Along with Murdoch and Malone, Barry Diller was one of my longtime media mogul matinee idols. So it was with great anticipation that I sat down this week to hear him speak at the CASBAA convention in Hong Kong. It was a slow start, but things got interesting when he was asked what he thought was the future of the industry. This is what he said...

'There is going to a lot of chaos as scarcity is replaced by plenty. This ability to to press a button and publish to the world, which has never existed before, is going to change everything. When there is no barrier between publishing and the consumer, then all of the people in traditional media will have to adapt to a world where the historic methods of financing and distribution are going to change. So, that's what I think.' 



It's a salient observation. Media has long thrived on scarcity; a limited number of people producing a limited amount of content and a limited number of people distributing it. That's no longer the case - but of course, you can't blame everything on the Web. It's easy to forget the appearance of 500 channel subscription television and the VCR had a similar fragmenting effect on the other more established media of the time. Diller himself made his first big career move by pioneering the concept of the 'made for television movie' when he was hired by ABC in 1966. Typically based on a popular book and made for a fraction of the cost of a big budget movie - Diller's telemovies exploited the fact that new mediums create opportunities for new types of content with new cost structures behind them.



Of course, media companies are now faced with an entirely different conundrum. I chatted with Gautam Anand this week, who is Head of Content Partnerships for the Asian region at Google. YouTube have recently been cutting deals with Hollywood Studios and TV Networks like CBS to get long form, professional content shows on their site. So far that merely means more reruns of Star Trek and MacGyver on the Web - but it's a sign of the times. As Hulu proved, your best chance of selling online video advertising is with reliable Studio content rather than random user generated material. 



Still, to Diller's point - you now have millions of consumers spending their media time watching a combination of commercially useless user generated inventory, and professionally produced content which has been financed by a traditional distribution chain that is now under threat. So the real question for everyone now is whether the new business model of online advertising and paltry iTunes sales will ever be able to sustain the cost structures of creating content that we like to watch. The numbers are sobering. Hulu is on track to make about US$90 million in online revenues this year. That's a drop in the pool compared to the US$11 billion dollars that the US networks took in revenues for quarter two of this year alone. You ain't going to make 'The Soprano's' on post-roll video ad dollars, that's for sure. 



Eventually, in my opinion, two things are going to happen. Firstly, there will be more online video advertising dollars around. That will lead to the creation of well established regional video aggregation platforms, financially capable enough to support a true wholesale distribution market for studios and professional content creators. Secondly, making movies and TV shows will get cheaper, Hollywood guild strikes notwithstanding. 



Just take movies as an example. The average cost to make and market a major MPAA member company film was $106.6 million in 2007, and at least $35.9 million of that was pure marketing. Digital distribution doesn't eliminate marketing costs altogether, but tapping into social networks effectively does mean that you don't have to buy expensive TV commercials and billboards anymore. While we are slashing costs, you can also take a red pencil to the expense of producing lots of physical film prints for cinemas. That leaves the last big ticket item - talent costs. As content franchises like James Bond or Marvel Comics action films become more like product and merchandise platforms - leading actors may start to weight their compensation in the form of backend product participation rather than upfront salary. 



Just like what is happening now in the music industry - when everyone makes money on merchandise and commercial endorsements, piracy is not a problem. If anything, it pays.