New York is the media capital of the world. With some 180,000 jobs, the media industry is the citys eighth-largest private employer, and New York media companies take in a weighty $70 billion or so in annual revenues. Yet the industryfrom newspaper and book publishing to television and business information servicesis in the midst of a revolution. The new computer-based media now not only can fulfill many of the old medias information, advertising, and entertainment functions but often can do so more cheaply and efficiently. What does this revolution portend for New York? Will the old-media conglomerates be displaced, with dust and cobwebs thickening in the silent midtown headquarters of Time Warner, Capital Cities/ABC, Hearst, Advance, NBC, McGraw-Hill, Viacom, CBS, the New York Times Company, and the rest? For some companies and parts of the industry, the future unquestionably looks gloomy. But other companies, probably the majority, will adapt, co-opt, and emerge stronger for the change. New York will continue to reignbut over a reshaped media world scarcely imaginable just a few years ago.
First, a definition or two. A new medium is anything that transacts, informs, entertains, or advertises electronically and interactively. It may do several of these things at once, blurring and combining old categories. Three years ago, new media mostly meant games and edutainment titles for Nintendo, Sega, and the personal computer, or PC, most of them on the silvery disks known as CD-ROMs. Now the term encompasses the burgeoning, 7-million-member world of America Online (AOL) and its rival on-line services, the even more populous Internet, and most particularly the singing, dancing World Wide Web, a subset of the Internet with added audio, video, and graphics capabilities.
New York is already teeming with new-media companies, and a brief sampling of these upstarts demonstrates the breathtaking variety of services that the new technologies make possibleservices that promise to become profitable businesses as they catch on with more and more clients.
AdOne Classified Network collects classified ads from hundreds of newspapers all over the country and publishes them on a single Web site. (Sites are the Webs equivalent of channels in broadcast TV, though they number in the hundreds of thousands.) Users can search AdOne not only by category and region but much more narrowly by type of house, car, job, or other commodity.
Atnet, or the Apparel and Textile Network, is purely for business-to-business communications. Through devices such as virtual showrooms and company directories that users can search by product and price, businesses in the fashion industry, from cotton mills to department stores, can find suppliers and customers far more efficiently than with old methods.
Data Downlink aggregates quantitative informationeconomic figures, industry statistics, company financial data, and market factsfor business users. Subscribers not only get this essential information more cheaply and quickly than before, but they can also download straight from the Web into their PC-based spreadsheet programs.
Index Stock Photography functions as an electronic photo-research agency for advertising agencies, publishers, and others who need access to stock photos. The company offers customers sophisticated search, payment, and download functions. A TV producer looking for pictures of Nikita Khrushchev, for example, can now find and buy them in moments without leaving the studio.
Interactive Imaginations Riddler Web site entertains visitors with trivia contests, crosswords, and other games. Playing is free, and real prizes are available, but the games take visitors on tours of other Web sites, from Microsoft to Encyclopaedia Britannica, whose proprietors pay Interactive Imaginations for the traffic. Riddler is one of the most popular sites on the Internet and has become an important marketing tool for consumer-targeted businesses.
iVillage, led by executives from the magazine industry, cable home shopping, and 1-800-FLOWERS, publishes magazines on the Internet for sharply defined consumer groups. Its flagship Parent Soup, for example, gives parents medical advice, guidance from child-rearing experts, news, and other information. It also provides on-line chat groups, where parents can discuss particular issues with one another, and it offers child-related merchandise for on-line sale.
Juno, founded by the technology-savvy investment house D. E. Shaw, provides almost a million consumers with free electronic-mail services in return for showing them advertisements while they are writing or reading messages.
Medscape, a leading Internet site for doctors, with almost 200,000 members, is supported by advertising from pharmaceutical manufacturers and others. For a fee, registered users can get vital information, including a wide range of journal articles and research abstracts.
N2K (a trendy abbreviation for Need to Know) operates some of the leading music-related Web sites, where visitors can hear excerpts from new releases, learn what their favorite artists listen to, and buy from a vast assortment of CDs. Traditional stores have begun to offer some of these services, but they cant match N2Ks selection and convenience.
