As buzz builds around Apple iPhone 5, focus shifts from high-tech wizardry to content

/// As buzz builds around Apple iPhone 5, focus shifts from high-tech wizardry to content

September 13, 2012  |  Blog

The Washington Post – The blogosphere is crackling with talk of Apple’s iPhone 5 launch Wednesday, the latest in a rush of high-tech product announcements. But lost amid the speculation about screen size and battery life is something more important to most consumers: What can you watch on it?

The licensing deals that allow movies, books and music to stream into the latest mobile devices, while long at the heart of their appeal, are becoming even more critical as several of the biggest technology companies fight for an edge in the lucrative market for smartphones and tablets.

As mobile devices increasingly resemble each other in look and performance, some analysts see a coming inflection point in which beleaguered media companies profit while high-tech manufacturers vie for the best access to old-fashioned stories, songs and shows.

“The platform increasingly becomes a commodity, and the content increasingly becomes the only place to create a premium,” said Andrew Heyward, a former head of CBS News who is now a consultant on digital media strategy.

In pitching Amazon.com’s new line of Kindle Fire tablets last week, company founder and chief executive Jeff Bezos portrayed them as an advance over Apple’s popular iPads because of their cheaper price and the extensive content they could deliver, pointedly noting that the Kindle library has 180,000 exclusive books to download. He also highlighted last week’s multi-year deal with Epix, a movie consortium of Paramount, MGM and Lionsgate, giving it exclusive rights to stream such hits as “The Avengers” and “Iron Man 2.”

“We want to make money when people use our devices, not when they buy our devices,” Bezos said as he paced a brightly lit stage in jeans and blue sport jacket, subtly evoking the product launch style pioneered by Apple’s late founder Steve Jobs. “If somebody buys one of our devices and puts it in a desk drawer and never uses it, we don’t deserve to make any money.”

Jobs, of course, was a leader in linking devices and content through the iTunes store, the result of a deal between Apple and five major record labels that gave the iPod a dominant position in the music player market for years. The App Store was equally key to the success of several generations of iPhones.

These business triumphs helped popularize a digital-age mantra — “content is king” — but the biggest profits went to those who made high-tech devices. Those companies that actually produced the words, video and music enjoyed by consumers, meanwhile, saw their business models undermined and their traditional retail partners — Borders, Tower Records, Blockbuster — go bankrupt.

The introduction of Apple’s iPad in 2010 raised the hope that consumers accustomed to paying for apps and songs would be willing to pay for other content that for years had been pirated or, in the case of newspaper and magazine articles, given away online. The buzz about revived profits reached such a level that some publishers dubbed the iPad “the Jesus tablet.”

The popularity of tablets prompted particular interest among news organizations. The New York Times and Philadelphia Inquirer gave away some computer tablets as an incentive to those who took out new subscriptions in hopes of mimicking the success of cellphone providers that distributed free or discounted phones in exchange for lucrative long-term contracts with consumers.

More than 80 million iPad sales later, it has helped make Apple the world’s most valuable company and spurred a furious race by competitors to offer alternatives. But there is little sign that is has revived the fortunes of content creators, prompting some analysts to conclude that technological advances have undermined these business models in a permanent way.

In the digital age, anyone with a camera can upload a video, just as anyone with a laptop computer can self-publish a book or collection of songs, or anyone with a few journalists and some smartphones can start a news service. No longer, said Columbia University business professor Bruce Greenwald, do potential rivals need to buy expensive printing presses or movie studios; nor do they need to build elaborate distribution networks for the content once it’s made.

“If you can’t keep people out of the business,” he said, “you never are going to make any money.”

But others see the balance between content producers and device makers shifting as competition for consumer dollars intensifies.

Five years ago, Apple dominated digital music through the iPod and iTunes store, just as Amazon dominated e-books through its Kindle reader and related store. Now, Apple sells books through its iPods, iPhones and iPads, and Amazon streams music through its more advanced Kindle devices. Both companies’ products stream video, with Amazon directly investing in an online library of 25,000 movies and television shows it offers through subscriptions to its Amazon Prime service.

Google, once mainly a search business, has forced its way into the mobile device market with its own tablet and the Android operating system, which powers a majority of the world’s smartphones and many tablets made by other manufacturers. Microsoft, once mainly a provider of computer operating systems and software, has likewise introduced a tablet computer and a smartphone operating system.

With all these players, some analysts say, the mobile devices themselves will be increasingly difficult for consumers to tell apart. That will lead to a second wave of competition, in which the rivalry becomes about content. A shift sending more revenue to content creators could take different forms — exclusive licensing deals, for example, or discounts for customers who have a Kindle Fire and subscriptions to popular magazines. But a renewed emphasis on content would tilt leverage toward those who make it, say analysts.

Heyward, the former CBS News president, said the best hope for news organizations is creating distinctive, premium content that consumers demand — and are willing to pay for. “Creating premium value is going to be critical to journalism.”

What’s less clear, says technology analyst Whit Andrews of Gartner Research, is whether an overall shift of profits toward companies that create content will benefit traditional media companies or their newer rivals. A model may be evolving to reward those who produce the most popular books, music and shows, but consumers will get to decide who those are.

“Content is always king, but it is never as good to be king as it looks like,” Andrews said, “because there’s always a bunch of kings.”

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