Exponential Entropy

Chaos, chaos everywhere. Especially in media.

As media companies navigate challenging times, technology is set to upend everything, again. The landscape will shift and bring both opportunity and risk, creating new winners and losers.

Welcome to the Age of Exponential Entropy.

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Key Takeaways: 

  1. The media landscape is in an "Age of Exponential Entropy," marked by rapid technological shifts.

  2. Internet democratization has disrupted traditional distribution channels, creating a chaotic but opportunity-rich environment.

  3. Generative AI advances are lowering content creation barriers and disrupting traditional media production.

  4. The media industry will see fewer but bigger hits, while the long tail of niche content will extend, guided by power law dynamics.

  5. Web3 technology offers revolutionary monetization channels that could lower the financial threshold for creators.

  6. The most successful intellectual properties will be those building high network value across platforms.

  7. The media landscape is in flux, with exponential opportunities for those who can navigate the chaos.

Are you familiar with entropy theory?

Entropy explains the level of disorder in a system. High entropy is chaotic and unpredictable. Low entropy is structured and predictable. Entropy theory states that a system will trend towards increased entropy over time.

With increased entropy, established structures, like business models, start to break down. It also allows new entrants to develop new structures to tame the chaos and reduce entropy.

And then the cycle repeats itself.

Entropy theory also applies to media and entertainment. Increasing entropy is triggered by technological innovations that change the current dynamic. Ir challenges existing structures and opens up space to build new structures.

To understand how entropy impacts media, it's first worth breaking the term "media" down to a simple value chain:

  1. Creation

  2. Distribution

In a peaceful, low-entropy state, the structures are transparent. Who creates what and distributes where.

In theory.

For the past few decades, most of media have been in a state of gradually increasing entropy. But, thus far, we've seen most of this entropy increase on the distribution side.

From VHS to DVD to the Internet.

From CDs to MP3 players to, again, the internet.

Distribution Entropy

Decades ago, the consumerization of the internet started a groundswell in media by reducing the cost of distribution to near zero. First, it affected writing and music. As the internet's capacity increased (broadband, 4G, 5G), it paved the way for more data-intensive formats like film and TV, too.

Media is now distributed via the internet across many different networks and formats. Chaos increased and is still growing.

The industry is still grappling with this change. As seen, for instance, with the back and forth of studios launching direct-to-consumer streaming products.

The music industry is an interesting leading indicator for what might happen with the rest of media in the future. The internet wrestled distribution power out of the hands of the big music labels. No longer did A&R reps at labels hold the keys to the castle. Instead, artists could distribute music and build an audience through the internet. And then, labels compete to sign the most promising talent. Existing structures breaking down. Chaos. Entropy.

The internet also shifted music distribution from CDs to Napster and friends. Again, more chaos.

So, while the internet "set artists free," it also destroyed the value of music distribution. Nobody (but the biggest artists) are able to monetize music publishing in any meaningful way.

It's now a marketing tool to build an audience to tour for and monetize the scarcity of live events.

The entropy created opportunities, and new entrants eventually tamed (some of) the chaos. Spotify brought streaming into orderly form. Grassroots platforms like SoundCloud enabled new artists to publish music and build an audience.

Just as things calm down, new powers enter the picture to increase entropy again. For instance, the rise of TikTok and the powers it holds to make or break artists and hits.

If music is any indicator for media in general, and Hollywood specifically, we should expect entropy-disturbance cycles to become faster and fiercer.

Up until recently, the above describes the state of the media landscape. The internet created high entropy on the distribution side of things. Entropy has increased a little on the creation side, too. One example is the way mobile broadband, phone cameras, and networks like YouTube have created a long tail of video content.

Creation Entropy

Entropy is still high on the distribution side. Then, something interesting happened about a year ago: OpenAI released ChatGPT. Soon, various specialized tools emerged. For text, for images, for audio, and yes, for video.

Suddenly, our eyes opened to the capabilities of generative AI. And the speed at which the technology improves once it reaches escape velocity. The last part is crucial: we cannot measure or assume the impact of this technology based purely on the capabilities we see today.

Instead, we have to extrapolate the future improvements based on the rate of progress we've seen so far.

For example, here are less than a years’ worth of Midjourney AI image generator improvements.

