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The LMNO space is growing, and people are talking about it.

I am speaking on a panel later this week at Digital Hollywood at the Loews Santa Monica hotel on April 1st called Media at the Edge of the Network: Are Location-based Media Networking Operators the Dark-Horse Media Titans of the Future?

The session will be moderated by Mike McGuire who, with Allen Weiner authors a research series about Darkhorse Media Titans. (Sorry about the secure login thing if you don’t have an account.)

Allen and Mike discussed a few of these reports with me and I was impressed by Allen’s and Mike’s vision for the future of media overall. I highly recommend you buy them if you are interested in an alternate vision of the media company of the future.

I am joining panelists Caelen King of Newbay, and Dan Melinger of Socialight. Newbay is a mobile blogging company, while Socialight is more of a mobile social networking solution. Both Caelen and Dan are extremely articulate and have interestingly different perspectives on the roles of mobility and social media in the broader media landscape.

The session is about the Location-based Media Networking Operator (LMNO) as the business model for the media company of the future. I personally think user-generated content is an opportunity for the incumbent media companies, but I also thought the MP3 format was an opportunity for the music industry. I think this panel will focus on how user-generated content will disrupt the status quo and what kind of transformation the media industry can expect to see. I am not sure of the specific topics, but Mike McGuire is very insightful – I am sure it will be worth attending, so come on down and see us, won’t you?

Also, we are almost done beta testing Rabble, so I will have a handset with a live copy of the application if you want to see it. Just come talk to me before or after the panel on Friday or send me an email to meet at another time.

This story recounts the first time I put Barry Diller on my radar as the Ted Turner of the interactive media world, so I thought it would make an interesting intro. Read the first few paragraphs of this article before continuing: Barry Diller Has No Vision For The Future Of The Internet. I was in the meeting where Barry Diller shut down the entire internet division of Vivendi Universal with the phrase “Goodnight Gracie.” It was June 11th of 2002 and Jean-Marie Messier, (who took to calling himself J2M, so I will too since it is easier to write) then-CEO of then-media (and water and sewage) conglomerate Vivendi Universal (VU) had his quarterly Entertainment Committee meeting in the VU conference room of what had previously been the Seagram’s building in New York. The Entertainment Committee was comprised of the heads of all the various entertainment divisions, who were sitting around the self-congratulatorily large conference table discussing their various businesses. These were big names, all of which you have heard. I remember mentally calculating the total net worth of all of the entertainment executives in the room and it was well into the billions of dollars.

Part of this meeting was dedicated to defending the value of VUnet, the internet division of VU at the time under which J2M had rolled up all of the internet properties including Uproar, Flipside, eMusic and willful copyright infringer MP3.com, the latter acquired by VU for $372mm and also the vehicle I rode into the VU fold. I was then president of Moviso, the then-money losing ringtone company. I reported to the CEO of VUnetUSA, and he reported to the CEO of VUnet in Paris, Agnes Audier. So it was Agnes in the hot seat defending her hodgepodge of internet properties, which in 2001 had generated $168mm in revenue but had posted an EBITDA loss of $192mm.

My boss at the time had asked me to attend the meeting to talk about my ringtone company as a bright spot in the otherwise gloomy story of VUnet. This was 2002 and the ringtone craze hadn’t yet hit its hockey stick growth curve in the U.S. so I was painting a broad vision of ringtones being an important revenue source to the music group in a few years and “mobile media” being a huge opportunity for all media incumbents. (Which went over not very well, though in fairness to them just looking past the Internet for incumbent media companies at the time was a bit of a stretch.)

Agnes started talking about all of the deals the various internet properties were working on and how integral they were to the various other entertainment properties. Frankly, even if the deals had been interesting, the fundamental problem with the vast majority of the VU internet companies was that they had no sustainable business model because they generally relied on the internet as a distribution channel for existing media. Barry Diller interrupted her in the middle of her presentation at one point and asked the various entertainment heads if all of the internet companies were indeed important to their businesses. All of them said no, effectively throwing Agnes under the bus, and then Barry added the final comment, “Well then, Say Good Night, Gracie,” as he neatly closed his copy of the presentation folder Agnes had handed out. Agnes, being French, didn’t seem to understand this reference to the famous George Burns signoff, so I am not sure it dawned on her that it meant the end for her entire division. I should note that Barry’s comment didn’t come off as malicious at the time. It was very matter-of-fact, like he was simply stating the obvious notion that there is no value in beating a dead horse. The fact that he did it with some style was just cool.

And VU had acquired a good number of internet dead horses. Dead because they weren’t based on the only business model that works on the internet.

