As part of our Innovator Series, we were honored to bring to the stage Albhy Galuten, a two-time Grammy award winner, technology enthusiast and strategist with several patents under his name. He is currently the VP of Media Technology Strategy for Sony. The talk covered trends in the music, media and film industries and also offered a peek into Galuten’s vision of the future.
At its peak in 1997, the music industry was worth $45 billion. However, with the rise of the Internet, the music industry quickly fell to $12 billion. The music industries’ most profitable business model was to package an album of songs on a CD which would then be sold in brick and mortar stores. The customer would have to purchase the entire CD, which contained on average about 16 songs, in order to get the one song they wanted. The business model was very successful, however, with the advent of the Internet, people discovered that they could simply burn the contents of the CD onto a computer and then share it, for free, with thousands of people.
Thus began the fall of the music industry. As Talal Shamoon, CEO of Intertrust noted during the talk, “The old business model was like having a good lock on a car, but the new business model allowed users to open every car in the world.” Galuten proposed a solution – he wanted to build a “virtual wall” around music on the Internet in an effort to protect the rights of the music producers and artists. In 1997, he pitched this idea to several producers in Los Angeles and Project Nigel was born. Project Nigel was the first electronic music distribution system, however, it was short lived because the software was out-of-date and difficult to use. Now, over 20 years later, the music industry has made a lot of advances in digital distribution and applications like iTunes, Spotify and Apple Music, which have developed successful solutions that continue to support the music industry.
A similar trend is now being observed in the film and media industry. Old business models are no longer adequate for the next generation of technology and content producers. Earlier, in order to make it big in Hollywood, an individual needed a good idea, an agent, a lawyer, pitching skills, patience and people with a track record and money who believed in your idea. However, today’s generation functions in a very different way – “all you need is an idea, a group of friends to go over the idea and you just tweet about it with the hopes of making some money” as Galuten said. He added that he has been working on a startup, which in essence is a “studio in a box” – it will give people the tools to create theatre quality videos on their mobile phones.
Another trend that has caught on is the use of cloud services. Key elements of film-making, such as editing and rendering, can now be done over the cloud by a simple exchange of files. Digital technologies like these enable the creation of more content with the quality of videos progressively improving, but not the cost of creating content.
Smartphones play a key role in this disruption. Most people, regardless of what they do, have access to a phone which they use to watch content. Over the past four years, smartphone usage by teenagers has increased 85%, and for this audience, smartphones are replacing TVs. The radio industry is being taken over by podcasts, which in Galuten’s words, can be called “on-demand radio.” Cable TV is being replaced by on-demand video services like Netflix, especially with millennials, and would be eradicated if not for the limited bandwidth of the Internet.
On demand services are also changing business models. The new business model’s “holy grail is to create a subscription-based service from which companies can generate recurring revenue,” (Galuten). He also added that people are willing to pay for these services because “convenience trumps cost.” This is why people pay to have two overlapping services like cable TV and Netflix. According to Galuten, 9% of video revenue comes from duplicate content – content that is available on multiple services.
Another trend is the disaggregation of video services. Earlier, people would have to buy bundles of channels – if you wanted Fox, you would also have to pay for Nickelodeon. However, channels like ESPN are now providing their services directly to customers in an effort to adapt to the new business models of the industry. Companies like Amazon, Facebook and Google are trying to reaggregate these services, but Galuten suggested that, in the future, viewers will need a mechanism that uses AI and machine learning in order to create highly specialized bundles based on the viewer’s “watch history.”
The content industry of the past was a solution to the problem that content generators were not on a level playing field. Today, everyone has an equal opportunity. The ability to capture customers has also greatly increased. However, today’s problem, as phrased by Galuten, is “if you have an infinite number of monkeys, you will be able to write all the Shakespeare in the world – we need infinite curators to find the Shakespeare in that noise.” In order to achieve this, viewers, content producers and service providers will have to rely on AI-driven tools to aggregate and pick out content that would interest a particular viewer in order to optimize value. Humans still need social connectedness as we become increasingly socially isolated. Services like theatres where people can come together to watch something collectively are still needed. This is why Galuten thinks that theatres will still be in business in the long run. In his words. “We are at more of a social crisis than a content crisis and more of a curating problem than a creating good content problem.”
The Innovator Series, brought to you by Intertrust Technologies, serves the local Bay Area tech community. These thought-provoking conversations inspire the future of tech while empowering our collective community to engage with one another in an open forum.
About Tanay Gupta
Tanay Gupta is a senior studying Economics and Data Science at University of California, Berkeley. He is currently interning with Intertrust as a Market Research Associate - Intern in the Marketing Team.