The release of the first generative AI tools also marks an exciting inflection point for media. Everyone assumed AI would be great at automating mundane tasks and crunching numbers (to be fair, it is that too).

Then, it turns out AI is a badass creative force.

What's fascinating, scary, and interesting about generative AI is that it lowers the barriers of creation. Any kind of creation. Anyone can become a writer. Will their writing be good? Not necessarily, but the barrier is gone.

Writing is one thing. While it surely takes talent, it's a relatively capital-light production. At least when compared to music and even more so when compared to moving image production.

The capital intensiveness to create high-quality movies makes it a defensible position for traditional studios.

But generative AI will lower the barrier to this creation, too. Not right now, but remember what we discussed earlier: extrapolate the current capability with the rate of improvement.

Capital intensiveness won't be the same barrier in the future.

For an early signal of what's to come, check out the animated short "Critterz":

It was made with a small team on a short timeline augmented by AI (DALL-E from OpenAI).

It's also changing media creation in ways previously not possible. The team at ToonStar will soon release their layesy interactive series "FORTUN3". It's inspired by real-life events, and the plan is to develop and produce the series as those events develop in the real world.

AI augments their production process so they can operate fast enough to keep up. It's almost real-time animated entertainment with real voice actors. Very interesting.

This is further enhanced when viewed in context with the advances of game engines like Unreal Engine from Epic Games. Even more so, when they’re combined.

Like some recent experiments from Roblox where creators, instead of learning how to use design tools and code, can design and code assets and experiences using natural language.

Exponential Entropy

The entertainment landscape is still in disarray from the effects of the internet. We're seeing the first dual strike in Hollywood since 1960.

(Side note: Distribution entropy was the main cause of the 1960 strikes, too. Then, oriented around downstream distribution to TV.)

Now, we suddenly find ourselves in a position where the biggest creative disruption in a long time lands in the middle of the media landscape. At the same time, entropy on the distribution side is still very high.

Chaos times chaos.

Entropy x Entropy = Exponential Entropy.

The big question is: What happens now?

Nobody knows. But, let's speculate:

From Highways to Foothpaths

As we navigate this era of Exponential Entropy, several intriguing possibilities emerge that could reshape the media landscape.

For one, as more creators create and tap a wide array of distribution channels, we'll see more footpaths emerge as alternatives to the established highway of the media value chain.

Some of these footpaths will have staying power and gradually turn into gravel roads with more traffic.

This is where it's worth paying attention to new distribution and monetization channels based on web3 technology. As we'll discuss below, the long tail of content will become much, much longer. This will create opportunities for new types of platforms that facilitate consumer-creation relationships and monetization.

If creators can monetize without paying the current aggregation platform taxes of ≈50-90%, passing the threshold to "make a living" becomes much lower. This is the overarching idea behind The Passion Economy Thesis of Li Jin, and it will have a massive impact on the overall media landscape.

The Hits Get Bigger, The Tail Get Longer

The way I see it, there are two winners in the age of exponential entropy: the niche creators and the biggest IP.

As in many other industries, there's an apparent power law distribution in media and entertainment. There are a few massive hits, and then there's a middle layer and a long tail of content. Increasing content (with good enough quality) will pronounce this curve. Sharper, longer tail.

The hits will be fewer and more significant. The middle-tier content will be all but swallowed and washed out by the massive increase in niche, long-tail content.

Consumers either go for the big hits (for the network value of it) or the niche content they're deeply passionate about.

This creates interesting questions for traditional content creators like movie studios: Do we bet on big hits? How much do we bet? How can we integrate more long-tail content? How do we enable discoverability if the sea of content increases 10X? And so on.

The biggest IP successes of the future will be the ones that successfully build high network value into the IP. That leverages cross-platform attention capture and retention. And that pulls the fans close and taps into their creative energy. I've previously discussed this part of IP building in the future in The Entertainment Participation Spectrum and Remixing IP.

It's All Chaos. And Opportunity

More than anything, exponential entropy indicates exponential opportunity. The best stories will prevail, and the ones that capture and retain attention and deliver value to fans will win.

The opportunities lie in the "who gets to do that" and the "where does it happen."

Like much of my writing, this is a work-in-progress framework. It will likely evolve over time. I will write about it again (so make sure to hit subscribe!).

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