Disaggregation

FOR decades, many Americans had only three choices on television. The three television networks—CBS, NBC, and ABC—attempted to attract as broad an audience as possible. The spread of cable, and later, satellite, television changed that, and broadcasting gave way to narrowcasting to smaller, more select audiences through a hundred channels or more. The total audience continues to grow as the nation’s population increases, but that total audience divides itself among an increasing number of television channels. We have an increasing number of media choices, and the media are targeting increasingly smaller niches, or segments of the market.


Today we have television networks aimed at specific groups, including women, men, African Americans, Spanish speakers, gays and lesbians, and children. There are also networks devoted exclusively to particular subjects, such as news, sports, weather, politics, music, and religion. Because of this disaggregation, major television networks are struggling to attract the most attractive demographic group to advertisers: viewers between the ages of 18–49. In June 2009, the networks posted their lowest combined ratings ever among viewers in this age group.

DISAGGREGATION: MEDIA CONTENT

For years, television networks have undertaken expensive risks, spending large sums of money for new television programming. In addition to the financial cost of programming, there is an  opportunity cost. Because there are a limited number of hours available in prime-time broadcasting, and because programs usually occupy a time slot of at least half an hour, the decision to add  one program requires the cancelation of the program already airing in that time spot. Thus, some viewers who liked the older program but dislike the new program will change channels. In  addition, if a television network has many choices of programs to fill a particular time spot, it risks choosing the wrong one, while what could have been a more successful program is lost, perhaps  forever.

Contrast the old method of programming with what is available today. Every minute, 10 hours of video is being uploaded to YouTube. Google, the owner of YouTube, does not pay a dime for  content. It is provided without cost by the individuals and media firms who upload it. There is a problem, though, and it is a big one. Google paid $1.65 billion for YouTube in 2006. Although nearly  100 million viewers watch almost 6 million videos on YouTube each month, YouTube is not profitable.

Google, which generates huge revenue connecting advertisements to search terms, has yet to figure out how to connect advertisements to videos profitably. For example, suppose your cousin  uploads a video clip of her wedding to YouTube. Who would want to watch it? Yes, your cousin will watch her video repeatedly, especially when she and the groom do that cute thing with the cake.  You, other relatives, and some friends may watch the video a few times. Perhaps people who are curious about the weddings of complete strangers may watch.

Which advertisers would want to pay to have their advertisement linked to her video? Your first response may be companies that provide wedding services. (A cynical reader may say, “divorce  lawyers.”) However, connecting advertisements for wedding services to a wedding video will likely produce few click-throughs. After all, your cousin just got married, so she is not in the market.  Friends and family may be planning another wedding, but there is no guarantee that any of them are. Ironically, the viewer most likely to be interested in wedding services may be the complete  stranger who searches for “weddings” in general on YouTube—anybody’s wedding, because they are planning their own. However, the search term “weddings” returned 614,000 hits at YouTube  on November 19, 2009—perhaps too disaggregated for most advertisers.

DISAGGREGATION: MASS CUSTOMIZATION

New media allow us to customize our media experiences based on our likes and dislikes. We will use the Internet as an example. Chances are that you have set up a homepage on the Internet.  This page appears when you start your Internet browser. There are many choices of homepages available. Search engines such as Yahoo, Google, and Bing encourage users to create  homepages through them in order to generate traffic for their search engines and their advertising. Social networking sites such as Facebook and Twitter also encourage users to begin their  Internet sessions there.

The ability for each user to customize their homepage is particularly attractive to many of us. This attractiveness may be aesthetic, as each user gets to create the “look” of their homepage. Even  more important to most users are customized modules that contain the user’s local news, weather, sports and entertainment listings, as well as modules that focus on the user’s personal and  professional interests. Of course, each user’s choices of customized features also provide data to the homepage provider about that user.Customization also includes where and when we decide  to access the media.

Many other firms provide opportunities for mass customization via the Internet. We can order M&M candy, Nike shoes, or Dell computers in our choice of colors, and we willingly pay extra for that  choice. NetFlix, iTunes, and Amazon are only a few of the many Internet sales portals that make suggestions for future orders based on our past orders.

