Internet and the audiovisual industry

by Nathalie Sonnac, professor in Communication and Science of Information, president of the Information and Communication Department, IFP Université Panthéon-Assas

Internet is a major innovation in its capacity to create and/or to destroy value. Its emergence is considered a disruptive innovation that has redefined our cultural practices. The digitalization of information, new information and communications technology (ICT), and the Internet are a technological innovation that has transformed the cultural and media industries. Considered a meta-media, the Internet allows website developers and consumers to combine sound, image and text on one platform. This technological innovation is matched by a sociological innovation: the mass distribution, democratization, of the Internet (425 million Gmail users; 1.2 billion Facebook users). Furthermore, more than 5 billion world inhabitants are in possession of a cellphone. Finally, this new universe includes new key players, including Internet access providers, operators, tech giants (Google, Amazon, Facebook, Apple), and specialized firms (Netflix, Love Film). These platforms provide new services and their perpetual innovations are always considered progress. The competitive environment has been affected by these dominating ecosystems that might put in danger the democratic operation of media, with little regard to diversity and the quality of offered products and services.

Internet has undeniably affected the production process: the traditional value chain has been stripped of all intermediaries. Today, an individual can publish a book without going through a publisher; a television producer can reach audience members without the assistance of a channel editor. New players called infomediaries guarantee users the proper protection of their information, while providing them the opportunity to gain from their provided information. These changes indicate a distinct shift from an economy of representation, controlled by professionals, to a relational economy (interactive platforms, new online communities). Hence, a social dimension integrates the audiovisual’s value chain.

The Internet and ICT platforms have altered the market boundaries, blurring or even annihilating numerous distinctions: between professionals and amateurs, between the private and public sectors, between free services and chargeable services. Previously, the services offered on cable channels and public channels were not the same: the former offered more specialized programs (sports, films), while the latter offered more general programs (series, news). However, the digitalization of content revolutionized this dichotomy. Free information TV channels (BFMTV and i>Télé) bolstered competition with private channels such as LCI. This shift puts into question traditional modes of regulation and control of competitive intensity. Sonnac also notes that the advertising market has been affected by Internet, most notably with “ad-exchange” markets favored by Real time bidding (RTB): advertising spots on the Internet are sold as in an auction, with the bids updated in real time. Furthermore, ad banners have now expanded to rich media through the inclusion of sound, video, and pictures.

These new technological devices also provide new services (films on demand) allowing viewers to “consume” the product on their own time. These connected consumers are called ATAWAD (any time, anywhere, any device) users; they push traditional producers to offer products adapted to their screen and their needs (ie. more interactive features). Web documentaries have responded to this demand, including social media and other interactive elements into the visualization experience. Media are thus also adopting a conversational (relational) model.

Internet is where supply and demand meet in a dematerialized manner. Digital platforms are ecosystems that provide integrated services: search engine, product and service stores, and APIs. Triple and quadruple play platforms make Internet available on cellphones, TVs, and other devices. In addition, Internet fosters the convergence of various sectors previously distinct – telecommunication systems, computing, and media – which have now become interdependent. The fusion between audiovisual services and the web has also occurred, allowing a viewer to watch shows or movies on several devices simultaneously: the lines between different consumption modes are further blurred.

Sonnac also contends that in this new digital era, an economy of scales and network externalities lead to market monopolies, in favor of technological mastodons. The main goal is to generate critical masses to in turn create income. This can be achieved through a loss leader strategy, or enticing subscription offers. Platforms can also combine resources, to share fixed and variable costs, and the further risk of collusion could establish robust barriers to entry (forclusion). Disruptive innovations distinguish one platform from the others.

Finally, the onus is on the State to regulate the democratic use of media, which can in turn fight against the general trend toward the homogenization of media content. In France and in other European countries, quotas are placed to ensure the diffusion of EU audiovisual content. This initiative is meant to preserve cultural diversity and to support local productions. The question thus arises: how can France maintain its “exception culturelle”, in the presence of dominating, international ecosystems that respond to a bottom up demand (versus the previous top down markets). Traditional markets in Europe feared the arrival of Netflix in the EU: yet another example of the Internet’s impact on smaller, local actors. Netflix is supposed to establish headquarters in the Netherlands by the end of 2015, after having settled in Luxembourg to avoid EU taxes. The company’s competitive advantage is to have quickly adapted to viewers’ habits: decrease of interest in the cinematic experience, and desire to watch movies at home (on TV or on a computer screen). Through a unique algorithm of collaborative filtering, Netflix can better understand these changing habits and the company can make personalized suggestions to the viewer, based on previous views and tastes. Furthermore, Netflix is easy to use and bypasses illegal downloading. Netflix offers the possibility of viewing a wide range of films, through a long-tailed distribution, namely in favor of American blockbusters. Hence, local governments have all the more reason to address the threat imposed by Netflix in the European market, and thus protect small audiovisual diffusion companies from going under.

Sonnac wonders if the concept of “algorithm” should be revisited, as it can make or break a company. In addition, algorithms are based on data: users may pay a mere 8$ a month for a subscription, however Netflix benefits from the data of 45 million subscribers. Data can thus be controlled by these new digital platforms, and used as goods: do users really know what Netflix does with their personal data? In Europe, personal data cannot be assimilated to mercantile goods. Furthermore, Netflix and other similar platforms use algorithms to narrow recommendations: the user becomes a “bubble filter”, through which only specific, personalized experiences transpire. Do these models foster diversity? Is this not a direct threat to democracy? Finally, to what extent do these systems respect net neutrality (non discrimination of communication systems; equality of service quality; transparence of general conditions of use)?

These questions are left unanswered in the ever-growing world of technology, and will only multiply in number as exponentially as the innovations that are disrupting our contemporary society.