With companies like these springing up all over Silicon Alley, the swath of Manhattan that stretches from Wall Street to the Flatiron District, the struggle between old and new media is a constant topic of conversation among those who work in either industry. New medias partisans are legion: not just the militantly nonconformist employees of the start-up companies themselves but their whole support network of venture capitalists, lawyers, landlords, consultants, accountants, and even the media conglomerate personnel who are helping them grow. They argue that new media are destined to triumph over old media for five basic reasons.
First, there are only so many hours in a day. Internet users spend 40 to 45 hours per month on line, according to a recent Coopers & Lybrand study, and most of them, not surprisingly, reported cutting back significantly on their television viewing, the most time-consuming old-media activity.
According to the second argument, TV and other ad-supported media are bound to start losing advertising as their ability to reach a mass audience becomes less of an advantage. For new media can offer advertisers narrowcasting, the ability to reach an enormous but carefully targeted audience. Already, companies are gathering data on each users interests, job, income, age, and so on. Moreover, any user who clicks on an advertisement on the Web to get more information must have some real interest in the product. Since advertisers increasingly pay only for these click-throughs, they no longer need moan Madison Avenues old lament: I know half of my advertising is wasted; I just dont know which half. Even better, customers who want products advertised on the Web can order them on the spot, and pay for them by credit card, with only a few keystrokes.
Third, the new media are exploding with new capabilities that old media lack3-D simulations, for example, or cheap, high-quality videoconferencing. No one knows what new applications will follow. At present, one growing use for the new videoconferencing technology is quite squalid: purveying live, on-line, private pornographic peep shows. But VCR technology found its first commercial use in pornography too, and undoubtedly clever marketers will soon find more business- or family-oriented mass-market applications for these technologies.
Fourth, though an old-media proverb holds that content is king, the reams of valuable content that the old-media conglomerates own are not an overwhelming competitive advantage. These companies are generally flops at re-tailoring that content for new-media use. Video games based on movies usually fail, and Web sites created by old magazines usually straggle in a distant second to unpedigreed start-ups (iVillages Parent Soup has left old-line titles like Parenting, Parents, and American Baby in the dust). More important, the great allure of new media is that they can create brave new worlds of content, from gut-wrenching multi-player games such as Duke Nukem to Onsales on-line, real-time computer auctions. New media can also customize content for individual users in a way that no old-media company can. Individual Inc., for instance, provides customers with a unique news bulletin each day, closely tailored to their own interests. Firefly invites users to list their favorite movies or albums and then recommends new ones based on thousands of ratings from people with similar tastes.
Above all, the new media allow subscribers to create their own content, to build the sense of electronic community that many customers want. In thousands of so-called chat rooms, the content consists of never-ending conversationsconversations about everything from car repair to knitting to politics, offering far more variety and personal contact than a conglomerates polished product. These rooms make money by charging chatters per minute or by displaying print ads. The king of such communal, subscriber-created content is America Online, which, according to its president, Ted Leonsis, is like a digital bartender, bringing like-minded people together and collecting more money the longer they schmooze. By the end of 1997, according to Leonsis, AOL will have more subscribers in Manhattan than Manhattan Cable and more New York City subscribers than the New York Times. Next on AOLs agenda: Digital Cities, its new program to launch mini-AOLs with content and participants drawn from New York and other cities. AOL hopes these electronic communities will take material like restaurant listings or event calendars and enrich it by adding Zagat Surveystyle takes from thousands of real people. Newspapers and other local media are starting to hear menacing footsteps.
Finally, new-media partisans say, traditional media companies are just too old and slow to win this war. They are like George IIIs redcoats, being picked off from the hedgerows by nimble minutemen. Even as the big guys stick their toes into the Internet pool, they are finding it difficult to change their corporate cultures. Their thousand-person operating units, with multi-level hierarchies that stymie the flow of information, arent adapted to starting from scratch every month, which is what the new epoch often requires for success.
These arguments leave the old-media elite unfazed. The facts, they coolly reply, are quite different. How can the growth of new media be shrinking old medias revenues dollar for dollar when Americans spending on those old-media have been growing so briskly in recent years? Moreover, the entertainment industry is an export powerhouse, second only to aerospace. As the rest of the world continues its cultural change into something more like America, the old companies that are the industrys leaders will thrive. Most important of all, thanks to advertising, Americans use such old media as television and radio practically for free. Once youve bought a TV and maybe a monthly cable subscription, your marginal media cost is zero.
