E-commerce business technology society Sixth Edition Kenneth C

Chapter 10 Online Content and Media Copyright © 2009 Pearson Education, Inc. Slide 10

Information Wants to Be Expensive Class Discussion n Why did the Wall Street Journal succeed with a subscription model? n Would you pay to read a daily newspaper online? Why or why not? Would you pay for access to online archives of newspapers and/or magazines? n Do you think newspapers can make the transition from “print on paper” to “news on-screen? ” n What do you think about Rupert Murdoch’s plan to change to a paid content model for all of News Corp online newspapers? Copyright © 2010 Pearson Education, Inc. Slide 10 -3

Trends in Online Content 2009– 2010 Increased media consumption n Internet media revenues fastest growing n Growth of Internet audience outpaces other media n User-generated content growing, inverting traditional production/business models n Content moves to mobile devices n Internet advertising revenues expanding rapidly n Copyright © 2010 Pearson Education, Inc. Slide 10 -4

Trends in Online Content owners adapt mixture of advertising, subscription, a la carte payment for business model n Paid content and free content coexist n Convergence n Newspapers in transition to online models n Web becomes entertainment powerhouse n Consumers increasingly support time-shifting, space-shifting in media consumption n Copyright © 2010 Pearson Education, Inc. Slide 10 -5

Content Audience and Market n Average American adult spends 3, 600 hrs/yr consuming various media n 2008 media revenues: $654 billion n TV, radio, Internet: account for over 80% of the hours spent consuming media n 20– 30% substituting online entertainment for traditional Copyright © 2010 Pearson Education, Inc. Slide 10 -6

Media Utilization Figure 10. 1, Page 655 Copyright © 2010 Pearson Education, Inc. SOURCE:

Internet and Traditional Media Cannibalization vs. complementarity n Time spent on Internet reduces time available for other media n v Books, newspapers, magazines, phone, radio Conversely, Internet users consume more media of all types than non-Internet users n Internet users also often “multitask” with media consumption n Multimedia—reduces cannibalization impact for some visual, aural media n Copyright © 2010 Pearson Education, Inc. Slide 10 -8

Media Revenues by Channel Figure 10. 2, Page 656 Copyright © 2010 Pearson Education,

Relative Size of the Content Market, Based on Per-Person Spending Figure 10. 3, Page

Digital Content Delivery Models n Two commercial content business models 1. Paid (mostly music) 2. Free with advertiser support n Free content can drive users to paid content n User-generated content v Over 89 million users have created, 124 million have viewed v Typically free, advertising supported v You. Tube the leading video site Copyright © 2010 Pearson Education, Inc. Slide 10 -11

Fee or Free? n Early years: Internet audience expected free content but willing to accept advertising v Early content was low-quality n With advent of high-quality content, fee models successful v i. Tunes v 29 million buy from legal music sites v Newspapers charging for premium content v You. Tube cooperating with Hollywood production studios Copyright © 2010 Pearson Education, Inc. Slide 10 -12

Media Industry Structure n Pre-1990, smaller independent corporations in separate industries v Film, TV, book/magazine publishing, and newspaper publishing n Today, three separate segments: v Publishing, newspapers, entertainment v Each segment dominated by a few key players n Larger media ecosystem includes millions of individuals, entrepreneurs (blogs, You. Tube, independent music bands) Copyright © 2010 Pearson Education, Inc. Slide 10 -13

Media Convergence n Technological convergence: v Development of hybrid devices that combine the functionality of existing media platforms, e. g. , PDAs n Content convergence: v Three aspects: design, production, and distribution v Today, new tools for digital editing and processing are driving content convergence n Industry convergence: v Merger of media enterprises into firms that create and cross-market content on different platforms v E. g. , AOL/Time Warner, News Corp. Copyright © 2010 Pearson Education, Inc. Slide 10 -14

Convergence and the Transformation of Content: Books Figure 10. 5, Page 663 Copyright ©

Online Content Revenue Models and Business Processes n Marketing v Free content drives offline revenues n Advertising v Fee content paid for by advertising n Pay-per-view/pay-for-download v Charge for premium content n Subscription v Monthly charges for services n Mixed Copyright © 2010 Pearson Education, Inc. Slide 10 -16

Making a Profit with Online Content n Many online users (25%) will pay for some content n Four factors required to charge for online content 1. Focused market 2. Specialized content 3. Sole source monopoly 4. High perceived net value n Portion of perceived customer value that can be attributed to fact that content is available on the Internet Copyright © 2010 Pearson Education, Inc. Slide 10 -17

Revenue and Content Characteristics Figure 10. 6, Page 668 Copyright © 2010 Pearson Education,

