Bill Gates, Sumner Redstone are both credited with articulating that “content is king.” Understanding what that means in the new world order explains why some companies emerged as the winners even if they didn’t own any content.

The Origins of Content Is King

Viacom’s late founder Sumner Redstone is widely associated with the saying “content is king” even though it was popularized in 1986 by Bill Gates. But the first reference to it actually dates back to 1974 in Magazine Editing and Production:  

"Content is king.  It is the meaning that counts.  Form and technical considerations, though important, cannot substitute for content.  J.W. Click and Russell N. Baird, authors, on how to pick the best magazine photos."

Interestingly, cable pioneer John Malone and Redstone both started in distribution – Malone with TCI and Redstone with his father’s teather chain, National Amusement. Both men however eventually realized that owning the pipes is valuable, but the underlying content was king.

When Redstone said “content is king,” it was in the context that additional distribution outlets give rights holders new ways to monetize the content.  The Internet’s fragmentation of media dramatically increased the outlets for content owners to distribute programming, which open up new revenue streams for content, and this unlock value.

But, the Internet’s democratization of media also eroded the power of gatekeepers and broke the dam: today there’s an infinite supply of content with the advent of user-generated content. As demand from marketers is not as elastic as supply of content created, it drove advertising rates down in the web’s first phases. Indeed, to quote Gates:

"For the Internet to thrive, content providers must be paid for their work. The long-term prospects are good, but I expect a lot of disappointment in the short-term as content companies struggle to make money through advertising or subscriptions.

The Paradox of Content Is King

Paradoxically, the “content is king” mantra gave content owners a false sense of security, thinking that they were entitled to revenues. The web’s democratization of content altered the balance of power, with distribution platforms like Google, Facebook, etc. owning the last mile into audience’s homes and thus, content without distribution isn’t enough to win; nor is distribution without content. But despite their vast riches, tech firms have actually held back from owning content outright. Why? The answer is demand and supply.

By the Time You Have An Economic Incentive, It’s Too Late

While early on the economics didn’t give content owners an incentive to embrace distribution on the Web, today, the worlds of content and audience are blurring into one due to the fortunes at stake:

The irony of course is that if content is king, how do you explain that the most valuable companies are predominantly in the distribution game? One reason of course is that technology was scalable and benefited from better unit economics: produce software one time, sell it infinitely with ever-decreasing marginal costs.

For storytellers to win, they need to compete on both sides of the ball: content production as well as distribution. But for distribution companies to win, they just need access to the content – be it through licensing, acquisition or ownership.

Here is Gates’ full essay titled “Content is King”, which he published on the Microsoft website in January 1996:

“Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting. The television revolution that began half a century ago spawned a number of industries, including the manufacturing of TV sets, but the long-term winners were those who used the medium to deliver information and entertainment.

When it comes to an interactive network such as the Internet, the definition of “content” becomes very wide. For example, computer software is a form of content-an extremely important one, and the one that for Microsoft will remain by far the most important. But the broad opportunities for most companies involve supplying information or entertainment. No company is too small to participate.

One of the exciting things about the Internet is that anyone with a PC and a modem can publish whatever content they can create. In a sense, the Internet is the multimedia equivalent of the photocopier. It allows material to be duplicated at low cost, no matter the size of the audience. The Internet also allows information to be distributed worldwide at basically zero marginal cost to the publisher. Opportunities are remarkable, and many companies are laying plans to create content for the Internet. For example, the television network NBC and Microsoft recently agreed to enter the interactive news business together. Our companies will jointly own a cable news network, MSNBC, and an interactive news service on the Internet. NBC will maintain editorial control over the joint venture. I expect societies will see intense competition-and ample failure as well as success-in all categories of popular content-not just software and news, but also games, entertainment, sports programming, directories, classified advertising, and on-line communities devoted to major interests. Printed magazines have readerships that share common interests. It’s easy to imagine these communities being served by electronic online editions. But to be successful online, a magazine can’t just take what it has in print and move it to the electronic realm.

