Jonathan Taplin
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Challenges abound in the future of the media business. But then again, so do the opportunities

The next 10 years should be the greatest time in the history of the entertainment business.

The global middle class is growing astronomically fast. It may not be growing in the U.S., but it is growing in the rest of the world: Research shows that when people leave poverty and have discretionary income, they spend on entertainment. In addition, the broadband Internet is growing just as fast as the new middle-class population, reaching 3 billion users in the next five years.

But the problem is that the revenues of media and entertainment firms are barely growing above the rate of inflation. Production and marketing costs are climbing. There are signposts of trouble ahead; if we’re smart, we won’t put our heads in the sand.

Look at what happened at the box office this summer. For the first time, total revenues were no greater than total budgets for movies costing more than $75 million. It’s not a good situation.

In the world of television, you have all sorts of disruptive technologies brought to you by Barry Diller (Aereo) and Charlie Ergen (the Hopper) meant to mess with your businesses.

Analyst Craig Moffett, who has been the greatest champion on the cable and satellite TV businesses, finally admitted cord cutting isn’t an urban myth anymore. Primetime TV ratings have fallen 50% since 2002.

In home entertainment, the revenue generated from streaming is never going to equal the amount of money studios receive from selling DVDs at Walmart.

The common wisdom about the videogame sector is that it has avoided the problems of other entertainment businesses. But sales for all major platforms are falling. You might say they’re all just going to mobile gaming, but Zynga is not a great business either.

The music industry is a total disaster. Streaming has never replaced what the CD did, and newspaper ad revenues have fallen off a cliff. In the month of January, there were 465 million IP addresses accessing pirated material.

All in all, the return on assets of media and entertainment companies is falling way below the rest of the economy. But all these signposts of disruption can also be read as signposts of opportunity.

Note all of the studios that are financing content: YouTube, Netflix, Hulu, Microsoft and Amazon. These platforms are allowing new forms of content to be sold.

There’s also all new sorts of funding. Consider what Warner Bros. is doing partnering with Kickstarter on the “Veronica Mars” movie. There’s also filmmakers accessing money from China and other new regions.

Then there are entirely new computing platforms to consider, like the new virtual-reality headset Oculus Rift that was developed through a Kickstarter campaign. And think of what 3D printing could bring; imagine Warner Bros. allowing a download of the new Batman figure in time for the Superman/Batman movie in 2015.

There’s also all of these new distribution platforms coming forth, including those from Intel, Walmart, Target, Flixter and Redbox that are exploring the notion of over-the-top Internet protocol-based distribution in various ways. They may not be brick-and-mortar, but these places will be the new storefronts of tomorrow.

If content is distributed everywhere on an international basis to a market that could grow to 5 billion consumers, getting just 4% of that market is off-the-charts money.

It could be that current production and distribution systems simply are not capturing the possibilities of this new world. What we need to create is an economy where technology is at the service of creativity, content and context.

Jonathan Taplin is director of the Annenberg Innovation Lab at the USC Annenberg School for Communication and Journalism, where he leads the Edison Project for research and executive education dedicated to forming a new media and entertainment ecosystem. This column was adapted from his Sept. 29 speech at the Hollywood IT Society Marketing and Analytics Summit.

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