The David versus Goliath battle faced by Australian creative industries and what they might do to win (Part 2: Old vs New Paradigm)

In this section, we look at the impact of the digital disruption and implications it has for the creative sectors.

This is the second of a series of blogposts examining ramifications of the small size of most Australia creative businesses and exploring strategies for resolving issues raised here.

In the previous blog, we explored:

Part 1: We’re Tiny. The tiny size of Australian creative industries

In future blogs, we will look at:

Part 3: New media models for harnessing the Internet to create scale for creatives

Part 4: Australian creative economy needs, especially those in the arts and cultural sector

Part 5: How a new media model solution might look in the arts and cultural sector

Part 2: Old vs New Paradigm

The advent of the Internet saw a paradigm shift in media that the World economy is still working through.  Broadly known as ‘Disruption’, we went from a world of content scarcity (Anyone remember having only one TV channel in Wollongong?), and difficulty in distribution (e.g. newsagents and video rental stores), to almost the opposite.

Media: The Canary in the Coalmine of Disruption

To begin with, we will look to the world of media, because these are the industries that were first to feel the effects of disruption caused by the Internet.  Consequently, many of these industries have had more time to develop responses to the new paradigm – or even more interestingly – have started their business model with the Internet in mind – so-called ‘digital natives’.

We argue these ‘new media’ businesses are better designed to leverage the strengths and minimize the weaknesses of the digital disruption.  These developments in the media industry have ramifications for our later discussion considering many artists and creatives receive most of their income either employed by the media industries, or ‘embedded’ in other industries employing new media techniques.

The sector saw a 'hollowing' out of the middle tier

The sector saw a 'hollowing' out of the middle tier

Diagram 1(above): Old vs New Paradigm. The sector saw a ‘hollowing’ out of the middle tier.

Many media forms saw a ‘hollowing out’ of the ecosystem, e.g. print publishing saw national newspapers (e.g. Fairfax Media) eroded by a handful of larger international papers (e.g. NYT, Guardian) and new paradigm media outlets (e.g. Buzzfeed) towards the top. Broadcast television saw plummeting profits in the commercial networks leading to the acquisition of Network Ten by a large, foreign media company, CBS. Computer games saw ‘mid-sized’ firms like local companies Blue Tongue and Team Bondi displaced by only the very large content aggregators such as Zynga, Steam or ‘AAA’ developers such as Rockstar Games (e.g. Grand Theft Auto), and replaced by smaller games companies who had success in the new paradigm such as local firms Hipster Whale (Crossy Road) and Half Brick (Fruit Ninja) with much lower production-value games.

Differences in the impact of disruption upon different creative sectors

It is important to acknowledge that each of the media industries has experienced disruption in slightly different ways.  The recording industry experienced years of eroding revenues before recently having renewed success with the subscription model e.g. Spotify and Apple iTunes.  Likewise, the book publishing industry were successful in litigating, with the result being that the aggregator, Amazon, maintains high prices for digital books.  Interestingly, Amazon still wins from this, as it is the main aggregator for books.  Where it loses is that it is more restricted in accelerating the popularity of books in digital form.

In both cases, the respective ‘old paradigm’ media powers were able to successfully leverage intellectual property (IP) laws.  This is not surprising as IP laws came about to protect powerful interests that were wealthy enough to own the production (or the means of putting things into 'producible form') e.g. Emperors of China – China had invented the printing press prior to the 8thcentury CE and quickly saw imperial decrees similar to modern copyright laws; and later in the West, industrialists who had sufficient capital to invest in printing machinery.

Changes to the Screen Sector

For the purposes of this series, we will focus upon the screen sector due to its interesting parallels to the arts and cultural sector in Australia.

In screen, we’ve seen the top filled by aggregators such as Netflix, YouTube and ‘orthogonal’ businesses such as Facebook and Amazon. At the bottom end of the content production spectrum we see individual YouTubers posting millions of hours of content a month – frequently people sitting in front of their ‘face-cam’ on their desktop computer at home or shooting from their mobile phone.

At the ‘bottom end’ of content, where production values are cheap and barriers to entry are low, the viewer is now inundated with so much content, the power has shifted. No longer is it with the distributor – e.g. the broadcast networks, newspaper publishers and their newsagents - the power now actually goes to the organisation that can sift through all the content and find relevant content to the viewer’s tastes – e.g. Google/YouTube search, the App Store (arguably a ‘platform’), Facebook. The new ‘large’ players are the aggregators – by aggregating content, they become desirable to the audience/consumer, in turn becoming more desirable to the content creator who then places more content on the aggregator, the audience turns to the aggregator ‘where all the content is’, and so on and so on, in a ‘flywheel’ effect dubbed ‘Aggregation’ (sometimes known as ‘the network effect’).

Content scarcity now only exists in the screen sector at the top end of production values and quality, like Game of Thrones, House of Cards, etc where the makers of the content can be ensured there are restrictions to distribution. In this context, large content providers like Disney and HBO are similar to large book publishers in the old paradigm and new paradigm ‘aggregators’ like Netflix analogous to Amazon's book store.

One should note too that the screen content has to be so compelling the audience is willing to pay a price for access to it, for example, by subscribing to a Subscription Video on-demand service (SVOD).

It is interesting to note that Disney – formerly a content maker and ‘old world’ distributor (to cinemas, TV etc) - has recently decided to ‘pivot’ from being a content creator to moving up the supply chain to becoming a content aggregator.  Disney’s CEO Bob Iger recently flagged they are to start a subscription video service in 2019.

In the next part (Part 3) of our series, we examine what is happening in the screen sector at the bottom end of content production with a view to drawing insights that may inform Australian creative industries who have similar economic properties of being small in scale.