Furthermore, sneer the old-media grandees, connections to the Web are so slow for most consumers (and will be for years) that anyone trying to download multimedia content inevitably grumbles about the World Wide Wait. Sure, in the long run, the Web may work as instantly as television today, but as Keynes pointed out, in the long run, we are all dead. By that distant time, who knows what people will want from the Web, and todays media giants have as good a chance as anyone at figuring it out by then.
Meanwhile the old-media companies have an inestimable advantage: brand recognition, which signals quality to consumers. ESPN, for example, had a leg up establishing ESPN Sportszone as the dominant Web site for sports, and Time Warners Pathfinder site benefited from the goodwill of Time Inc.s magazine subscribers, as well as from free ad space in the magazines. Brand X Web sites, by contrast, are an uneven bunch, with unpredictable entertainment value and haphazard or even biased research sometimes presented as fact. So even though the Internets almost nonexistent barriers to entry might allow thousands of sites for stamp collectors to spring up for a pittance, only the one that belongs to the leading philately magazine, with its critical mass of readers, will have a competitive edge.
Building up new brands is hugely expensiveand the marketing money has to be spent largely on old-media advertising, the moguls gleefully point out. The ad-supported e-mail provider Juno, for example, has spent tens of millions advertising through direct mail, radio, magazines, newspapers, even on bus stops and phone booths. This cost would be less intimidating if young Web companies knew where the offsetting revenue would come from. But advertising budgets are only now shifting a bit toward the Web (an estimated $300 million for 1996, versus $111 billion for old media), and most of those dollars will be concentrated for the foreseeable future among the top hundred sites, not the next hundred thousand. Advertisers want critical mass and reach in new media as in old, a fact that will disproportionately benefit sites associated with big media companies.
The moguls no longer laugh that the information superhypeway is just a fad, but they are right to point out that most new media, far from eating old medias lunch, dont know where their next meal is coming from. If not for the buoyant financial markets over the past few years, many of these cocky start-ups would not have had a prayer of survival, let alone success. Pioneers, say the moguls, end up with arrows in their backs. Let the start-ups establish a viable market for new media, if its possible, and the moguls will gladly tip their hats in gratitude as they move in and take over. The New York conglomerates will then rule new media as they do the old, and New York will still be Media City.
Two camps preparing for battle on a darkling plain, two sets of industries, two opposing cultures: who will be left standing when the dust clears? The answer varies, for the war between old media and new will be fought in every segment of the industry, with differing outcomes in each.
The crisis is coming first to print, which collected just over half of last years media revenues. The reason: texts take on new possibilities when available on computer rather than paper. Searchability by subject, author, date, or specific publication, for example, means a lot to customers dealing with news articles. So do capabilities like alphabetization, archiving, filtering, and cutting and pasting.
Newspapersthe biggest part of the industry by far, with 1995 revenues of $50 billion nationwide and over $5 billion in New Yorkstand to lose the most in the looming battle. On the circulation side, new sources of news, such as the wildly popular, self-updating screen saver Pointcast, keep PC users informed for free, with this-just-in bulletins, late-breaking sports scores, real-time stock quotes, and minimally intrusive ads. (Screen savers are displays to which computer screens automatically reset when not otherwise in use.) Pointcast may not offer much local content to its 2 million subscribers, but Microsoft, Goldman Sachs, and AOL are backing companies that will fill that gap with new on-line services tailored for New Yorkers, Chicagoans, and Angelenos, among others. Television news and public apathy have already flattened newspaper readership over the past 20 years, so the publishers, carrying the heavy burden of their change-averse unions and the huge fixed costs of production and distribution, can ill afford to let more audience slip away into cyberspace, particularly the younger readers who ought to represent tomorrows subscribers.
Newspaper advertising, which brings in 80 percent of the industrys revenues, is particularly vulnerable. Classifieds account for almost half that total. Here the Web can surpass any newspaper by listing many more ads, adding pictures and other information, and allowing the user to search by keyword or by neighborhood. The only long-term hope for the newspapers in classifieds is to band together while they still control access to most classified advertisers and readers. They can aggregate all their ads into one massive Web site offering national scope and the best available user interface and search technology. The major newspapers have begun to collaborate on on-line help-wanted ads and other classified servicesbut very slowly.
