Originally published on The Times of India. This article is part 1 of a series called ‘Reality Check on Media Strategy’.

The media and technology industries have historically progressed hand-in-hand, with technology creating new mediums and media bringing them to life. Each generational leap in technology necessitated major capital investments (CAPEX) from media firms to upgrade their technology stack. However, over the last two decades, media companies have faced significant challenges in keeping up with necessary investments, which has impacted their strategic control and opportunities for growth.

The Tech-Media Tango

Throughout history, media companies that embraced new technologies thrived, while those that resisted often faced decline or extinction. Consider the examples of RKO Pictures, Blockbuster, Tower Records, Borders Group, Kodak, and Polaroid. These companies failed to adapt to technological advancements, ultimately leading to their demise.

Below are some of the generational technology shifts in media:

• 1920s-1930s: Sound Films: Sound revolutionized filmmaking, birthing new genres.
• 1950s-1960s: Color TV: Color broadcasting enhanced viewer experience and spurred TV ownership.
• 1950s-1960s: TV News: Visual news brought a new dimension to reporting.
• 1980s-1990s: Satellite Broadcasting: Satellites expanded global reach, diversifying content.
• 1980s-1990s: Cable TV: Cable diversified offerings, introducing premium channels.
• 1980s-1990s: 24-Hour News: 24-hour channels offered continuous news.

Until now, most technology companies like IBM, Dell, HP, Microsoft, Apple, etc. were not rivals to media companies.

In 1992, two college students invented the Mosaic Browser that allowed regular people to access the Internet for the first time. Since then, technological advancements have significantly transformed the media landscape, altering traditional supply-and-demand dynamics.

This disruption accelerated as tech companies took the lead in innovating on value-generating algorithmic marketplaces. Media companies, instead of investing in research and development to compete, have increasingly relied on APIs and services from these algorithmic marketplaces, at a fraction of the R&D cost.

This has influenced both demand-side and supply-side technologies.

Outsourcing Demand-side, a Core Business Function

On the demand side of the media equation, technology companies raised venture capital and established algorithmic marketplaces across various domains: programmatic advertising (Google Ads, Taboola, Outbrain), video streaming (YouTube), social media (Facebook, X, Instagram), search engines (Google, Bing), classifieds (Craigslist,eBay), and listings.

From the technology company’s perspective: Each of these cycles follows an S-curve. Technology companies initially put in a lot of effort, marketing, and incentives (grants, competitions, contracts, higher ad rates) to drive adoption. Once the adoption starts, everyone else follows. Eventually, the marginal gains from incentivizing adoption drop. By then, the marketplace has matured into a cash cow. Then it is time for the company to launch a new marketplace and kickstart a new S-curve.

Past examples of such cycles include the rise of SEO in the 2010s, mobile apps in 2014, Accelerated Mobile Pages (AMP) in 2017, video in 2018, web stories in 2020, and web vitals in 2021. Within Facebook alone, the first marketplace was Newsfeed in 2006, followed by Pages in 2007, Groups (community for publishers), Instant Articles in 2015, Facebook Live in 2016, bots in Facebook Messenger in 2016, and Facebook Watch in 2017.

From the media company’s perspective: Each cycle presents itself to media companies as a prisoner’s dilemma problem. Media companies can either scramble to adapt, hoping to capitalize on potential traffic and revenue increases or not do anything. However, in absence of a better alternative, media companies would leave revenue on the table by not participating. However, initial gains often prove fleeting, as the algorithms adjust and eventually erode those benefits. The ultimate winners are the technology companies who now have an established marketplace, while media companies are left with marginal profits to reinvest in the next fleeting trend.

How the prisoner’s dilemma plays out

In theory, all or most media companies in a marketplace can choose not to participate in an algorithmic platform, eliminating the prisoner’s dilemma. However, technology companies kickstart the prisoner’s dilemma by offering generous incentives to a few.

In effect, media companies are not left with much choice than to participate.

It’s crucial to note that this relationship is not analogous to movie producers distributing content through cinema theaters, where a symbiotic relationship exists. In the digital realm, the balance of power tilts heavily towards search engines and social media platforms, as they source most of their content from individuals, with news being just one category, albeit an important one.

