Why ESPN thrives where most cable networks failJuly 22, 2011: 11:29 AM ET
Media companies that define themselves by distribution channel instead of their content won't succeed.
FORTUNE -- Old media companies are falling behind because they're failing to adapt their business models to what consumers want. That was the consensus among those gathered for a panel on the future of publishing and broadcasting at Fortune's Brainstorm Tech conference on Thursday.
"There are these large institutions that feel like they have lost their way or missed something and are more focused on their business model than on their consumer," said Gilt Groupe chairman Susan Lyne, who formerly led Martha Stewart's empire and the entertainment group at ABC (DIS).
Bedrocket Media's Brian Bedol, who founded and ran Classic Sports Network and College Sports Television (and sold the channels to ESPN and CBS, respectively), stepped in to explain why old media has been slow to respond: programmers and cable companies trying to protect the legacy business of selling big packages of TV channels. "Consumers say, 'We don't want bundles. We want what we want, when we want it.'"
Calling it the "classic prisoner's dilemma," Bedol said of the programmers, "Their customers aren't consumers, they're the cable and satellite companies." If programmers expand onto new platforms to serve consumers, they risk being financially punished by the cable and satellite operators.
The exception? ESPN, because they are "one of the few, if not the only cable programmer, that has more leverage over cable operators," says Bedol. ESPN commands the highest fees from cable operators for supplying their content.
Having started out by aggregating as much sports programming as they could, "they now create other products and experiences that use the brand on other platforms."
Lyne agreed. "They are the only company, with the exception of MTV in the early days, that from the start, looked at the customer as the viewer, not the cable companies. It was all about 'Be the voice of the fan.'"
In the case of the magazine companies, Break Media co-founder and CEO Keith Richman said that since the ad market took a hit in 2008, publishers have been hesitant to experiment with, say, transforming into a video company—a growing medium that's a hit with consumers.
Richman noted that the publishers were failing to leverage their credibility, a huge asset that new media doesn't have, and that they should use that to expand across new platforms. One possibility? They could "turn their archives into something," he said. "They have an inherent advantage in their history."
If traditional media companies don't get with the picture, they not only risk being displaced by new media, but also by the brands who advertise with them. "Nike, is it a shoe company or a media company?" asked Wenda Harris Millard, President and COO of consulting firm Medialink, and another media veteran (like Lyne, she led Martha Stewart Living Omnimedia (MSO), and she was also chief sales officer at Yahoo (YHOO)).
Bedol agreed, saying that during his time at ESPN, they had talked to Nike (NKE) about accessing their programming libraries. Today, he said, "these brands use primarily social media to turn themselves into media companies that have a direct relationship to consumers."
Millard summed up the challenge neatly. "Those who continue to define themselves by distribution channel--'I'm a magazine publisher, I'm a broadcaster'-- that mindset has held them back. You're not your distribution, you're your content."