A week later, my boss pulled his chute and was gone. A month later, J2M was famously ousted and later shamed by his countrymen. Then the whole VUnet division was dismantled over the course of several months in 2003. Moviso was sold for $25mm, which represented a profit for VU but was a firesale price due to the other economic woes at VU at the time and a fraction of what it would fetch now had the French management at VU had any vision for the future of media at all. While VU undertook a respectably bold endeavor, I am not sure many other water utilities will attempt to become media conglomerates anytime soon.

Which leads me to My Respect for IAC/InterActiveCorp
I remember reading with interest this passage from the Wired article about Barry Diller:

“What is content?” he asks, turning literal-minded. “Content is that which resides between two sides or four sides. But in Internet terms, when you talk about content, what you’re really talking about are goods and services - the selling of goods or the dissemination of services. That’s what interactivity is. I think Match.com is a really creative interactive service, but I would never call it content, because for me, content is narrative. Look - you can think of the Internet as just a distribution platform, and in that regard it will at some point be the major distribution platform in the world. But it is not of any particular current interest for video, because it does not yet have the bandwidth necessary.”

I think Barry Diller saw that VUnet’s internet companies had no viable business model for that version of the internet, and I think Barry Diller understands the redefinition of the word “content.” The reason IAC’s internet properties (with few exceptions) are winning is because Barry Diller and his team understand this simple fact: The only sustainable business model that 1.0 of the internet understands is “Broker.” This is an important point. Anytime you use the internet to disintermediate an intermediary which has been creating value by connecting buyer and seller, you win. Look at IAC’s businesses and you’ll see a common thread. Expedia.com: Disintermediating your travel agent. LendingTree.com: Disintermediating your loan broker. RealEstate.com: Disintermediating your real estate agent. Even Match.com is disintermediating your yenta grandmother who wants to introduce you to a nice girl.

Think about how many people watch and buy from the Home Shopping Network. To have the vision for a business where people shop and buy from a TV show requires a massive redefinition of the word “content.” Simply put, the stuff being sold is the content, and the purchase is the entertainment. Talk about a multiple on value invested.

IAC is becoming an LMNO
IAC is now buying Ask Jeeves. Earlier this year, Ask Jeeves bought Bloglines.

And IAC owns ZeroDegrees.

Take another look at the User-Generated Content Value Chain.
Remember that a Media Networking Operator (MNO) enables users to communicate (or Network) through the content (Media) they create.
With Bloglines, they have a place on the Channel link of the value chain. Ask Jeeves gives them a place on the Search and Directory link. A combination of the Bloglines infrastructure and ZeroDegrees puts them on the Platform link. Tie them all together and IAC is an MNO.

Now look at their businesses.

A good percentage of what IAC transacts is location-specific information. Expedia and Hotels.com deal with places you go. TicketMaster is about venues. On Match.com, you search for other singles by location. CitySearch is basically a listing of yellow-pages information, most of which is on a map. RealEstate.com lists houses for sale, which are inherently location-based.

I’ll bet you the next step for IAC is to pull together the three links on the Value Chain and feed it the content from their internet properties. Then wrap it all up with ZeroDegrees and presto, you have reinvented IAC as a new kind of media company: One that allows users to create and attach to content that is meaningful to them and distribute it through a series of overlapping personal networks to other users. An MNO.

IAC’s Business Model for the Internet 2.0
Practically speaking, this is how it would work: On my channel I list the W hotel in San Diego with all of its details that I found on Expedia. I add my comments and the pictures I took of the rooftop Beach Bar to the blog section of my channel. You Ask Jeeves, “What is the coolest hotel bar in San Diego?” One of your results is my channel, which you trust more because it looks like insider information from a local resident. (I live a block away from the W.) When you click through to my channel, you find that not only have I provided useful information about the W Hotel, but IAC has conveniently integrated their Expedia webservices API into my channel so you can book the hotel right from my blog post by clicking on the photo I took. Then everyone who subscribes to my channel RSS style receives my recommendation on the W Hotel and values it more because it is from a trusted source. Everyone becomes a storefront and IAC makes it all possible by syndicating their content (about the stuff they make money selling) to whomever wants to link to it, allowing people to attach their own content to it (like my picture of the Beach Bar) which adds value, and even giving people the ability to add metadata that makes the content easier to find on a local basis to a market of one. This last bit would be the ultimate – based on my profile (perhaps repurposed technology from Match.com) I find the W Hotel on your channel because of something we have in common personally, thus rendering a higher relevance of your recommendation of the W Hotel because we are similar in nature even though we are perfect strangers. This same use case works for houses, hotels, restaurants, concert tickets and even available singles. I think Barry Diller understands this: The new business model for 2.0 of the internet is “Connect.” Connect people through the media they create and you win. This is the same reason Google bought Blogger and Yahoo bought Flickr.

