While technology advancements generally create efficiencies in traditional business structures and processes, the digital media revolution will challenge traditional content creation, marketing and distribution in new ways. The impact in the short term however will be more subtle.
The flight of advertising dollars from traditional media channels (TV, print, radio) to digital platforms has been clearly established. But it won't be a dollar for dollar shift during the short term because new digital business models have not fully evolved and user behaviors are still changing. The long-run story is expected to be very different, when digital may not only become a significant portion of the total advertising market, but may also encourage increase in the total advertising pie itself.
During this ongoing transition period, digital revenue at most media firms, while growing impressively, will not fully compensate for the loss in their traditional media revenue. We've noticed that several big advertisers today have reduced their total media spend, while shifting a greater portion of that smaller budget to more accountable digital channels that can be effectively tracked and provide a better ROI. Changing/emerging user behaviors can be blamed for declining TV watching amongst younger demos; stagnating Hollywood box office revenue and DVD sales; extremely high engagement but limited realized monetization of social media, among other similar unfavorable trends contributing to shrinkage in the the total pie as the industry transitions.
This decline in revenue is already putting severe pressure on media firms' traditional cost structure as they struggle to maintain margins. This is a good thing. Transformation in an industry provides it an opportunity to re-evaluate its cost structure, among other things. Media industry today is at that juncture. Most people, for example, agree that Hollywood's bloated cost structure provides plenty of room for efficiencies. The folding of New Line Cinema (The Lord of the Rings fame) into Warner Bros is a sign of things to come. Other areas of savings for Hollywood include digital distribution, digital marketing thru blogs, social networks and other bottoms-up digital channels (marketing, at ~25% of a typical film's total cost, is one of its single biggest cost items), etc. Recent writer's strike forced television studios to take a fresh look at how they've done business for a long time. Some innovative cost cutting measures have already been announced by the television networks. Newspaper industry is also implementing new methods - The Capital Times recently announced its decision to stop printing newspapers after a run of over 90 years and move to an online-only edition.
An exciting, but still under-utilized area in my opinion is the leverage of digital platforms for original content/IP creation at a fraction of the current cost, and exploitation of that IP across the entire value chain (television, films, video games, merchandise). Examples: creation of new characters thru online virtual worlds and digital episodic comics; immersive story-telling with episodic video series within social networks where communities contribute to unfolding of the stories as much as the actual characters do; "open source" approach to content creation with reward incentives, etc. In addition to being highly cost-efficient, incubating content through digital platforms can be more effective than traditional approaches. Virgin Comics is trying to prove that storyboarding through comics (both print and digital) with pictures and graphics could do a far better job than a text script in creating characters and plots, communicating the story to the production crew, and facilitating story-telling in the final product (TV show/movie/game).