Unlike newspapers, magazines appear relatively well positioned for the new erafortunately for New York, since magazine companies based here had over $8 billion in 1995 revenues. True, the Internet offers something print magazines cant: interactive periodicals called zines, which can deepen coverage significantly. Click on a picture of White House Chief of Staff Erskine Bowles, for example, and the software takes you to a separate page with a biography, more reporting, or other related information. From an advertising standpoint as well, its hard to beat the targeting that zines can offer when they know who each on-line reader is and can direct different ads instantly to different readers, depending on demographics and stated interests.
Still, magazines have been quicker than most media to adapt to the Internets challenges by starting their own Web sites. Time Warners Pathfinder, one of the best of them, allows visitors to chat on topics related to Time Inc.s various magazines, to communicate directly with reporters and photographers on key stories, and even to play games related to the subject matter. While at present, magazine advertisers demand free space on Web sites as a bonus for their paid print advertising, over time, as the on-line audience distinguishes itself from the print readership, zines should be able to sell the slots independently.
Books, an industry growing at a healthy 5 percent a year, also stand to gain from the brave new-media worldgood news for New Yorks publishing houses, which took in $6 billion in revenues in 1995. No one wants to read a whole book on a computer, and printing out 300 pages is neither cheap nor easy. But the Web is a marvelous way to market books. Seattles Amazon.com, the largest bookstore in the world with a virtual inventory of 1 million titles, is the perfect example. With no actual physical inventoryit orders direct from publishers or wholesalersit will do over $5 million of business this year, according to the Wall Street Journal. It entices potential buyers with state-of-the-art Web marketing techniques, including author chats, reviews by other readers, and accessible excerpts and thumbnail synopses. Companies in the related audio-book industry, with $2 billion in annual U.S. revenues, are already exploring ways to market their wares through the Web, perhaps even downloading them into a mobile player, which would obviate the need for bulky cassettes and bookstore distribution. Thus, while the Internet is good news for publishers, it is bad news for bricks-and-mortar retailers.
One of the least glitzy but most profitable media industries, business information services, has long been a New York specialty, a powerhouse that generates $31 billion in annual revenues for companies in the metropolitan area. For obvious reasons Gotham-area companies like McGraw-Hill, Dun & Bradstreet, Dow Jones, and Thomson Business Information Services have already adapted to the new realities. Business information naturally lends itself to on-line delivery. Owners of this content are accustomed to putting it into digital form in the process of collecting, compiling, and analyzing it, and they have been delivering their services to their mostly computer-savvy business customers by CD-ROM and on line for years.
From the content owners viewpoint, new medias big advantage is lower cost. In the old days I would have telephoned the media investment bank Veronis, Suhler & Associates for the industry revenue figures in this article, and someone would have taken my call, found a printed summary, and mailed or faxed it to me. This year, however, I just cruised to the firms Web site and downloaded the summary text. Since the new media offer greater convenience and utility to customers, publishers have usually been able to charge the same or more for new media formats, despite lower costs. True, pressure is growing to price by each individual nugget of information rather than by whole databases, as is done now with flat-rate, on-line subscriptions or CD-ROMs. And a new class of knowledge intermediariescalled agents, aggregators, personalizers, or bots (short for information robots)now extract data on line from many different sources and have sufficient buying power to negotiate significant discounts from the owners of content. But such services expand the market for business information by making it more useful and affordable, so revenues will grow, with profits rising even faster, thanks to lower costs of distribution.
The film, music, TV, and radio industries will feel the new medias effects later than the print industries, but they will feel them even more profoundly, for reasons that Thomas Edison would find very familiar. Edison discovered that his innovations in the technologies for recorded sound and moving pictures, unlike his successes with the stock ticker or light bulb, took a while to catch on: they needed to be about something for people to care about them. And just as filmed entertainment took decades to progress from simple sequencesa dancing ballerina, say, or an onrushing trainto staged plays shot by a single stationary camera, to techniques that more fully realized the potential of film, to enhancements such as sound and color, so the Web crowd is just starting to scratch the surface of the entertainment forms this new technology can make possible. The technology itself is still woefully inadequate, of course, due to constraints of speed and capacity, but breakthroughs such as high-speed connections over cable TV lines, TV sets with built-in Web software, and hybrid CD-ROMs that combine copious data with on-line updates are already beginning to solve those problems.
