Most of the Money Still is in Legacy Media

PricewaterhouseCoopers reported in its Global Entertainment and Media Outlook that as of 2007, digital and mobile distribution made up only five percent of total spending on entertainment and media.

PWC projected that this percentage will increase to 11 percent by 2012. No doubt, digital media is growing, in some cases, growing fast.

But even with momentum, 11 percent is still a small percentage of the $2.2 trillion annual spending on media and entertainment, especially when market share is held by a wildly fragmented cast of contenders.

Sometimes, it makes sense for large providers to place bets on "legacy" video even when everybody acknowledges that the market is changing. That doesn't mean wisdom is not found in spreading a number of bets on legacy and emerging media. It does mean that a rational investor with the ability to attack the existing revenue streams would be rational to do so.

A small percentage of a big number is a big number. A small percentage of a small number is, well, a smallish number. Large companies do not have the luxury of chasing small number markets. Small companies can, and do.

If recent AT&T quarterly results are an indication, it will ultimately prove to have been wise to invest heavily in "legacy" video, despite the coming shift of much video to alternate delivery methods. The issue right now is that the emerging markets still represent small amounts of revenue.

That will change over time as revenue at stake shifts and the scale economics emerge. At that point, one would have to expect consolidation of the market to create some large distributors able to capitalize on the scale economics.

That does not mean that, in the interim, large returns from legacy services should be ignored.