DISAGGREGATION: MOVIES

Consider the film industry before the age of television. If one wanted to see a movie, he or she had relatively few choices: select one of the local theaters and hope that what was showing was to  that person’s liking. In the early years of the movies, theaters had only one screen, and so the moviegoer’s choices were far fewer than in today’s era of the multiscreen cineplex. When television  began arriving in homes in the late 1940s, movie fans had more choices about what they could watch, as television also broadcast movies. Remember though, for the first few decades of  commercial television, most Americans received only three television networks. The arrival of cable television in the 1960s and home video players in the 1970s offered movie fans many more  choices.

The concept of the long tail describes a business phenomenon made possible by the Internet and other communication technology. Because the Internet is global in its reach, the markets for many  products and services today are also global. It is possible for a business to generate a profit even though most people are not interested in its products or services. This is because that business  can now reach nearly everybody in the world, rather than focus on a single local or national market.

For example, let us look at a video store. Video stores are a dying industry, due in part to the long tail effect. A video store in a mall, paying high rent for each square foot of space, carries a limited  number of video titles. Because those who live within driving distance will be the only customers who visit that store, it will focus on the language(s) those who live in the area speak.

Compare that suburban store to a website that allows users to stream videos. This website does not have to absorb the overhead that a chain of video stores must pay for: hundreds or thousands  of locations, each with inventory, rent, utilities, taxes, insurance, and personnel costs. True, the website will have to pay licensing fees in order to distribute copyrighted material. However, because  the material is not distributed until a user downloads it, there is little or no overhead upfront. The video store has to pay to stock its shelves with thousands of titles before the first customer walks in  the door.

Theoretically, the video website can offer every movie ever made. This is because each movie can be digitally loaded on a series of servers, taking up relatively little physical space. The website  may be accessible throughout the world, so it can offer videos in every language.

This changes the economics of movie making. There will still be movies that cost many millions of dollars to produce, which will require exhibition in theaters to return a profit for their producers.  However, there are now alternative platforms for filmmakers, especially filmmakers who create movies on a relatively low budget. The direct to DVD or direct to Internet avenues allow these  filmmakers to distribute their creations without theater exhibition.

Another aspect of disaggregation of movie watching is that it encourages experimentation in movies. Experimental films online do not have to fill theaters to generate a profit. If only a few people  in every community in the United States view the film, it can make money for the people who made the film and for the online video services that offer it.

DISAGGREGATION: MUSIC

The first significant disaggregation in the music industry was the result of both technological changes and the post–World War II baby boom and youth movement. With the introduction of television  into homes in the late 1940s, the radio industry focused on music rather than the drama and comedy programs that they had relied upon in the past, as those programs moved to television. A  variety of radio formats were developed. Some songs and artists appear on more than one format, but the typical commercial radio station today will base its programming on the format that its  management has embraced. If that station’s ratings or advertising sales are unsatisfactory, the station will simply change its format.

The old business model of commercial music emphasized a musical artist being signed to a record firm, or “label.” The label’s promotional staff would then attempt to get radio stations to play that  artist’s music. The contract between the artist and its label typically required the artist to undertake a concert tour to promote its records. While some musicians achieved commercial success  without significant radio play, this required a patient record label and lots of touring.

Today, many wonder if a significant role remains for record labels. It is becoming common for musicians, whether widely popular or relatively unknown, to release their music directly to Internet  sites without labels’ involvement. This process removes two obstacles that musicians formerly encountered: the need to attract a record label and to receive radio airplay. The future may mean that  fewer musicians will become millionaires, but consumers will have more choices of music.

DISAGGREGATION: MAGAZINES

Today, there are thousands more magazine titles than there were 10 years ago. The largest growth in magazine titles is among trade publications— magazines aimed at specific industries and  occupations. The magazines with the highest circulation figures tend to be consumer magazines, aimed at the general public rather than particular occupations. However, many of the most popular  magazines have been experiencing steady declines in circulation. These two phenomena—more titles, but with declining circulation among the most popular titles—epitomize disaggregation.

