Analyst Spencer Wang of Bear Stearns just published a very good overview of the dynamics of the entertainment industry which argues that “aggregation & context and not content are king.” There isn’t anything entirely ground-breaking in the report, but it’s a great overview synopsis of a lot of the trends occurring in the industry.

Nicholas Carr summaries the report well, “Wang argues that both ends of the value chain – content creation and content distribution – are increasingly characterized by oversupply and hence weak profitability. Value, as a result, is migrating to the center of the value chain, where content aggregation and branding take place. The profit, in other words, is in packaging.”

Wang makes a number of valid points, but it’s also worth highlighting an additional trend which wasn’t cited in the document. Although user-generated content is proliferating because new technology is affecting economics (of content creation, storage, and distribution), it is also flourishing because new technology allows the incorporation of connectivity into content itself. Previously, we saw two distinct forms of communication – point-to-point communication of individuals and produced content communication – which manifested in the telecommunications and entertainment industries, respectively. (This somewhat stale academic paper which I’ve cited before makes a good case why the former has been historically more important.) However, the distinctions between these two communication forms are blurring, as people are increasingly entertained by connecting with other people. What is MySpace other than a value-added site messaging platform? What about the multitude of conversations that occur on YouTube about the videos in addition to the consumer-created videos themselves?

I largely agree with Wang’s conclusions – that “new competitors… [of] viable aggregators [are going] to emerge” and that “startups are likely to be more nimble [than incumbent creators of content],” However, I’d like to add that messaging with others, and the intersection of that activity with content creation is a large piece in the puzzle. Yes, the profit is in the packaging of entertainment, but also in the packaging of messages as well.