24 April 2008

Microsoft's general manager for Media & Entertainment talks about the importance of content partnerships in the media industry.

There has always been a degree of tension in the media industry between creative types and ‘suits.’ The recent Hollywood writers’ strike — now thankfully resolved — shows that there remains a cultural difference between people and organisations that create content and those responsible for getting it onto our screens. But the switch from traditional media channels to the new, converged media in which users want to consume the content they want, on the device they want, when they want, puts this tension right at the front of media companies’ priority list.

Kathy Styponias, Microsoft’s general manager for Media & Entertainment, is better aware of these issues than most. After 12 years as an analyst of the media sector for Prudential Securities, Styponias last year jumped across from observer to facilitator when she joined the software giant. Leading a team that is focused on acquiring content for Microsoft’s range of digital media services, including Xbox LIVE and Zune, and more generally, on deepening the company’s relationship with its content provider partners, Styponias says that media owners and content creators need to become more focused on each others’ needs.

“I do think that the relationships between content owners and digital media owners and distributors are going to become closer and will have to be more collaborative,” she explains. “In many ways, the relationship has always been symbiotic, because distributors have nothing to sell without content, and content providers need an outlet for their work. But it’s true that as distribution changes then content must change too, and that requires closer partnerships. Digital media owners bring the ability to make magic happen on several different platforms, like Microsoft has. Others’ core competence is to make content that’s desired by competitors. We all have to realise what our core competencies are and be prepared to work more closely with those whose competencies complement our own. Broadcasting is truly distribution, but people now think of it as a hybrid, as compared to cable or satellite, and there are certain types of companies, Microsoft being a good example, that are engaging with content companies far more deeply than in the past.”

Styponias says that, from a content perspective, the key movement is the ability, indeed requirement, to provide tailored content that deepens the bond between provider and consumer. “What’s changing is the ability to get closer to the consumer,” she says. “Look at broadcasting — it was and is a fantastic way to reach mass audience, but broadcasters’ ability to understand viewers and their individual buying habits is not strong. In the digital media world, we can get much closer to consumers, and learn more about their needs and desires. So we need to be sharing the information and data that’s gathered on consumers to give us a greater ability to get more information about what the customer may or may not want. Take Xbox LIVE Marketplace. That’s a thriving marketplace for us, and we share the data it produces with our content partners, which helps us understand what content we should be providing. If you take the traditional media world, this doesn’t happen to the same degree. I don’t know that Comcast, for example, gets to tell Disney how to program its channels.”

Microsoft, though a relative newcomer to the role of media owner, is rapidly building a strong set of properties. What does the company offer content partners that other media companies don’t? Styponias says it’s fairly straightforward, and connects in to the company’s own core competency. “The key thing is technology,” she explains. “Software is our foundation, and as you look at how the media world is evolving, the way that value is being added is shifting towards technical expertise. We know how to build great platforms. But on the flipside of that, we’re very well aware of what other people do best, and we are very open to partnering with other organisations that can do things we can’t.”

This openness is a powerful advantage in the competitive world of content provision. Technology platforms, and, nowadays at least, distribution capacity, are scalable in a way that creative skills are not. This means that, for content providers who have great people, and thus great material to sell, the opportunities of the new digital media world are literally endless. There is fierce competition between distributors to secure access to the top content providers’ work. “If we’re talking about new distribution platforms, I would say that the balance of power lies with the content provider,” says Styponias. “They see opportunities to partner with these new platforms and develop their businesses in different ways. Since late 2005, we’ve seen a lot of experimentation going on. The watershed was Disney’s deal with Apple — that was the first real experimentation of size and note between two powerful players.

"But there will always be a degree of culture clash. A content company is ultimately a creative company, whereas a distribution company has its core competencies in technology and engineering. The common language is business. Is it worse that in years past? I don’t know, but part of the role of my group is to ease that culture clash, and we have some pretty significant experience working with or for media companies. We know and understand their opportunities and challenges and we try to figure out which areas we want to play in. When I joined Microsoft, one of the things I was concerned about is that I’m not an engineer and I don’t have technology expertise. But people here truly respect and value expertise, whether that’s technology or in industry, and they’ve been really receptive about what I have to say.”

For content providers, engaging more deeply with distribution companies is the way forward, but Styponias is aware that exclusive deals may not be in the best interest of her partners. “It’s a fairly open marketplace,” she explains. “From a content provider’s perspective, making content exclusive on a particular distribution platform is not the way to maximise revenue and profit. In ad terms, eyeballs mean dollars. But as the partnerships get closer, understanding those eyeballs is important, and you might choose to tie yourself to a smaller number of distribution options, because it’s only then that you can start to work more closely with your partners and get that understanding of what your consumers want. So I don’t think we will necessarily see a lot of deals that are exclusive per se, but contracts will be tweaked to suit particular circumstances. Larger broadcasters are always going to be able to garner better deals because of the number of eyeballs they can deliver.

“At the moment, there is a lot of experimentation about, people are trying to learn how best to serve consumers. How do you deal with the audience fragmentation that began with the emergence of cable and which has now become even stronger? Previously, if you wanted to reach the whole of the US, you bought an ad on network TV. What’s happening now is that fragmentation is being taken to the Nth degree. You can get very close to individual consumers, but at the same time you have to provide a wider range of content, because consumers want more specific things. That’s a resource that we bring to the table — the ability to monitor eyeballs, to know where to serve up an ad so it’s contextual. It’s an area of opportunity for us. There’s a lot of expertise that content providers bring to the table to make this happen, but so do we. Each has the piece of the jigsaw that’s necessary to achieve overall success. The bulk of the content that people want to watch is still provided by the large media conglomerates. We’ve seen the emergence of user-generated content, but it’s very new, audiences are still relatively small.”

One of the more obvious trends of the entertainment industry in recent years has been the realisation that content creates brands, and that those brands can be deployed across any number of different media platforms. That’s why, for example, when a blockbuster movie is released, we now see the associated video game, spinoff TV shows in some circumstances, and the like. But Styponias says that the consumer has moved beyond the idea of ‘repurposing’ content across those channels, into a world where platform is close to irrelevant. “As time passes, consumers don’t think of it as repurposing content,” she says. “As a consumer, if I buy a piece of content, then I want to be able to consume it on all the different platforms I might use.” The challenge for the industry, therefore, is to find ways of distributing the content people want onto the platforms they want.

“Distribution is really changing as we investigate new forms of distributing content,” says Styponias. “If you use Microsoft as an example, there are a number of businesses we’re involved in — broadband through MSN, and closed systems like Xbox and Xbox LIVE Marketplace. We’re involved in music through Zune and over time I expect it will involve mobile devices too. Advertising is clearly a market we’re heavily involved in, trying to facilitate advertising models that are more efficient than traditional ones have been. We’re providing tools that allow clients to target consumers more effectively. And there are other parts of the value chain like hosting and serving of content on the Internet that are very important. But the base of the whole industry is the consumer. Everything we do is about trying to give consumers a better choice of content on the platform of their choice. If we can achieve that, we’ll succeed.”

This interview first appeared in the March 2008 edition of Microsoft Connections in Communications.

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