegie Mellon University Professor Rahul Telang, an authority on how the internet is affecting many facets of the content production and distribution business.
Professor Telang will be participating in Viaccess-Orca’s 2017 TV Leaders Summit this June, where he will be revealing the results of his studies on anti-piracy methods, as well as pricing experiments that belie commonly held notions and industry standards. But before that, he was kind enough to sit down with me between classes and research projects to tell me a little about how disruption in the media business led him to pursue a career studying the Digital Revolution’s far-reaching influence.
PF: As professor of Information Systems and Management at Carnegie Mellon University’s Heinz College, what types of research does your department focus on?
RT: The School of Information Systems and Management is part of the Heinz College and, as the name suggests, its mission is to study how technology (and particularly IT) is reshaping firms, users’ behavior, and our public policy. Broadly, my research focus is on the economics of digitization. In particular, I study how technology is changing the entertainment industry (e.g. television, motion pictures, music, and publishing) and what it means for firms’ strategy in how they want to price, promote, and invest in content creation, as well as what this means for our policy making, especially related to copyright and IP policy.
PF: How did you become interested in this area of research and what brought you to Carnegie Mellon University specifically?
After my PhD, which combined Economics and Information Technology, I was looking for an area of research that excited me. This was the time when Napster, Gnutella and Pirate Bay were disrupting the music industry and no one knew what to do. Serious empirical work was needed to make headway and this was the start of my research journey in this space. My work is also highly interdisciplinary and Carnegie Mellon is a great place where I can talk to engineers and computer scientists, economists, and psychologists to understand the phenomenon of online piracy and digitization and technology disruptions.
PF: Fairly recently, you co-authored a book, Streaming, Sharing, Stealing: Big Data and the Future of Entertainment. What inspired you and your co-author, Michael S. Smith, to take on this subject matter?
RT: The book is part of the research journey Michael and I have taken have taken over the last decade or so. Beyond writing research papers, we had opportunities to talk to many executives from traditional media and tech firms. It was easy to see how the technology revolution is fundamentally changing the way users are consuming content, and how growth of new platforms is shifting content creation and distribution. It made us think about some fundamental questions: Why have the traditional firms been so successful in the past and what is it about this new technology disruption that is eroding that power? What are some key advantages these platforms have that give them power and how sustainable is it? And finally, what does it mean to consumers and policy makers?
We felt that these issues were critically important and no one has provided a coherent framework, hence the genesis of the book. We believe the book blends academic rigor with strategic issues that are directly relevant to managers. More importantly, we tried to write in a way that resonates with the executives who are in the middle of this shift.
PF: Even just a couple of years ago, “big data” was a term that scared off most traditional TV executives. Do you think that mindset has changed? What are some of the most common and beneficial ways executives in the TV industry today are using big data?
RL: What we argue in the book is that, going forward, consumer attention is a scarce resource and whomever controls it will likely have the competitive advantage in the market. But that means unless you have direct access to consumers and are willing to move from gut feel to data driven decisions, you will be at a disadvantage. This also puts New Age content distributors like Netflix, Amazon, and Google in a strong position. They have access to consumer data at a very micro level and have ability to use that data to price, promote, and recommend content in ways that could not be done before at this scope and scale. Their technology platforms allow them to make content viewing highly nonlinear. Access to data makes it possible for them to distribute content on a one-on-one basis, fundamentally altering the business model of broadcast TV.
I think the use of data to make marketing and distribution decisions is probably well understood now and many of the same TV networks are rushing to build strength there. This data would also be used in making project greenlighting decisions. The challenge for traditional firms is lack of access to fine-grain customer data and transforming a culture where data driven decision making has been scoffed at.
Generally, big data has been tagged with “algorithms driving creative decisions,” which is not only an unfair characterization of how data can be used productively, but also a legacy mindset which will make firms less competitive. I fully believe that data will not only play an increasingly critical role in content distribution, it will complement creative processes in ways we have not yet anticipated.
PF: In the past year, there have been many media industry pundits who have prognosticated about the inevitable demise of the linear television business. Do you agree? Will TV as we know it cease to be in the next five years?
RT: There is no question that SVOD has upended how consumers view content, and the linear way of watching TV has been one of its victims. In fact, if you look at traditional cable firms, they are increasingly offering similar capabilities (like on-demand) that OTT firms offer because that’s how users watch content now. This is the only way they can compete in this new world and retain customers. I am sure a lot of programming will remain linear - Sports, in particular - but I fully expect this trend towards on-demand content will accelerate.
PF: In your view, will streaming services like Netflix and Amazon remain dominant or do you think there will be formidable competition down the road, as there seems to be in Asia and other markets?
RT: It is hard to know who will emerge as a dominant platform. This market is far from settled and one would expect traditional firms, as well as new entrants to make a play. Pricing, cost of content and technology, distribution scale, and ability to harness data effectively will drive this market. What we can predict is that the platform economics will eventually lead to market consolidation. I think, in the long turn, we will have few, large, dominant streaming platforms and maybe a few niche ones.
PF: A lot of your research has been around the impact of piracy on content owners’ profit margins and the efficacy of various anti-piracy methods. Are there any general conclusions you can make about piracy’s impact on content that is on a linear platform vs an OTT platform?
RT: There is enough research out there, and not just mine, which conclusively shows that piracy hurts industry revenues. This is true in both music and in movies. This is true in the USA, as well as internationally. This is important because certain people continue to believe that piracy is beneficial to firms.
We know that piracy is also an outcome of consumers making trade-offs. If legal content is harder to get, distributed narrowly, and priced too high, users will gravitate towards piracy. OTT platforms, which make content available 24/7 without constraints of broadcast windows, are likely to offer a better trade-off than the windowed content.
PF: Has any one anti-piracy methodology proved to be more effective overall?
RT: Taking down centralized pirated sites, such as Megaupload, tend to be very effective, though other sources tend to appear eventually. In our research, we consistently see that making legal content available widely and restricting availability of pirated content in combination provides the best outcome. Either strategy in isolation is less effective.
PF: What was your reaction to the recent news of the hack and leak of Netflix’s “Orange is the New Black” series? Is this the start of a new aggressive wave of piracy? What can content owners learn from this incident and what can they do to protect themselves?
RT: I feel it is less of a piracy issue and more of an intellectual property theft and extortion problem that we are increasingly seeing in the Information Security space. Many firms are victimized by breaches and asked to pay ransom. It is very clear from last few years that cyber security is becoming a critical area of operations for all firms, and entertainment firms are no exception, as the infamous Sony breach and recent Netflix hack now illustrate. Even if these breaches do not lead to direct financial losses, they can be extremely costly from a public relations point of view.
And, information security requires not just technical safeguards, but also behavioral changes across firms.
PF: With the increasing number of internet-delivered outlets for content, can any piece of content or IP ever be considered 100% secure? In your opinion, is piracy here to stay?
RT: I do not believe one can protect their content completely. There always will be a set of users who will infringe and no amount of technology protection will be totally bullet proof. One can only hope that the judicious use of technology and enforcement will keep piracy in the fringes.
Rahul Telang is a Professor of Information Systems at the Heinz College, Carnegie Mellon University.
His major research focus is on Economics of Digitization where he studies how content digitization is affecting firms, users and our policy. His work has appeared in top scientific journals and won numerous awards. He is co-author of a new book, Streaming, Sharing, Stealing: Big Data and the Future of Entertainment (MIT Press, 9/6).