Why Content Prices Rarely, If Ever, Drop

Telcos getting into the media business, despite the significant investments to do so, might enjoy the extreme differences between retail pricing dynamics seen in media as compared to communications. To wit, prices in the media world rarely, if ever, drop. In large measure, the reason is simply that costs in the media business are driven by content creation, and content creation is affected only marginally by Moore's Law, which operates to push down retail prices in the communications and computing space. There are, in short, some businesses that simply are resistant to operating cost reductions propelled by normal advances in chip technology, and the rapidly declining costs of processing and storage that result from such advances.

Not that media is the only endeavor that is not seriously aided by Moore's Law. To be sure, content creation is supported by Moore's Law. It's just that such costs are a small fraction of the total cost of producing content good enough to create an advertising, subscription or on-demand business model. Education is another business whose costs are marginally affected by Moore's Law, because production of the service ("teaching," for example)tends not to be scalable. To add another couple of classes at a college, one pretty much has to hire another teacher. Sure, you can grow class size, but at some point the "buyer" logically assumes that "quality" is destroyed as the scale increases. That's why small graduate seminars are generally considered "higher quality" than undergraduate "101" courses. We can argue about whether this is really a measure of quality or not, but the fact remains that most buyers of higher education seem to buy into the notion.

Content production tends to operate in much the same way. Digital special effects can apply Moore's Law in very compelling ways. But digital effects don't seem capable of replacing the very analog and non-scaling efforts of writers, directors, actors and producers, simply because the "product" is so wildly dependent to the particular skill some people seem to have in these areas. So, to an extent not seen in communications, where Moore's Law attacks the cost structure of a key input, digital technologies do not aid us as much in the creation of media products. Again, one can argue about how user-generated content might affect the model.

But experience suggests that we will see the same sort of "quality filtering" emerge in virtually all user-generated content as well. Most of it will not be broadly appealing, even in the niches for which it is created, for all sorts of reasons, just as the vast majority of "professionally produced" content these days, and the huge number of projects that never are produced or distributed widely, are filtered as well.

The upshot is that video services will not materially be subject to Moore's Law, and ever-decreasing retail prices. Producers and distributors are going to love that aspect of the business.