I would be shocked to find that IAC is not working on this overarching strategy. This is my vision for the media company of the future. If you think a picture I take of a hotel bar is not media, think again. The media titans of the future will redefine the business models around media from “something that is created once then mass produced then distributed” to “something that is found, borrowed, added to, redistributed and found again.”

Apparently missing from IAC’s list of assets is a mobile platform. The next step for IAC will be to make all of this possible on your mobile phone, or as I prefer to call it, your Personal Media Device, (PMD) which my bias leads me to believe will be the consumer platform of choice in a few short years. Local information from a mobile device that is the ultimate localized search tool makes sense. Personal information from the most personal consumer electronic device in history makes sense. Syndicated distribution via overlapping personal networks administered from the PIMs of everyone’s mobile phones makes sense.

When IAC does that, (effectively adding the L to their MNO) they will be transformed into one of the largest LMNOs, and they are in a very good position to get their faster than any other company. The big question is when? Do they wait until the myriad roadblocks and issues around developing for the mobile space are addressed so that it is more like the internet from a development standpoint? And when is THAT going to happen? Would a broad deployment of a Microsoft handset OS provide a sufficiently homogeneous environment? Will the carriers allow the homogenization of their very valuable deck space or will they continue to add their own value but with better portability of 3rd-party application code across multiple carriers? In either case, when is that going to happen?? Whenever I prognosticate about this industry, I find it valuable to add two years to whatever seems most likely, so does that put IAC in the mobile space in two years or three? (Or four or five, as may be more realistic?) And if so, does someone else who has a more developed mobile strategy beat them to it? It will be interesting to see how IAC evolves, but in the meantime I am buying more stock.

Last week I was at the CTIA conference in New Orleans. While 99% of the show floor is still base stations and towers and switching equipment and the like, 100% of the (good) parties are thrown by the media companies. Moderati always throws a great party. MTV had a nice shindig, too. I didn’t go to the Warner Music party, but I heard it was nice. Something about Barenaked Ladies, I think. P.Diddy declared himself an MVNO at his keynote speech. George Bodenheimer, President of ESPN gave a keynote, too. There was certainly a buzz in the air around media. That’s Media with a capital M. Makes sense to me, too: The mobile phone is finally considered a legitimate distribution channel for Media, and every Media company on the planet wants to repackage their Content and distribute it on mobile devices. Beat your drum and chant the mantra with me as we march toward the inexorable conclusion that is defining the next phase of the wireless industry: “Content is King!”

Or is it? Isn’t the role of Content to pander to the Audience that is critical to the very survival of Content?

The real benefit of the printing press was not just mass production. It was mass production in the vernacular of the people. Whenever the Gutenberg printing press is discussed, so is the bible. The printing press made it possible to distribute the bible to more people, right? Yes, but there’s more to it than that. The printing press made it possible for the publishers of the bible to pander to the masses by presenting the material not in Latin but in English, and then produce many copies so that it could be distributed as widely as possible. Again, Content was critically important, but only to serve the Audience. And it didn’t stop there. After the printing press gave the people the bible in their language, it also gave them every other kind of Content they wanted to consume because demand extended into every conceivable genre.

Which brings up the most important point I can make about Content: without an audience it is useless. If Britney Spears plays a concert in the woods, does she make a sound? Think about it. If Britney showed up to a 50,000 seat arena on her tour and nobody bothered to buy a ticket and the arena was empty, would she still perform that night? To an empty arena? No. There would be no point. In fact, if only 5,000 tickets were sold at the 50,000 seat arena, they would sooner cancel the show. Her Britneyness requires a large enough crowd to make it worth it to perform.

The wandering minstrels of yore roaming the countryside with their lutes or sitars or baglamas or other implements of musical entertainment didn’t just perform by the side of a creek alone. They performed to an audience, and they found their audiences where people were consolidated to comprise an audience – in villages and pubs and such. Surival meant performing to an audience of sufficient size to generate an income. Not everyone would toss a shilling into your cup, so you had to calculate an expected percentage that would, which meant there was a lower limit to the size of your audience where you could reasonably not expect anyone to pay you and so why bother?

Content is Queen because it is secondary to and serves at the pleasure of the Audience. The Audience is King. Ordinary people, the rabble of the world, are the most important link on the media value chain. If you can get their attention, they become an audience. The size of the audience is a measure of demand for the Content which determines the value of the Content to the Audience.

