09:02 AM

Silicon Valley's Media Industry Is Winning While The East Coast's Is Shrinking

...and the use of cutting edge technologies isn't helping them.

GigaOM, the San Francisco based tech news publisher, announced it has acquired ContentNext, the publisher of the media industry trade publication, paidContent, from the UK's Guardian Media Group.

Om Malik, founder of GigaOm, wrote about what this means to the company:

In his post Why we are buying paidContent he writes that the deal will create GigaOM East a ready-made entry into New York City, his "spiritual home," and Europe.

Over the past few years we have started to see the transformation of media by new technologies, new methods of distribution and newer ways to consume information.... and now we are going to double down on what we think is a great new chapter in the media industry.


New York is fast becoming a major technology hub... And we want to expand our coverage to Boston... and the Washington DC corridor as well.

paidContent's New York City offices are now GigaOM East.

He writes that "Media is the new Wild West."

Foremski's Take: I'd like to congratulate Om, who I've known for many years, on this acquisition, and I agree with him about media being the new "Wild West."

But the "Wild West" remains in the West.

Our media industry here in N.California is growing by leaps and bounds, but the media companies of the East coast, are not.

It's sobering to note that the seller of ContentNext is the publisher of The Guardian Newspaper. This is a business that has been much praised for its early and aggressive moves into online media. The newspaper's web site is the second most popular in the UK.

Yet the Guardian Media Group (GMG) is struggling and has been forced to make deep cost cuts year after year.

Andrew Miller, CEO of GMG, speaking in August, 2011, said:

"The year under review was one of huge journalistic success. The Guardian achieved record audiences, it was named Newspaper of the Year at the British Press Awards, the partnership with Wikileaks produced one of the greatest scoops in living memory, and the shockwaves triggered by the dogged pursuit of the phone-hacking scandal will be felt for generations to come."

"However, the entire media industry faces serious challenges. The Guardian has been at the forefront of innovation in our sector, but the task of reflecting editorial and brand success in a sustainable financial model for the digital age is a demanding one."

Mr Miller's comments capture the upside-down world of media executives everywhere: How is it that a media business can score record readership, and garner top industry awards, yet by the measure of its revenues it is failing... and is flailing in its efforts to find a way to couple one metric to the other.

Even if you "get it" there's no guarantee you can "make it."

And that's true for the East coast media companies, no matter how well they understand or use technology, they will continue to flounder and shrink while our media companies: Google, Twitter, Facebook, Craigslist, and hundreds of small startups, such as Flipboard, will grow and prosper.

The reason is: content. The key differentiator between the new and old media is the cost of that fundamental raw material that is necessary to every media company: content. If you have to pay for creating original content you are at a severe competitive disadvantage. If you can get it for (nearly) free you are golden.

A small media startup such as Flipboard, with less than 40 people and less than two years old, has a private valuation comparable with The McClatchy Company ($MNI), the 152 year old publisher of 22 newspapers, with 7,700 staff and $1.2 billion in annual revenues.

East coast media companies pay to produce their content, our media companies don't. Yes, they sometimes make a tiny bit of their own content, and license some, but the majority is free. It is copied via the Internet.

- Google sends out software agents that copy every web site they can find, for compilation of its search index.

- Facebook publishes a huge variety of content gifted by its users in a royalty-free license.

- Flipboard publishes news, magazine articles, and other content, scrapped from other sites.

- Craigslist makes a fortune by publishing free content created by its users.

On, and on, ... it's easy to see what the Silicon Valley media business model looks like: use technology and your users, to harvest and publish content for free.

How can traditional media companies compete against this model? They can't and that's reflected in the disparity in valuations -- investors reward media companies that don't have to pay for content and they punish those that do with low valuations.

Which brings me to my point: the Internet is a disruptive media technology. Disruptive technologies disrupt. They disrupt even if you see the slow-motion train wreck ahead on the tracks.

Disruptive technologies are not called disruptive for effect, or as an edgy term to attract attention. Disruptive technologies disrupt entire industries, and in this case, they are disrupting media companies. Even relatively new media companies, GigaOM included, are not safe.

There's plenty of disruption still ahead, we are far from done.

The media is dying, long live the media! We have more media today in more formats, types, time of day, than ever before. How will it change us?

We know media does change us, because we see it in the multi-billion dollar marketing campaigns of corporations, we see it in the laws that restrict and regulate the media industry; and we see it in the effect it has on our thinking about key issues, the way it changes our health practices, diet, how we see things, and how we vote.

Our media is the single largest mechanism for change in our society.

Computer pioneer Ted Nelson said this decades ago:

"As fish swim in water we live in media."

And now we have more of it than at any other time in human history! How will it change us?!

That's what interests me.

I wish Om and his team great success but I would counsel him to limit his focus on his "spiritual home." An occasional pilgrimage is more than enough.

The media story is not back East, or parts East of there, in Europe. The story about the future of the global media industry is being written here.