09 Online Media

e-commerce
business. technology. society.

eighth edition

Kenneth C. Laudon
Carol Guercio Traver

Copyright © 2012 Pearson Education, Inc.

Chapter 9
Online Media

1

Information Wants to Be Expensive
Class Discussion

Why did the Wall Street Journal succeed with a
subscription model?
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?
Do you think newspapers can make the transition
from “print on paper” to “news on-screen”?
What do you think about the New York Times’ new
subscription-based model?
Copyright © 2012 Pearson Education Slide 9-3

Learning Objectives
Identify the major trends in the consumption of
media and online content
Discuss the concept of media convergence and the
challenges it faces
Describe the five basic content revenue models
Discuss the key challenges facing content producers
and owners
Understand the key factors affecting the online
publishing industry
Understand the key factors affecting the online
entertainment industry


2

Trends in Online Content, 2011–2012
Increased media consumption; Internet time
> newspapers & music, but still far lower
than TV
Smartphones and tables create “fourth
screen” to view media while on the move
Growth of social and local content
User-generated content growing, inverting
traditional production/business models
Apple, Google, Amazon, Facebook vie for
ownership of online content ecosystem

Trends in Online Content (cont.)
Internet advertising revenues expanding rapidly
Increased consumer acceptance of paying for
premium content
Content owners adapt mixture of advertising,
subscription, a la carte payment for business
model
Convergence: video streaming of movies and
shows by Hollywood and TV studios; IPTV;
Newspapers and magazines adding live video to
their online sites

3

Content Audience and Market
Average American adult spends 4,400
hrs/yr consuming various media (> annual
work hours of 2,000 hrs/yr)
2011 US media & entertainment revenues:
$580 billion, and growing at 5% rate to 2015
Over 75% of the hours spent consuming TV,
radio, Internet
2.5 hrs/day on Internet
Internet usage doesn’t reduce TV viewing

Media Consumption

Figure 9.1, Page 617 SOURCE: Based on data from U.S. Census Bureau, 2010,
authors’ estimates

4

Internet and Traditional Media
Cannibalization vs. complementarity
Time spent on Internet reduces time available for
other media
Books, newspapers, magazines, phone, radio

Conversely, Internet users consume more media of
all types than non-Internet users
Internet users also often “multitask” with media
consumption
Multimedia—reduces cannibalization impact for
some visual, aural media

Media Revenues by Channel

Figure 9.2, Page 618 SOURCE: Based on data from U.S. Census Bureau, 2011;
Copyright © 2012 Pearson Education authors’ estimates. Slide 9-10

5

Relative Size of the Content Market,
Based on Per-Person Spending

Figure 9.3 Page 619 SOURCE: Based on data from U.S. Census Bureau, 2011;
Copyright © 2012 Pearson Education authors’ estimates. Slide 9-11

Digital Content Delivery Models
Three commercial content business models
Paid
Free with advertiser support
Freemium: some content is free but more complete
content requires paid subscriptions
Free content can drive users to paid content
Users increasingly paying for high-quality,
unique content
Music, games, newspapers, movies
Online paid content audience growing rapidly

6

Fig. 9.4


Table 9.2


7

Free or Fee?
Early years: Internet audience expected free
content but willing to accept advertising
Early content was low quality
With advent of high-quality content, fee
models successful
iTunes
29 million buy from legal music sites
Newspapers charging for premium content
YouTube cooperating with Hollywood production
studios

Media Industry Structure
Three separate segments, each
dominated by few key players
Publishing,
Newspapers
Entertainment
Larger media ecosystem
Includes millions of individuals, entrepreneurs
(blogs, YouTube, independent music bands)


8

Media Convergence
Technological convergence:
Hybrid devices combining functionality of existing media
platforms, e.g., books, newspapers, TV, radio, into a single device,
e.g., smartphones
Content convergence:
Three aspects: Design, production, distribution
New tools for digital editing and processing, e.g., GarageBand
Distributions: music store CD, physical books e-books, films
going trucks satellite or fiber optic cable
Industry convergence:
Merger of media enterprises into firms that create and cross-
market content on different platforms
E.g., AOL & Time Warner, News Corp & MySpace, Google & Youtube