In film itself (as with business information services) the first impact of new technology has been to lower costs. Hollywood studios (most owned by New Yorkbased conglomerates) now routinely use supercomputers to generate special effects, sometimes to amaze their audiences but more often for the prosaic purpose of saving money. Human crowds are no longer needed for realistic crowd scenes; shooting on location matters less when you have a virtual back lot; and realistic, computer-generated virtual actors, or synthespians, can run, jump, and emote just as the director envisions, at lower cost. Less helpfully for film, the prime 18- to 34-year-old audience has developed a passion for video games, computers, and the Web, which has helped keep movie attendance flat for years. The studios efforts to fight back with their own attempts at video game publishing have generally bombed.
In the recorded-music industry (about $20 billion of it New Yorkbased, though mostly controlled by foreign conglomerates), the big new-media effects have to do with distribution and marketing, not production. These activities are cheaper over the Internet: like books, albums can be sampled on the Web, and N2K and other music retailing sites are borrowing the marketing techniques Amazon.com uses in the book world. More revolutionary, because music is already in digital form thanks to compact disk technology, customers will soon be able to download entire albums directly onto their hard drives over the Internet (something they will eventually be able to do with movies too). Publishers and consumers should benefit from the resulting efficiencies. The losers, of course, will be Tower Records and Sam Goody, which are struggling to establish on-line presences but have no special advantages beyond brand recognition. Also on the short end may be the seven major studios, such as New Yorks Sony Records and Bertelsmann Music Group, which stand to lose the great advantages in marketing and distribution conferred by their size. Now anyone can put up an Internet storefront and publicize and ship albums over the Web.
The broadcast television crowd asserts that Americans like TV just the way it is: after a long day they want passivity; they like the limited options, which create a critical mass of buzz around certain shows; and they accept the din of advertising, since it keeps TV free to the consumer. The numbers, though, show little evidence of complacent satisfaction. In 1995, Americans spent slightly more buying PCs than TVs, and TV usage fell 40 percent on average after the purchase of a households first PC. When PC owners want something like TV, they can connect to serialized on-line soap operas like The Spot, which offers its hundreds of thousands of viewers not just conventional footage about its group of photogenic California twenty-somethings but also their diaries and letters, and even a chance to exchange electronic mail with them. Today, too, so-called Internet appliances that enable Web browsing from standard TV sets are selling out around the country for about $300 and will compete effectively for families prime- time attention. The implications for the four major networks, all based in New York, are no more encouraging than for owners of local broadcast stations around the country.
Cable TV networks will face the same problems, but cable operating companies have woken up to find themselves the lucky owners of the only broadband data pipe into peoples homes. Cable modems that deliver data about 1,000 times faster than a fast telephone modem are now being tested, though limitations in the architecture of most systems are likely to keep real-world speeds only ten times faster at first. Speed matters, not only because consumers get responses more quickly but also because multimedia content containing too much information to download effectively over phone lines will soon be available. Cable modems will not be available to a meaningful number of subscribers for several years, but once the technology is perfected, the revenue potential easily rivals that of cables current video services.
The only old medium likely to survive largely unchanged is radio. The 84 million Americans who drive to work, and the many more who listen to radio while exercising or doing household chores, will still want to use only their ears, not their eyes or hands.
What do these new technologies mean for New York? Its still too early to say, since the possible applications of the Internet are only just starting to become clear. After all, think how wrong radios creator, Marconi, was when he saw its use as limited primarily to ship-to-shore and other point-to-point communication. But a couple of tentative guesses do seem in order. First, the new and old media appear to have more potential to help than to hurt each other. Though newspapers and broadcast TV may suffer, most sectors will benefit from the Internets gift for cheaper, more effective marketing and distribution. Second, if the Internet expands medias repertory and targets its advertising more efficiently, the media pie will get bigger. The Internet increases the value of ideas, and New York is the worlds great font of ideas. If experience from previous media revolutions is any guide, the city stands to gain handsomely from this one too.