If Content were King, it would follow that the higher the quality of the Content, the more valuable it would be to the Audience. But no. Quality is not the most important factor. The production value of the average reality television series is extremely low. It costs a fraction of a traditional television show to produce a reality show. There are no actors to pay, no writers to employ and the attention paid to quality is apparently lacking. But the Audience likes them.

So. I’ll say it again. The Audience is King. Content is Queen. People create Content with an audience in mind. It has always been the case.

More interesting than the importance of Content to traditional media companies is the importance of the Audience to the LMNO and how to capitalize on the shifting paradigm of media when:
- The size of the audience is decreasing to one.
- The audience becomes the content creator.
- Production value is decreasing even as consumption is increasing.
- The ability to capture the attention of an Audience Of One is enough incentive to create content.
- Media is interactive and can evolve into something very different than what the content creator intended, which may be the best possible thing that could have happened.
- Derivative Works are a new form of distribution.

There is a certain media executive with whom I discussed this short list of inevitable changes to the media landscape whose tone soured considerably at the thought of the impact to his business. “To tell you the truth, we are scared to death of another technology innovation cutting the value of our industry in half again,” he said, adding “we don’t want to see another MP3 happen so we are trying to be more proactive this time around.” The truth is that most media companies cannot escape their own organizational inertia and will opt to defend a dying business model rather than embrace a new one. That’s good news for Intercasting Corp.

But certain media companies are already quietly turning into LMNOs as they see content production shifting from the center of the network to the edge of the network. Some of these are following a trend and need to fill in some missing pieces of the puzzle while others appear to have a solid strategy to reinvent themselves as the future media titans. I’ll talk more about these in upcoming posts. This turned into a long entry, so I broke it up into a series of a few related posts, all coming shortly.

InfoTrends/CAP Ventures projects that worldwide camera phone shipments will grow from 178 million units in 2004 to over 860 million units in 2009. By 2009, camera phones are expected to account for 89% of all mobile phone handsets shipped.

We will soon live in a world with a billion people walking around with mobile connected camcorders. This will precipitate significant changes to how we think about media. The deep impact on privacy, copyright, the current media incumbents and society in general will radically alter our world and everyone in it. From the simple concept of converging a mobile phone with a camera will emerge a multibillion dollar industry that will be built on disrupting existing value chains and shifting media to the farthest edge of the network: the mobile producer/consumer (or prosumer) with a PMD (Personal Media Device.) The market leaders able to capitalize on this opportunity will dominate the media landscape of the future and consolidate value as Location-aware Media Networking Operators (LMNOs.)

A Brief History of Media
The media business models of our time have until now been based on scale of consumption. Media evolved from the industrial era based on economy of scale. You have one very expensive printing press and to make money you have to make as many of the same newspaper as you can because every time you want to change the front page, the whole machine has to be shut down, which costs money. Homogeneity is key, and the value is in physical distribution. Put more newspapers on the stands and you make more money. Same with Radio or TV: Put your antenna on the hill and shower your signal down upon the people. The radios or TVs receiving your signal, the less your signal costs per receiver, and the more you can charge for advertising. The record industry was the same way: Print one master, then run off as many copies as you can and sell them everywhere you can.
This last example shows particularly well how shifting sands can disrupt your business model. When the internet took away (wrongfully or not, it does not matter now) the physical distribution part of the record business, it negatively affected the business model. In fact, when your media business is based on economy of scale, it requires you to control as much distribution as possible. The record business was forced to realize they are not just the record business anymore – they are the music business, and distribution works a lot differently now. Technology has the power to disrupt the physical distribution business model of any media company if that media can be digitized and beamed anywhere instantaneously. The MPAA is now fighting against the “napsterization” of their industry the same way the RIAA did during the roaring ‘99’s of the MP3 era. It will be interesting to see how many more lawsuits will be brought against the new generation of 12-year-old file swappers.

The Future of Media
As disruptive as it is, the biggest threat to existing media companies isn’t the wholesale theft of their valuable assets via P2P networks. The biggest threat to media incumbents is the teenage girl with a mobile connected camcorder producing her own reality mobiseries. Media companies of all sizes compete for their share of consumers’ time, attention and wallet. It is one thing to lose a customer to a competitor, but it is another thing entirely for your customer to turn into a competitor. Every time an erstwhile consumer crosses the line and produces a piece media, they dilute the value of every other piece of media that exists in the world. It is a function of time and our capacity to consume the available media. But, most importantly, the value of the media they create is an order of magnitude more valuable to them than any other media available.