Convergence and the Transformation
of Content: Books

Figure 9.5, Page 625

9

Online Content Revenue Models and
Business Processes
Marketing
Free content drives offline revenues
Advertising
Fee content paid for by advertising
Pay-per-view/pay-for-download
Charge for premium content
Subscription
Monthly charges for services
Mixed

Table 9.3


10

Table 9.4


Making a Profit with Online Content
25% users will pay for some content
Four factors required to charge for
online content
1. Focused market
2. Specialized content
3. Sole source monopoly
4. High perceived net value
Portion of perceived customer value that can be
attributed to fact that content is available on the
Internet

11

Revenue and Content Characteristics


Key Challenges Facing Content
Producers and Owners
Technology
Bandwidth issues for HD video, CD-quality music
Cost
Internet distribution more costly than anticipated, for
migrating, repackaging, and redesigning content
Distribution channels and cannibalization
Apple’s iTunes Store, YouTube, Hulu.com (NBC+Fox+ABC) top
10 online video & movie distributors
Digital rights management (DRM)
Use of technology to circumvent DRM
Interests of content creators vs. technology companies that
profit from illegal downloads


12

Insight on Business: Class Discussion

Who Owns Your Files?
Why does digital content need any more protection than
analog content stored on records and tapes?
What is DRM software? Have you ever encountered digital
content that is protected with DRM?
Why did Apple abandon its DRM software? Is DRM working
for Amazon’s Kindle?
Does it matter to the consumer whether content purchased
is “owned” or “licensed”?
How does DRM potentially interfere with “fair use” of
copyrighted material?


Online Newspapers
Most troubled segment of publishing
industry
60% of newspapers have reduced staff in last 3 years
Failure to protect news content from free distribution
by aggregators like Yahoo, MSN, Google
However:
Online readership growing at 16%
Mobiles, tablets provide new avenues
More users willing to pay for premium content
Aggregators are recognizing need for high-quality
content to distribute and use for advertisements

13

Monthly Unique Visitors at Online Newspapers

Figure 9.7, Page 637 SOURCES: Based on data from comScore, 2011a;
Copyright © 2012 Pearson Education Compete.com, 2011. Slide 9-27

Newspaper Business Models
Initially fee-based, then free, and now
beginning a return to fee-based
Newspaper headlines are primary content on
Google News, Yahoo News
New York Times now charging for premium
access
Newspaper efforts to ally with Internet titans
New reader devices with reader apps


14

Convergence in Newspaper Industry
Technology:
Slow move to Internet; beginning to incorporate video, RSS, user
feedback
Content:
Four content changes
Premium archived content
Fine-grained searching
Videos reporting
RSS feeds
See next Fig.
Timeliness allows competition with TV/radio
Industry structure: Has not seen much convergence
due to limited returns

Fig. 9.8


15

Challenges: Disruptive Technologies
Newspapers: a classic case of disruptive
technology?
Industry still in flux
Newspapers have significant assets:
Content
Readership
Local advertising
Audience (wealthier, older, better educated)
Online audience will continue to grow in
numbers and sophistication

E-books
Some predicted that Internet would
mean dwindling of books
Today, book publishing generates $24
billion
Publishing industry concerns:
How much to charge for e-books
What content enhancements encourage
purchasing of e-books
Best business relationship with online
distributors like Apple, Google, Amazon

16

E-books
Evolution
Project Gutenberg (1970s) putting Declaration of
Independence and 2,00 classic books online
Voyager’s putting Jurassic Park and Alice in Wonderland
books on CDs (1990s)
Adobe’s PDF format
Types of commercial e-books
Web-accessed e-book, e.g., Encyclopedia Britannica,
Wikipedia.com, CourseSmart
Web-downloadable e-book, e.g., Google Books Project,
Google Book Library Project, NetLibrary, Questia
Dedicated e-book reader
Amazon Kindle, Sony Reader, Barnes & Noble Nook
General purpose reader, e.g., iPhones, iPads, BBs,
Androids
Print-on-demand books

Table 9.5


17

Book Audience Size and Growth
Americans read about 10 books per year per
person
Americans spend $95/year on trade books,
more than video games ($72), and in-theater
movies ($41)
Book readership is flat, anchored in the 40+
population
Professional and educational titles
publication growing 2 times as fast as US
economy

Growth of E-book Revenues 2009–2015

Figure 9.9, Page 646 SOURCES: Based on data from Assoc. of American Publishers, 2011;
eMarketer, 2011b; authors’ estimates.

