C-Scape

Larry Kramer

• Publisher: HarperCollins e-books
• Year: 2010
• ISBN:
  9780062020116
• Topic: Business
• Subtopic: IT Industry
• Index: Business

"[Larry Kramer's] MarketWatch.com is not just my favorite business website, it's my personal homepage." —Warren Buffett

"[Larry Kramer] is the toughest and most ethical foe imaginable. His observations reflect a deep understanding of how the media works and what consumers want." —Jim Cramer

From Larry Kramer, the founder of MarketWatch.com and former president of CBS Digital Media, comes a bold, pioneering report on what businesses must do to survive and thrive in the digital media revolution. Using case studies of companies such as Apple, Procter & Gamble, Netflix, and GE, Kramer not only draws a clear map of twenty-first century commerce, but charts the way forward. Readers wondering how to implement digital-age business strategies like those found in Clay Shirky's Here Comes Everybody, Chris Anderson's The Long Tail, or Jeff Jarvis' What Would Google Do, look no further than Kramer's groundbreaking C-Scape.

PART ONE

THE C-SCAPE:
HOW DID WE
GET HERE?

THE FOUR FACTORS
SHAPING THE C-SCAPE

If you strap an engine on a horse, do you have a car?

That question was put to me by my friend Dan Lagani, president of Reader’s Digest Media. He was talking about plans by a consortium of magazine publishers to design and market their own e-reader for magazines. They knew that their traditional business—magazines printed on paper—was in trouble, and they were hoping to break into a new business by going digital and selling the hardware.

The trouble was that their e-reader seemed as if it had been designed by someone who didn’t understand their business and the new challenges it faced. At the very moment Apple was about to unveil the iPad, their plan called for a black-and-white e-reader, something like the Amazon Kindle—but who wants to read magazines in black and white? Most of the magazine industry was built on the artful, attention-compelling mix of gorgeous photographs, colorful layout, and text. Who wants Vogue in black and white? Or even Sports Illustrated? Advertisers weren’t going to like it as ads would look terrible. Even the resolution of the digital letters was worse than print in a magazine. No one was going to be able to relax with a version of their favorite magazine that gave them eyestrain.

And who wants a separate device just for magazines? Were we now expected to carry a phone, a book e-reader, and a magazine e-reader? Wasn’t what consumers wanted more functions on fewer devices, not the other way around? The whole project made Lagani picture a group of horse-and-buggy drivers standing around, wishing to break into the automobile business, but not yet understanding how their world had changed or what business they were trying to be in. If you strap an engine on a horse, you still don’t have a car.

Our conversation reminded me of the famous story about the railroad industry at the time that cars were first being mass-produced. As businesspeople often say, the industry’s big mistake—and the reason that car companies replaced the railroad industry as the main source of transportation in the United States—was that the railroad barons didn’t realize that they were not in the railroad business, they were in the transportation business. It’s an important story, I think, because those railroad barons didn’t do anything wrong—at least, not in the beginning. They had built up the railroad business, they were great at it, and they kept on doing it. What they didn’t realize was that the world was changing around them. And as it changed, what they had provided so successfully lost its relevance to their customers.

Today, that’s happening to all of us. Ultimately, every business moving through the C-scape is going to look around and realize we’re not in Kansas anymore. In all of our travels, we’ve never seen any place that looks like where we are now—and it’s still changing. Every business must ask itself what business it’s in, and whether its traditional idea of how to be in that business (building railroads) is still relevant to what its customers actually want (convenient transportation).

But you can’t solve a problem before you know what the problem is—otherwise, you’ll just wind up putting engines on horses. The first step is to understand how the world is changing around you—the four C’s that are transforming media, and through media, the world of business. Let’s look at the factors that shape the C-scape.

1
THE FIRST FACTOR
CONSUMERS CHOOSE

Imagine you hear a song for the first time. You like it—so much, in fact, that you want to hear it again. So you go online, download it to whatever device suits you, take the song with you, listen wherever and whenever, as often as you like—and, perhaps most important, none of this seems surprising or unusual. That is the experience of consumer choice that many now take for granted. But while we may be comfortable with the speed, convenience, and freedom of choice afforded by new-media technologies, we often forget how revolutionary this is. Until recently, consumers’ relationship to media was defined by the opposite of choice: passive waiting, inconvenience, and acceptance of whatever was offered. Not so long ago, if a new song was played on the radio and you wanted to hear it again, your only option was to sit by that radio and hope. New songs were provided to radio stations before their official release date to build excitement, so you couldn’t buy them right away even if you wanted to; you might telephone the station and ask them to play it again, but the choice was theirs. Similarly, if you missed your favorite television program, you had to wait months until reruns were broadcast. Sometimes, the waiting and the planning required of consumers built anticipation, but more often, the experience was just frustrating. The power was in the hands of the media, and what they offered came on a take-it-or-leave-it basis. As at a concert, a play, or a sports event, you had only two choices: stay or go.

