Last week I attended one of the best events I ever went to in years. Indeed, I was fortunate to be invited to lecture at IPADE in Mexico City. IPADE is a business school that was founded in 1967 in the city of Mexico. Since its early days IPADE has developed many fine programs including an MBA for young executives and an Executive MBA (MEDEX). IPADE has reached top positions in many rankings (see for instance MB_05_Scoreboard.pdf ). It has now three campuses in Mexico City, in Guadalajara and in Monterrey.
The one thing that struck me most is IPADE's passion for details. Indeed, as the saying goes, God (sometimes the Devil) lies in the details. Any businessman knows, often by (painful) experience, that details are the source of many successes and failures. If by any chance you're in Mexico City, visit IPADE's campus, you'll see what it takes to care for details.
IPADE has run for some years now an interesting program called the MEDEX International Week. This program bring together (roughly 500) lecturers, professors and participants from IPADE and other business schools worldwide where the Executive MBA programs are being taught in order to share in a unique international event at IPADE´s main campus. This year the topic was devoted to the Mass Media and their social and economic impact.
The program included fine speakers such as Christopher Crommett (SVP, CNN en Espanol), Prasanto Kumar Roy (President and Chief Editor, Cybermedia Publications), Professor Doktor Arno Müller (FHNordAkademie) and many others.
I gave several lectures around the same topic entitled "Who's afraid of the Big Bad Wolf?: Internet and the Content Industry in the New (?) Economy" (presentation is here IPADE_Lecture.pdf ).
The main line of the talk is that we have gone from a perspiration economy (The robbing barons, the gilded age) to an inspiration economy (based on ideas and a cost structure where the marginal cost of production lies below the average cost). This has tremendous implications for those I call the media robbing barons (the content industry). In a sense, the robbing barons of the late nineteenth century / early twentieth century controlled capital and assets and you had to perspire for them.
Then came the financial revolution (easy access to capital, venture capital, private equity) and talent was freed from the robbing barons. Talent could go on its own. What happens to the media mogul (the media robbing barons) these days has the same flavor. Users (the We the Media of Dan Gillmor) have been empowered by a formidable technological revolution (backed by the financial revolution) including infrastructure (bandwidth, fiber optic etc...), hardware (iPod, computers, digital cameras, mp3 players...) and software (blogs, RSS, XML, Linux etc...).
This has far-reaching consequences on the way we want to consume content. Media moguls want the business landscape to remain vertical even if its now digital: top-down, they produce what we consume. Moreover they fight big time to retain control for as long as possible ("copyright") of the content they distribute. "We the media" view things differently. We beg to differ as the Napster kids have shown. Our view is more horizontal and predicated on network effects.
Hence our demand for (digital) content has become a lot more elastic to price than the media moguls usually think it is. Why? Because we have the option to go for free: Pay nothing. Yes it is illegal. But think of the Prohibition in the US: When alcohol was prohibited (infinite price), guess what people did, they produced it themselves! When it became legal again at normal prices, nobody bothered to produce alcohol on his own.
Same here. And, that's why the content industry has to be creative and listen to its customers. It has the economic means for it: Indeed, with digital content, it saves on a lot of (distribution, storage...) costs. This money can be reinvested in new offerings that grow the pie instead of spending it on lawyers' fees to defend and control the current pie.
Steve Jobs has paved the way with iTunes. So does Yahoo with its latest Yahoo Unlimited. What is worrying though is that the old demons are not slayed yet. Indeed, the music industry is putting pressure on Jobs to increase iTunes per download price.
Again the content industry seems to ignore the economics of its current demand curve: To put it in Jobs' words:
"We're trying to compete with piracy, we're trying to pull people away from piracy and say you can buy these songs legally for a fair price'.
"But if the price goes up a lot, they'll go back to piracy. Then everybody loses."
The digital economy is not a Terra Incognita. It is for those who focus on their current slice of the pie only. It is not for those whose aim is to grow the pie. No wonder IPADE has picked this topic of Media and Content for this year International week. This is indeed what you would expect from a fine school that teaches its students to grow the pie!