18

E-book Industry Revenue Models
Wholesale model
As with traditional publishing, retailer pays wholesale
price and marks price up
With lowered prices of e-books, profits to publisher are
also lower
Agency model
Publishers set retail price and designate an agent who
receives 30% commission
Leads to higher, fixed prices for e-books
Google, Amazon, Apple benefit primarily by selling
e-book readers

Table 9.6


19


Convergence in Publishing Industry
Technological convergence slowed by:
DRM concerns
Competing standards (Kindle, Nook, iPad)
Content convergence
User experiences is still turning pages of text and
graphics
Industry structure
Print publishing industry in flux
Non-physical books
Authors bypassing traditional publishing and distribution


20

Insight on Society: Class Discussion

The Future of Books
What technologies are changing the concept
of what a book is?
Do you consider Wikipedia a “book,” and if
so, what type of book?
What qualities makes Unigo a threat to
traditionally published college references?
Are some types of traditional books more
threatened by Internet technologies than
others?

Online Entertainment Industry
Major players:
Television, radio, Hollywood films, music, video games
Internet is transforming industry, along with:
Smartphones, tablets as video, music platform
Online streaming, Netflix
Social network platforms
Viable business models in music subscription services,
e.g., Pandora, Spotify, Rhapsody
Widespread growth of broadband
Business models (music & video streaming subscription
services) that eliminate need for DRM


21

The Five Major Players in the Entertainment Industry

Figure 9.10, Page 652 SOURCE: Based on data from U.S. Census Bureau, 2011; NPD Group, 2011,
authors’ estimates.

Online Entertainment Audience Size
Online “traditional” entertainment
Online video has largest audiences, followed by music,
games (see next Fig.)

User-generated content:
Substitutes for and complements traditional
commercial entertainment
Two dimensions:
User focus
User control
Sites that offer high levels of both will grow


22

Projected
Growth in
Traditional
Online
Entertainment
(in Millions)

SOURCES: Based on data
from industry sources;
authors’ estimates.

User Role in Entertainment


23

Content
Internet has greatly changed packaging,
distribution, marketing, sales of traditional
entertainment
Greatest impact: Music
From CD of 12–15 songs to single-song downloads
Groups can bypass traditional marketing and sales
organization by creating their own Web distribution network

Revenue Models:
Marketing, advertising, pay-per-view, subscription, value-
added, mixed

Convergence in
Entertainment Industry
Technology convergence:
Smartphones, tablets become music listening
devices, video players, game stations
Game stations connect to Internet, stream
movies
Movies and television
Move toward Internet distribution
iTunes Store selling music, movies, TV shows
Netflix streaming movies to PCs and set-top boxes
Hulu streaming TV shows, trailer, and older movies for free
using advertiser-supported model


24

Convergence in
Entertainment Industry (cont.)
Content convergence
Significant progress toward digital tools
for content creation and production
Digital cameras, workstations generating
animations and digital effects in movie scenes
Music recording and production highly
digitized; some distribution direct to Internet,
bypassing CD production stage

Convergence in
Entertainment Industry (cont.)
Industry structure
Fractured: Many players and forces shape
industry
Reorganization of value chain needed for
aggressive move to Web
Possible alternative models
Content owner direct model
Internet aggregator model
Internet innovator model


25

Entertainment Industry Value Chains


Insight on Technology

Hollywood Meets the Internet: Round 3
Class Discussion
What strategies has Hollywood pursued to combat
movie piracy?
Are there legitimate ways that videos can be
distributed on the Web?
How can the differentiation of DVD products help in
combating piracy?
Do you think Hollywood is doing a better job of
protecting its content than the music industry?


26


27

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