Actually, most of the new media forms of the twentieth century were even more one-sided than what had come before them. At least at a live performance, though you had no say about where or when it took place, you could make yourself heard. Live audiences could shout their feelings. If they lost patience and got up to leave, people noticed. They could demand an encore or wait afterward for the performers; they could talk to one another after the event ended. The oldest forms of entertainment and information—plays in an open amphitheater, games in the Coliseum, a town crier’s announcements—provided plenty of “social networking.” From that point of view, television and radio and the darkened movie theater were steps backward, non-interactive and isolating. As in the old Irving Berlin song, the consumer of much twentieth-century media was left “all alone by the telephone.”

Now we’re forgetting the old, dependent relationship of consumers on media providers, just as we’re forgetting what used to be involved in research before the days of “search” on the web. Some leading-edge undergraduate libraries, including the University of Texas at Austin, contain no books (though other libraries on campus still exist). The prep school Cushing Academy in New England has no library books at all, only e-readers. Library space is now used for “virtual learning environments” where students conduct multimedia research, rows of desks have access to electrical outlets for laptops, and study groups can meet for face-to-face “interactivity.” Books still considered relevant have been moved to other libraries on campus. (In the film All the President’s Men, there is an unforgettable scene where the journalists working on the story of the Watergate scandal search through thousands of slips of paper in the Library of Congress. Would a young audience today even know what the journalists are doing?)

POWER SHIFTS TO THE CONSUMER

This shift began not in the 1990s, with the widespread use of the personal computer or the Internet, but in 1950, with the introduction of a game-changing technology, one that would revolutionize how every business was conducted and touch all of our lives—the remote control. To be honest, it wasn’t impressive at first. A small box connected by a bulky cable to your television, it incorporated no cutting-edge technology. The basic design came from the German military, which had used it to control motorboats. The first civilian use was in garage-door openers. It had only two buttons, one for “up” and one for “down,” yet while it doesn’t seem like much today, this first remote control did something new and crucial when it was hooked up to a television. It gave viewers a new choice, one with enormous implications for the future.

Until then, if you were sitting in your chair watching television and you wanted to change the channel, you had to climb out of the chair, walk across the room, and turn the channel by hand. To browse through available shows, you either had to make multiple trips back and forth across the room, or you had to stand up beside the television while you scanned the different shows. All the inertia of fatigue, habit, and laziness pushed for watching whichever channel happened to be on. The networks designed their shows with that inertia in mind: their goal was to make shows that were inoffensive—not great shows, just shows not bad enough to drive you away. It was as if the networks followed a kind of psychological version of Newton’s second law of thermodynamics: objects at rest tend to stay at rest, especially if they’ve just had a long workday and have finally gotten comfortable sitting down. So secure were that era’s network executives that they had no direct contact with their audience at all. They left the minor problem of the audience and its preferences to the local broadcast stations, confident that viewers would behave as expected—after all, the viewers didn’t have much choice.

Then, in 1950, the Zenith Radio Corporation introduced the “Lazy Bone” remote control, and the old balance of power between producers and consumers—or, perhaps, the balance of laziness—began to shift. Now a viewer could change channels without getting up; people began to change the channel. However, the cultural landslide did not start overnight. Consumers didn’t like that cable running across their floor. They tended to trip over it. Adoption of the Lazy Bone was slow. So Zenith developed the “Flash-matic,” the first wireless remote, which required the viewer to shine a flashlight (the remote) at one of four photocells at the corners of the TV screen. Each corner controlled a different function. With the Flash-matic, there was no more danger of remote-control-related injury, but on sunny days the television sometimes changed channels at random or switched itself on and off.

Next came the “Space Command” remote control, in 1956, which used ultrasound waves to solve the technical problems of earlier versions. It was far more reliable but also more expensive: the six extra vacuum tubes required in a Space Command television raised its price by almost a third. So although ultrasound technology set the standard for the next thirty years of remote controls, what we now call channel surfing remained a luxury of the wealthy until the 1960s, when transistors replaced vacuum tubes and brought down prices for most electronics. At that point, with both convenience and price within reach, more than 9 million television-watching households bought transistor-based remote controls. The era of media choice began.

How much difference did that remote make? Over time, it became clear to the network executives that producing an inoffensive show was not good enough. Now, instead of committing to one channel, often for the night, viewers could move around, making one network’s show the top program at seven o’clock and another network’s show the winner at eight. The networks were now motivated to make shows exciting enough to poach viewers from rival channels.

