Network Insight Institute

Prof. Duane Varan

Professor Duane Varan, ITV Research Centre, Murdoch University

This space is fascinating, and the great tragedy is that we know next to nothing about the media. We have all kinds of dramatic assumptions about what it will and won’t do, most of which are not actually tested on people. A lot of the research that we have done on people is descriptive research which tells us what people do. But that is transient, it’s a moving target. What they do today is going to be very different to what they do tomorrow. What we need is analytical research that helps us understand why people do the things they do. And that unfortunately is missing.

What I am going to talk about today though is business and public policy. Both of those are day-long themes. First, real quick, whenever we are talking about new media, the fallacy is that new media don’t displace old media. Television came along and people still have radio, and they still go to the movies.

That is true for the medium itself, but it is not true for the business model. Business models undergo radical change. With the introduction of television, the cinema industry was thrown into a spell which took it almost 30 years to recover. Radio had to completely reinvent itself, moving from broadcasting to narrowcasting, moving from having these live radio broadcasts where people dressed up in tuxedos in expensive hotel lobbies to having a disc jockey in some closet spinning records. So the business model underwent radical change, and it is likely that we are going to see radical change over the course of the next decade as well. Not tomorrow, but certainly over the course of the decade.

So much of this is actually about a fundamental paradigm shift. It is not about small changes that are occurring. It is about some very, very significant fundamentals to what the medium is, how it works, the audiences, and how audiences will ultimately embrace it. Clearly not everything about the medium is going to change. People will still watch West Wing, and when they watch West Wing they will not want the suspension of their disbelief violated. But at the same time there will be new genres which will emerge, as we are already seeing in the works, which will have very high degrees of viewer involvement. There will be many degrees in between. So people will be sitting down passively during West Wing, the remote control will be on the coffee table during the news, and when they see an interesting story they’ll click, and when they’re playing Who wants to be a Millionaire? they’ll be at the edge of their seat the whole experience through.

Looking at business strategies, we need to understand a couple of fundamentals:

1. Traditional television – and this is really controversial, so don’t throw tomatoes at me – is really under threat. Traditional television does not have a good future, and when you look at a lot of the fundamentals you see why. Firstly, audiences are fragmented. Their market in traditional terms is getting smaller.
2. The medium is becoming increasingly ambient. People are doing more and more other things while they watch television, rather than focusing their attention on the screen. Viewers are increasingly taking control over that viewing experience. For example, in 2000 72 per cent of people who use their VCRs to zap through the ads. This compares to only 54 per cent in 1990, and I think it was about 65 per cent in 1995.

In addition, the costs are going up. The cost for programme acquisition, particularly for premium content, is actually on the rise. We are also seeing a multiplication of conduits. There was great research done in 1980’s in the classic cable era in the United States, which looked at what the economic impact was of the multiplication of conduits. And when you play that scenario out over the course of the decade, what you see is that exposure, the current engine of television, becomes commoditised. Once exposure is commoditised the basis from which you make your profits is seriously compromised.

So the entire industry that we know, particularly as we look into the future, has a lot of challenges to confront. Undoubtedly they will do this quite well, but nonetheless.

There is a need for government to help stimulate industry. This is where the UK has it right and where we have it wrong. In the UK the government has light touch regulation of industry, and heavy touch on social policy. When you look at what is happening in the UK, they have a very interesting debate, very interesting discourse, around issues like product placement, and how they are going to manage that in a digital future.

In contrast we have zero public policy debate, and extensive debate on how we are going to manage competition and manage the industry. So I believe we have the relationship exactly opposite to the right formula. We need to stimulate industry, with light touch regulation, but strong national broadcasters, and strong support for those who can pioneer and innovate, free from the commercial pressures that broadcasters face. This is what we are seeing with the BBC in the UK.

With social policy what we need to recognise, first of all, is that regulation in this space is good. It is this regulation which gives us the greatest single asset we have in interactive TV space: the viewer’s trust of the medium. The one thing which stands out about iTV compared to other digital appliances is that this is the medium which commands viewer confidence. Two per cent of viewers in the UK have a fear of security when doing business in this space, while 87 per cent of Australians don’t trust doing business over the Internet. In the UK this is in part because they feel protected by the government, and also because they know who they are doing business with.

All the rationales for government policy are being challenged. For example the notion that we can regulate different media differently falls apart. The old remedies which we had no longer work in the new space. We have to re-examine what the new public interests really are, and here are a whole set of new issues also emerge.

Click here to view Duane Varan's powerpoint presentation.

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