Key Challenges Facing Content Producers and Owners n Technology v Bandwidth issues for high definition video, CD-quality music n Cost v Internet distribution more costly than anticipated, for migrating, repackaging, and redesigning content n n Distribution channels and cannibalization Digital Rights Management (DRM) v Use of technology to circumvent DRM v Interests of content creators versus technology companies that profit from illegal downloads Copyright © 2010 Pearson Education, Inc. Slide 10 -19

Insight on Business Who Owns Your Files? Class Discussion n Why does digital content need any more protection than analog content stored on records and tapes? n What is DRM software? Have you ever encountered digital content that is protected with DRM? n How do Apple’s i. Pod and i. Tunes use DRM? n In what way did DRM make i. Tunes possible? n How does DRM potentially interfere with “fair use” of copyrighted material? Copyright © 2010 Pearson Education, Inc. Slide 10 -20

Online Newspapers Most troubled segment of publishing industry n However, online readership growing at 17% per year n Online newspapers one of most successful forms of online content to date n v However, few have reached break-even n Entrepreneurs have used Web to take away part of newspapers’ content/business— classifieds (Craigslist), weather, news, etc. Copyright © 2010 Pearson Education, Inc. Slide 10 -21

Monthly Unique Visitors at Top 10 Online Newspapers Figure 10. 7, Page 676 Copyright

Newspaper Business Models Initially fee-based, then free, and now beginning a return to fee-based n Traditional newspapers rely on advertising and subscriptions n v Advertisers unwilling to pay high rates for online ads Newspapers have sought industry-wide alliances, e. g. , Career. Builder n Other strategies n v Revenue sharing with Internet titans v New reader devices Copyright © 2010 Pearson Education, Inc. Slide 10 -23

Convergence in Newspaper Industry n Technology: v Slow move to Internet; beginning to incorporate video, RSS, etc. n Content: v Four content changes 1. Premium archived content 2. Fine-grained searching 3. Video reporting 4. RSS feeds v Timeliness allows competition with TV/radio n Industry structure: has not seen much convergence due to limited returns Copyright © 2010 Pearson Education, Inc. Slide 10 -24

Challenges: Disruptive Technologies n Classic case of disruptive technology? v Online news destroying existing business model n Industry still in flux v Newspapers have significant assets: Content n Readership n Local advertising n n Audiences v Wealthier, older, better educated than You. Tube audience v Online audience will continue to grow in numbers and sophistication Copyright © 2010 Pearson Education, Inc. Slide 10 -25

E-books n Evolution v Project Gutenberg (1970 s) v Voyager’s books on CD (1990 s) v Adobe’s PDF format n Types of commercial e-books v Web-accessed e-book v Web-downloadable e-book v Dedicated e-book reader n Kindle, Sony Reader v General purpose PDA reader v Print-on-demand books Copyright © 2010 Pearson Education, Inc. Slide 10 -26

E-book Audience Size and Growth n Reading books on Internet is not a popular activity v 3% of Internet users read books online E-book sales: $100 million in 2009 n Fastest growing delivery platform for text content n Potential market depends on users willing to read electronic editions of books, how much they will pay n Copyright © 2010 Pearson Education, Inc. Slide 10 -27

Growth of E-Book Revenues 2009– 2013 Figure 10. 9, Page 685 Copyright © 2010

Advantages of E-books n n n Reduced transaction costs, retail costs for user Increased accessibility to entire libraries Searchable text Modularization of content Easy to update Lower production and distribution costs Longer lasting Increased opportunities for writers to publish Increased availability of out-of-print titles Reduced cost of library functions Reduced weight for book bags Copyright © 2010 Pearson Education, Inc. Slide 10 -29

Disadvantages of E-books Require expensive and complex electronic devices to use n Less portability than print books n Reduced quality of print on screen n Multiple competing standards n Uncertain business models n Copyright management and royalty issues with authors n Copyright © 2010 Pearson Education, Inc. Slide 10 -30

E-book Industry Revenue Models n Primary model is pay-for-download v Publishers selling electronic versions of print books to online intermediaries such as Barnesandnoble. com and Amazon n Second model involves licensing of entire e-libraries of content v Similar to subscription model, monthly or annual fee v Customers typically major institutions, libraries n Advertising-supported model v Distributor (e. g. , Google) arranges for rights to display book, shares ad revenues with publishers Copyright © 2010 Pearson Education, Inc. Slide 10 -31

Convergence in Publishing Industry n Technological convergence slowed by: v Poor resolution of computer screens v Lack of portable reader devices to compete with book v DRM concerns v Lack of standards n Potential solutions v Sub-pixel display technologies v Electronic ink technology v DRM software v Emerging standards: OEB, ONIX Copyright © 2010 Pearson Education, Inc. Slide 10 -32

