The threat of being disrupted by a couple of young technology entrepreneurs with a smart idea has long been something that keeps leaders of established industries awake at night. But what happens when those geeks from the garage have the power and wealth of the world’s most powerful companies at their disposal — and they are moving with the pace of a runaway freight train?
That is what the media industry is now facing. Most companies are manoeuvring uneasily, trying to find ways to co-operate with the digital platforms that are coming to dominate their world. But to judge by the discussion at events like the Financial Times’ digital media conference, held in London earlier this week, the challenges of adapting to the new world are only getting harder.
It fell to Adam Bird, a partner at consultants McKinsey, to deliver the wake-up call about how far the threat has shifted. As he put it: the disrupters are now operating at massive scale. The media industry had been used to operating in very localised markets in Europe, but it now suddenly finds itself dwarfed by global-scale digital platforms that are expanding globally from the US and, soon, China.
The sheer size is daunting. Revenues at Apple, Google and Facebook — the three tech companies that have had the most direct impact on the media industry — jumped to $326bn last year, from under $100bn five years ago. Add in Amazon and Microsoft, and the total comes to more than half a trillion dollars. In market capitalisation terms, those same companies have seen their worth balloon from $800bn to $2.2tn. Even a phenomenally successful company such as Walt Disney is now worth barely half of Facebook. With that kind of wealth, the new competitors are not only starting to shape markets, but are also creating entirely new ones. Google and Facebook, for instance, account for about a third of all time spent on smartphones and are sucking up all the growth in the digital advertising business between them.
But it isn’t just the size that gives the huge tech companies influence. They have also built systems for innovating at a scale that most other companies can only dream of. Caught in a race with each other to invent the next big thing, they are bent on a level of experimentation that the media industry has not had to deal with before. Facebook gave a graphic display of this new age of ambition earlier this week at F8, its annual developer conference in San Francisco. This was a company out to show that it is firing on all cylinders, with new developments on all fronts.
New initiatives shown off at the event included Facebook’s latest infatuation, live video. By dangling the chance of appearing at the top of its news feed, Facebook was effectively issuing a demand to the media world to produce. There was also a 360 degree camera, to encourage the creation of more of the kind of content that will be suited to virtual reality headsets; Facebook also extended Instant Articles, its mobile news format, to a wider range of companies, including some outside the media business, and invited other companies to plug their “bots”, or intelligent agents, into its Messenger chat app.
For media companies, the challenge from all this is twofold. One is to find ways to navigate all the new platforms to reach an audience that no longer comes to them direct. Engaging audiences in the world of Instagram, for instance, will be different from wooing them on Snapchat. Speaking at the FT event, David Pemsel, new Guardian chief executive, summed up the prevailing view. Media companies may be wary of dealing with these powerful new distributors, he said, but they have no choice.
The other challenge might be summed up as “innovation exhaustion”. How many companies have the ability to move fast enough — let alone find the resources — to keep up with all these new digital platforms? Virtual reality is a case in point. Facebook and Google can afford to view their current spending as a downpayment on their long-term futures. Most media companies, with shorter horizons for making a return, have to make harder choices about where they are going to place their bets.
The media industry once talked about the “transition to digital” as though it was a one-off shift: there might have been some false starts, but they would get there in the end. The transformation turns out to demand constant reinvention.