The Prosumer at the Edge
It really gets interesting when the consumer, no longer satisfied with sitting back and letting the cable television wash over them, turns into the prosumer. When people participate in the creation of the narrative of the story being told, an interesting thing happens. The expectation of quality decreases. Low production value is offset by the reward of having participated in the creation of the media. There is an inherent authenticity to amateur content that enables a deeper level of empathy for the characters in the story. If Media (big M) is created at the center of the network and distributed outward, then user-generated media is created at the edge of the network and distributed along the outskirts of the network, and usually via a series of overlapping personal networks.

All of the images the world saw from the devastating tsunami that ripped through Southeast Asia was amateur footage. These were simply people in the wrong place at the right time to record the disaster. What made it particularly heartwrenching was the shaking hand of the amateur videographer or the repeated cries of “oh my god” which made the moment more real for those of us trying to comprehend the scale of the impact. It didn’t matter that the production quality was low. In fact, given that every summer we are barraged with slick Hollywood disaster movies, we are desensitized to the portrayal of tidal waves and fires and earthquakes, and the grainy reality of amateur video jolts us into reality.

Now think about why those people grabbed their camcorders and started recording. They wanted to share the experience. They wanted to communicate the sheer magnitude of what they were witnessing, probably feeling on some level that mere words would never do it justice. This wasn’t “media” the way the large incumbents carefully package it, it was communication – raw, stream of consciousness created to connect with the world. I received no fewer than a dozen emails with attachments of various pictures and video from people I knew wanting to share the experience, even though it was a secondhand experience.

There will always be examples of coincidental amateur footage that is instantly relevant to a great many people. But more often the media people create is valuable only to a few other people. But when millions of people are creating media and sharing it as an evolved form of communication, the required audience for any one piece of media diminishes to the point where a market of one person is a viable model.

Enter the PMD
Call it what you want, but the “mobile phone” in your pocket isn’t really a mobile phone anymore. It is a Mobile Connected Media Production and Consumption Device. MCMPCD is hard to say, and I think PMD is sufficient. Whether you believe in converging or diverging devices, the PMD is the future. We’ve all heard about the fabled wireless iPod. That’s a PMD in my book. How about a DV cam with a DO chip in it? PMD. We are putting the equivalent of a film studio, radio station and broadcast network into the hands of a billion people.

There is no shortage of demand for self-expression. Give prosumers a tool to express themselves and their self-expression will expand to the limits of the tool and then push it to another iteration as they think of ways to use the tool that were never originally conceived.

And now we are able to instantly create text, pictures, audio and video from a device that fits in our pocket and is with us everywhere we go, giving us myriad opportunities to evolve our communication to include rich multimedia so that we can more meaningfully connect with other people and the world around us. The only thing missing is the marketplace to transact our media.

The LMNO
“By 2010, today’s consumers will be among the leading creators of all forms of high-quality content. The companies that are able to make the greatest advancements in the area of contextual search relevance and search utility will lead the pack.” - Gartner |G2

The Media Networking Operator (MNO) already exists. If user-generated media is being created to communicate, or network, with other people, then the MNO’s are the companies that give prosumers a place to post their content, make it findable and operate the platform that is the glue to make it all stick together in a relevant fashion. Here is an example from my User-Generated Content Value Chain: Blogspot is a place to host your blog. Google is a search engine that makes it findable. Blogger is the publishing platform that makes it all possible. By operating on the three links on the value chain that enable consumers and prosumers to connect, Google (which owns Blogger and Blogspot) is an MNO.

Location matters, though, because it is a key meta-tag for creating the directory of user-generated media. Take the example of the tsunami again. When I heard about it, I went looking for content on Google. The number one most relevant result for “tsunami” according to Google’s apparently very well developed algorithm for searching the gigantic internet content cloud was www.ess.washington.edu. Now why would that be? I mean, this was on January 1st, when relevance for the word tsunami was generally agreed to be highest for a particular event. It is because the concept of simplifying search to a few keywords only works if you know enough about what you are searching for. Did you know at the time how to spell Banda Aceh to better specify to Google what you were looking for? Providing location as context, both on the creation and consumption sides of this media model, provides relevance for a type of media that is created by people at the edge of the network at a place in time.
At the intersection of the PMD and the user-generated media trend is the LMNO. With very few exceptions, the marketplace for prosumers to create and post their content directly from their PMDs has been missing. Today we announced our first product, Rabble, which is our answer to the need for a marketplace for media produced by people using their PMDs. I’ll talk more about it and the LMNO and the mountain of user-generated media that is being built now and how we might be able to turn it into the basis for a new kind of media company in a new kind of media industry.