Convergence in Publishing Industry n Content v Little progress toward content convergence from a design standpoint v E-books in media integration stage n n XML and large-scale online text/graphic storage systems have transformed book production and made it more efficient Industry structure v Industry not transformed, still dominated by a few titans v Some challenges from: n Google, Microsoft in indexing copyrighted books n Barnes & Noble move into publishing n User-generated content Copyright © 2010 Pearson Education, Inc. Slide 10 -33

Insight on Society The Future of Books Class Discussion n What technologies are changing the concept of what a book is? n Do you consider Wikipedia a “book, ” and if so, what type of book? n What qualities makes Unigo. com a threat to traditionally published college references? n Are some types of traditional books more threatened by Internet technologies than others? Copyright © 2010 Pearson Education, Inc. Slide 10 -34

Online Entertainment Industry n Major players: v Television, radio, Hollywood films, music, video games n Undergoing a transformation brought about by Internet, aided by: v i. Pod/i. Phone, video, and music platform v Digital cellular networks v Social networking platforms v Viable business models in music subscription services v Widespread growth of broadband v Development of DRM Copyright © 2010 Pearson Education, Inc. Slide 10 -35

The Five Major Players in the Entertainment Industry Figure 10. 10, Page 694 SOURCE: U. S. Census Bureau, 2009; NPD Group, 2009 authors’ estimates. Copyright © 2010 Pearson Education, Inc. Slide 10 -36

Online Entertainment Audience Size n Online “traditional” entertainment (films, music, games): v Music downloads lead the list, followed by online games and TV, radio n User-generated content: v Both a substitute for and complement to traditional commercial entertainment v Two dimensions: user focus and user control n Sites that offer high levels of both will grow v E. g. , popular social networking sites such as My. Space Copyright © 2010 Pearson Education, Inc. Slide 10 -37

Projected Growth in Traditional Online Entertainment (in Millions) Figure 10. 11, Page 696 Copyright © 2010 Pearson Education, Inc. SOURCES: e. Marketer, 2009 e, Stevenson, 2009; authors’ estimates. Slide 10 -38

User Role in Entertainment Figure 10. 12, Page 697 Copyright © 2010 Pearson Education,

Content n Internet has greatly changed packaging, distribution, marketing, sales of traditional entertainment content n Greatest impact: music v From CD of 12– 15 songs to single-song downloads v From retail stores to Internet delivery v Groups can bypass traditional marketing and sales using Web and niche audiences on My. Space Copyright © 2010 Pearson Education, Inc. Slide 10 -40

Convergence in Entertainment Industry n Technology convergence: v Music technology platform has converged n PCs and handheld devices (i. Pods) become music listening devices n PC has become game station v Movies and television n Convergence hampered by unwillingness of movie industry to make products available on range of Internet-enabled devices n Moves toward Internet distribution v i. Tunes Store v Hulu, Movie. Flix, Movies. com, Spike. com v Industry-supported sites for contemporary movies: Movie. Link, Cinema. Now Copyright © 2010 Pearson Education, Inc. Slide 10 -41

Convergence in Entertainment Industry n Content convergence v Significant progress toward digital tools for content creation and production Digital cameras n Digital computer workstations for film editing n Music recording and production highly digitized; some distribution direct to Internet, bypassing CD production stage n v Distribution channels Television and feature films still primarily use analog delivery vehicles n Content moving toward Internet delivery platforms n Copyright © 2010 Pearson Education, Inc. Slide 10 -42

Convergence in Entertainment Industry n Industry structure v Fractionated: many players and forces shape industry v Possible alternative models: n Content owner direct model: v n Aggregator model: v n Internet offers entertainment content providers opportunity to dominate industry value chain by eliminating distributors and retailers and selling direct to consumer Web intermediaries enter into alliances with content owners Internet innovator model: v Successful technology companies who develop platforms begin creating own content for proprietary platforms Copyright © 2010 Pearson Education, Inc. Slide 10 -43

Entertainment Industry Value Chains Figure 10. 13, Page 700 Copyright © 2010 Pearson Education,

Insight on Technology Hollywood Meets the Internet: Round 2 Class Discussion n What strategies has Hollywood pursued to combat movie piracy? n Are there legitimate ways that videos can be distributed on the Web? n How can the differentiation of DVD products help in combating piracy? n Do you think Hollywood is doing a better job of protecting its content than the music industry? Copyright © 2010 Pearson Education, Inc. Slide 10 -45

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 46