There isn’t enough depth or interactivity in print content to overcome the drawbacks of the online medium. If people are to be expected to put up with turning on a computer to read a screen, they must be rewarded with deep and extremely up-to-date information that they can explore at will. They need to have audio, and possibly video. They need an opportunity for personal involvement that goes far beyond that offered through the letters-to-the-editor pages of print magazines.

A question on many minds is how often the same company that serves an interest group in print will succeed in serving it online. Even the very future of certain printed magazines is called into question by the Internet. For example, the Internet is already revolutionizing the exchange of specialized scientific information. Printed scientific journals tend to have small circulations, making them high-priced. University libraries are a big part of the market. It’s been an awkward, slow, expensive way to distribute information to a specialized audience, but there hasn’t been an alternative. Now some researchers are beginning to use the Internet to publish scientific findings. The practice challenges the future of some venerable printed journals. Over time, the breadth of information on the Internet will be enormous, which will make it compelling. Although the gold rush atmosphere today is primarily confined to the United States, I expect it to sweep the world as communications costs come down and a critical mass of localized content becomes available in different countries.

For the Internet to thrive, content providers must be paid for their work. The long-term prospects are good, but I expect a lot of disappointment in the short-term as content companies struggle to make money through advertising or subscriptions. It isn’t working yet, and it may not for some time. So far, at least, most of the money and effort put into interactive publishing is little more than a labor of love, or an effort to help promote products sold in the non-electronic world. Often these efforts are based on the belief that over time someone will figure out how to get revenue.

In the long run, advertising is promising. An advantage of interactive advertising is that an initial message needs only to attract attention rather than convey much information. A user can click on the ad to get additional information-and an advertiser can measure whether people are doing so. But today the amount of subscription revenue or advertising revenue realized on the Internet is near zero-maybe $20 million or $30 million in total.

Advertisers are always a little reluctant about a new medium, and the Internet is certainly new and different. Some reluctance on the part of advertisers may be justified, because many Internet users are less-than-thrilled about seeing advertising. One reason is that many advertisers use big images that take a long time to download across a telephone dial-up connection. A magazine ad takes up space too, but a reader can flip a printed page rapidly. As connections to the Internet get faster, the annoyance of waiting for an advertisement to load will diminish and then disappear. But that’s a few years off.

Some content companies are experimenting with subscriptions, often with the lure of some free content. It’s tricky, though, because as soon as an electronic community charges a subscription, the number of people who visit the site drops dramatically, reducing the value proposition to advertisers. A major reason paying for content doesn’t work very well yet is that it’s not practical to charge small amounts. The cost and hassle of electronic transactions makes it impractical to charge less than a fairly high subscription rate. But within a year the mechanisms will be in place that allow content providers to charge just a cent or a few cents for information. If you decide to visit a page that costs a nickel, you won’t be writing a check or getting a bill in the mail for a nickel. You’ll just click on what you want, knowing you’ll be charged a nickel on an aggregated basis. This technology will liberate publishers to charge small amounts of money, in the hope of attracting wide audiences. Those who succeed will propel the Internet forward as a marketplace of ideas, experiences, and products-a marketplace of content.”

Gates may have made his fortune in software, but he had made some bets on content, as well. Of note, he established Corbis in 1989 as Interactive Home Systems. 

As technology made marginal distribution quite efficient, digital content emerged as the new software, but the purveyors of technology – Google, Facebook, Microsoft, etc. – eventually realized they didn’t need to own the underlying content, they just needed to offer it as a means to an end.

Ironically, the Web removed many of the barriers to entry to earning a living through content. While context is king, the demand and supply reality and democratization weakened the relative power of content. In distribution, it becomes harder than ever to build scale, but those who command it benefit disproportionality as a result.

Marc Andreessen boasted a decade ago that software was eating the world, he was right and everything that ensued reflected that. With distribution pipes built, the attention has shifted to filling those pipes, and in that context, content is the new software (watch my recent interview on Bloomberg on that theme), or check out: Is video content the new software?