This dynamic has led to a shift where many media companies are content suppliers for tech platforms, diminishing their direct access to audiences and advertisers.

Few established Hedged Gardens

Despite these challenges, a few media companies with strong brand recognition have made strategic investments in technology to regain direct access to their audience.

• Disney: Acquired BAMTech for $2.58 billion in 2017 to launch Disney+, securing its long-term future despite initial operating losses. While Disney+ is positioned to secure Disney’s long-term future, the platform experienced operating losses from 2020 to 2023, totaling -$2 billion, -$2.4 billion, -$1.5 billion, and -$0.5 billion respectively.
• Warner Bros., NBCUniversal, and Paramount: Launched their own OTT platforms (Max, Peacock, and Paramount+) to control their content and audience relationships.
• Hotstar (India): Hotstar built a successful over-the-top (OTT) business around live sports streaming, demonstrating its technological prowess by handling over 25 million concurrent viewers during the 2019 ICC Cricket World Cup. This feat far surpasses YouTube’s record of 12 million concurrent viewers during a live stream of the Free Fire World Series gaming event in 2021.
• Inshorts (India): An Indian news aggregator app that has direct traffic and sells only native advertising via its own ad targeting system.

These examples highlight the importance of investing in technology to break free from platform dependency and build a sustainable future for media companies in the digital age.

Supply-Side Mirage

Traditionally, media companies paid a cut to algorithmic platforms for discovery (search, social) and for monetization through their ad networks. Now, they face an additional “editorial tax” in the form of costs for AI services like ChatGPT or Google Gemini.

Many supply-side trends in media, even before the advent of Generative AI, were influenced by broader technological advancements. For instance, the rise of data journalism was fueled by investments in business intelligence, digital charting, Google Sheets, and data analysis tools like Tableau.

Similarly, the fight against misinformation, largely a consequence of social media platforms, has led media companies to invest heavily in fact-checking and verification teams, although the audience’s appetite for fact-checking remains debatable.

Missed Opportunities: Owning The Value Chain

Historically, most media companies have overlooked the potential of value-added services built on their assets — content and audience. This oversight has resulted in missed revenue opportunities and ceded control of valuable data and insights to third-party platforms.

Several companies have successfully capitalized on this potential:

• Meltwater: Offers media monitoring services, tracking media coverage and providing insights to businesses and organizations.
• Accern: Provides financial institutions with valuable insights derived from news and media analysis.
• Metaweb (now Google’s Knowledge Graph): Built the world’s first knowledge graph by tagging and organizing content from media websites.
• Feedly, Flipboard, Inshorts, Daily Hunt: These platforms have created successful aggregation businesses by curating content from various sources.

However, notable exceptions demonstrate the strategic advantages of investing in value-added services:

• Bloomberg: Controls the entire information supply chain for financial data, news, and analytics, differentiating its service and attracting a larger subscriber base.
• NBCUniversal: Expanded its presence in the movie industry’s value chain by acquiring Fandango (online movie ticketing) and Rotten Tomatoes (online movie reviews).

These examples highlight the potential for media companies to unlock new revenue streams, strengthen their brands, and reduce reliance on external platforms by developing and offering value-added services.

It is essential for media companies to recognize that value-added services are not merely ancillary products but can be powerful tools for growth and differentiation in the digital age.

Reclaiming the Kingdom

Media companies aspiring to evolve into algorithmic marketplaces must meticulously craft their technology strategies. This entails securing appropriate funding, making substantial investments in technology and talent, executing the transformation effectively, and ultimately monetizing their advanced technological capabilities. This is a multi-year endeavor, akin to the ambitious vision outlined in the leaked New York Times 2014 Innovation Report.

For media companies that lack the resources or willingness to embark on this transformative journey, an alternative path involves scaling back their technological ambitions and focusing on doubling down on editorial differentiation. By prioritizing unique, high-quality content and fostering a strong brand identity, these companies can carve out a niche in the market and potentially thrive as content providers for algorithmic marketplaces.

This article was part 1 of a series called ‘Reality Check on Media Strategy’.

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Want to republish it? This post was released under CC BY-ND — you can republish it as is with the following credit and backlinks: ‘Originally published by Ritvvij Parrikh on The Times of India. The author retains the copyright and any other ancillary rights to the post.