An increasing number of magazines offer online versions of their publications. Today’s magazine sites on the Internet and the electronic magazines of the future have the ability to target articles  and advertising to each individual reader. For example, suppose that a college student in California and a college professor in Massachusetts both enjoy reading Sports Illustrated. The college  student is more interested in following the professional and college teams in California, while the professor follows the teams in New England. A certain amount of what each reader sees at the  Sports Illustrated website will be the same—this is push content, as it is delivered to the reader without the reader specifically asking for that content. In this example, the push content may relate to  some sporting events that Time Warner, the owner of Sports Illustrated, is broadcasting on one of its television networks, such as TBS. This would be an example of Time Warner using its media  holdings to generate synergies. The pull content at the Sports Illustrated website would be information about the teams or events for which the individual subscriber has identified his or her interest.

Suppose that the student and the professor are interested in the same teams. Although the pull content will be the same for these two readers, the advertising will likely be different. The  advertisements that appear on the student’s screen will be based on the fact that this reader is 19 years old and lives in California. The advertisements for the college professor will be based on  his age, his location, and perhaps his educational attainment.

DISAGGREGATION: MARKETING & ADVERTISING

The automaker Henry Ford supposedly made the remark that consumers could have his Model T “in any color, so long as it’s black.” Ford gave little thought to how consumers would perceive his  vehicles or how consumers would perceive themselves when seen in his vehicles. Ford was selling transportation, little more.

General Motors’ approach was markedly different: it sold a variety of cars for different types of people. GM engaged in market segmentation. The key factor was income. As GM originally saw it, a  motorist would begin with a Chevrolet, the company’s least expensive brand. As that motorist’s career advanced, future purchases would include the pricier Buick and perhaps ultimately, a  Cadillac. GM also realized that other factors affected consumer’s choices. The consumer who bought a red Chevrolet was different from the consumer who preferred a gray Chevy. GM offered  both colors and many more. (Many observers have blamed GM’s current financial woes partly on its recent management’s inattention to product differentiation among its brands and models, which  had made the company successful in the past.)

Product segmentation looks for different niches in the marketplace. The most common identifiers for market niches fall within two categories: demographics and psychographics. Demographics  are measurable statistics of people based on such factors as age, gender, income, education, and geographic location (usually identified by zip code). Psychographics examine consumers’  attitudes, beliefs, and habits (including buying habits). Consumers shopping for a car today, or other products, usually make their selections based on demographic and psychographic factors.

For many firms, the consumer niche the company serves defines that company. We will use Hollister as an example. The average college student can identify a Hollister store, even though the  store (intentionally) has little or no signage. Instead of having merchandise on display in store windows as traditional retailers do, Hollister conceals its windows with shutters—the feeling is one of  exclusivity, of some shoppers being kept out. The message Hollister is trying to convey is, “you either ‘get’ us or you don’t.” Teens and twenty-somethings are much more likely to get it than older  consumers are. Similarly, Hollister and its parent company Abercrombie & Fitch do not advertise on television, which is “everybody’s medium.”

Dog whistle marketing describes how certain consumers will attend to advertising and marketing campaigns in different ways. For example, Subaru is happy to sell its automobiles to any motorist.  Yet Subaru hardly promotes its products as transportation for everyone. This message would be too broad in a highly competitive industry that spends billions of dollars on advertising. Since the  1990s, Subaru has made a concerted effort to attract gay and lesbian drivers. For example, the tagline for Subaru’s advertising campaign in 2000 stated, “It’s not a choice. It’s the way we’re built.”  Subaru’s wish is that gay consumers would interpret this message as demonstrating sympathy with their sexuality. Subaru also aired advertisements with former tennis star Martina Navratilova,  who is a lesbian. Subaru’s efforts over the past decade have proved successful. A survey of gay and lesbian car owners in March 2009 found that 45 percent of those polled believed Subaru to be  a gay-friendly brand with second place Volkswagen far behind at 9 percent.4 The survey was reported by gaywheels.com, which calls itself “the gay-friendly automotive resource.” Of course, not  everyone who buys a Subaru is gay, and in fact, Subaru is not the brand that most gay and lesbian drivers buy. Being gay friendly is only one factor among many for these consumers. Subaru  competes with other car companies that also seek to appeal to the particular demographic and psychographic characteristics of drivers