Disintermediation–an old story playing out now

Disintermediation is one of the oldest stories of the internet. From the 1990s onward people have been making the obvious case that the internet is a revolutionary communications platform that can remove the middleman and his cut from all sorts of transactions leaving the parties on both side of the deal to share the spoils.

It’s an old story but one that hasn’t really played out in many consumer industries. We’ve seen Betfair cut the middleman out of sports bets for a reasonable chunk of the football and horseracing gambling market in the UK but I can’t think of another large business that has disintermediated a consumer market. Many large internet companies have succeeded because they have replaced an incumbent with a more efficient business model – Netflix, Lovefilm, Skype and Amazon spring to mind – but they aren’t true disintermediation plays.

The most obvious candidates for disintermediation are media publishing businesses. Despite all the disruption and heartache in the music, book, and TV/film industries this hasn’t really happened yet. I’m a big fan of Spotify, but they have slotted in alongside the record labels rather than replacing them. Similarly in the book industry Amazon has replaced a lot of physical book stores but they still get most of their books from traditional publishers. In TV and film we still get most of our content from traditional broadcasters, satellite and cable companies.

Traditional publishers in the music, book and TV/film industry have provided three types of service to artists:

  • finance
  • access to distribution (i.e. gatekeeper)
  • logistics and admin (e.g. studio space, editing, physical production of media)

These traditional publishers are pretty much all still in business, but they are all suffering mightily. On the one hand the shift to digital media and distribution has hit their revenues and profits and on the other hand cheap web services offer artists an increasingly viable alternative to the logistics and admin services they provide.

They are left clinging to access to distribution and finance as their raison d’etre, but recent advances in crowdfunding and the rise of global distribution companies like Amazon and Spotify are undermining these last residues of value add and may mean that the timing is finally right for a true disintermediation player to take them out of the market.