Not only did consumers now have an easier time making choices, but the nature of these choices changed as they gained more influence. To a small degree, they began to share in the decisions of the producer. The “technological convergence” of the armchair and the television by means of the remote control not only brought a greater variety of programming into the home, it brought a degree of respect and attention along with it. Producers had to place themselves a little more at the level of consumers, asking: Who are they? What would they like? It was a slight leveling of a still-very-uneven playing field—an unhappy viewer in the 1960s got a lot more response by yelling at actors on a stage than by angrily switching channels—but it was a start.

Further innovations brought new choices for consumers—changes not only in the number of choices available but in the nature of those choices, and the balance of power that defined the relationship between consumers and producers of television shifted again. In 1976, the video cassette recorder was introduced, first the Betamax format and then the more successful VHS cassette. For the first time, powers that had been the sole preserve of the television networks—the power to own a copy of a program and thus the power to decide when and how often it would be shown—were also in consumers’ hands. The fast-forward button made it possible to speed through television advertisements. The video rental store gave consumers a selection of programming not controlled by the networks, and the camcorder made it possible to create one’s own programming at home. These developments are well known, but even those who lived through them were not aware of the underlying existential convergence: how the producers and the consumers of video were becoming not just more equal in power but more similar to each other. The video generation found it far easier than before to learn and participate in the basic skills of moviemaking; the yawning gap between film professionals and amateurs continued to close. And then in 1999, digital video cameras and Apple’s iMovie editing software made it possible to create a professional-quality digital movie or music video at home.

Again, though, the technology took time to mature. Video cassette recorders were hard to use; if you didn’t program the clock correctly or if a power outage erased the setting, the clock readout would flash on and off. All over the world VCRs flashed the wrong time all day and night. One study at Yale University found that only 42 percent of adults presented with a VCR and a manual could follow the instructions successfully; many people won’t read a manual at all. Within the industry, it was accepted that as many as 80 percent of VCR owners couldn’t program their VCRs to record and only used them to play. Older viewers often asked their children to handle the awkward technology for them. It was a skill that required not only a little technical knowledge, but also some patience and some ongoing attention to schedules. As a result, many fewer shows were recorded than was technologically possible. I remember in the early days of the VCR I knew one person who set his machine to tape Late Night with David Letterman after he went to bed, so he could watch it over breakfast the next morning. Out of all my friends, he was the only one with the interest and the dedication to do that every night.

More signs of a dramatic shift in power were clear in 1980, when pay television was introduced with the arrival of cable service. Once again, consumers discovered not just new choices of what to watch but new choices in their relationship with television producers. The interruptions of programs by sponsor advertisements, which had been obligatory, became optional: if you preferred, you could choose to pay a monthly bill. The content restrictions on language and sexual situations also became optional because no government license was required for cable broadcast, as opposed to broadcast over the airwaves.

One marker of the deeper changes under way in the relationship of consumer to producer was the way these new television networks named themselves. The traditional networks had given themselves names that showcased their size and power. ABC: American Broadcast Company. NBC: National Broadcast Company. By contrast, the new cable stations organized and named themselves in terms of the consumer they intended to serve: CNN, the Cable News Network, offered news whenever you wanted it. ESPN, the Entertainment and Sports Programming Network, offered twenty-four-hour sports. HBO, Home Box Office, was a round-the-clock movie box office in your home. None of these channels gave you exactly the show you wanted, but they could promise a show in the right category at any time of day or night.

The true extent of these changes started to become clearer with the introduction of digital video recorders such as TiVo in 2000. With digital video recording devices, it was not only possible, with effort, to refuse many of the remaining obligations of the ordinary viewer—to watch shows on the networks’ schedule, to watch the advertisements—it was easy. Viewers could program the shows they wanted in their own order and catch up at their own pace if they fell behind—which meant that they could feel relaxed about postponing almost any show. Some viewers entirely gave up watching shows at the time they were scheduled, and although this threw the networks’ relationships with their sponsors into chaos, it went on. Our relationship to television, now far from one of dependence and powerlessness, had become more like the relationship to a butler: it comes when we call and it brings us what we want, when we want it. Also like a butler, TiVo could “suggest” shows by highlighting other programming in the same category as a show you watched previously.

These shifts from dependence to choice have formed a new set of expectations whose effects continue to mushroom, effects no business can ignore. To retain consumer loyalty, businesses must respect that consumers now both have and expect:

• More choices in every category, accessed more easily. Computers and smartphones have shifted the balance of laziness in the relationship between customers and the businesses they patronize, becoming the “remote controls” that provide the choice to buy products and services at the touch of a button. It used to be an advantage to be the local retailer, but now, as not just book stores and music stores, but hardware, drug, grocery stores, and others have learned, local is anywhere that delivers.

• More kinds of choices. Consumers expect increasing choice not just about when and how their content is delivered, but in an increasing variety of features. ...