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E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. eighth edition Copyright © 2012 Pearson Education, Inc.

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Presentation on theme: "E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. eighth edition Copyright © 2012 Pearson Education, Inc."— Presentation transcript:

1 e-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. eighth edition Copyright © 2012 Pearson Education, Inc.

2 Chapter 10 Online Content and Media

3 Class Discussion Information Wants to Be Expensive 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, Inc.Slide 10-3

4 Trends in Online Content, 2011–2012 Increased media consumption Smartphones and tables create “fourth screen” 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 Copyright © 2012 Pearson Education, Inc.Slide 10-4

5 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 Copyright © 2012 Pearson Education, Inc.Slide 10-5

6 Content Audience and Market Average American adult spends 4,400 hrs/yr consuming various media 2011 media revenues: $580 billion Over 75% of the hours spent consuming TV, radio, Internet 2.5 hrs/day on Internet Internet usage doesn’t reduce TV viewing Copyright © 2012 Pearson Education, Inc.Slide 10-6

7 Media Consumption Figure 10.1, Page 651 Copyright © 2012 Pearson Education, Inc. SOURCE: Based on data from U.S. Census Bureau, 2010, authors’ estimates Slide 10-7

8 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 Copyright © 2012 Pearson Education, Inc.Slide 10-8

9 Media Revenues by Channel Copyright © 2012 Pearson Education, Inc. SOURCE: Based on data from U.S. Census Bureau, 2011; authors’ estimates. Figure 10.2, Page 652 Slide 10-9

10 Relative Size of the Content Market, Based on Per-Person Spending Figure 10.3 Page 653 Copyright © 2012 Pearson Education, Inc. SOURCE: Based on data from U.S. Census Bureau, 2011; authors’ estimates. Slide 10-10

11 Digital Content Delivery Models Three commercial content business models  Paid  Free with advertiser support  Freemium 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 Copyright © 2012 Pearson Education, Inc.Slide 10-11

12 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 Copyright © 2012 Pearson Education, Inc.Slide 10-12

13 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) Copyright © 2012 Pearson Education, Inc.Slide 10-13

14 Media Convergence Technological convergence:  Hybrid devices combining functionality of existing media platforms, e.g., smartphones Content convergence:  Three aspects: Design, production, distribution  New tools for digital editing and processing Industry convergence:  Merger of media enterprises into firms that create and cross-market content on different platforms Copyright © 2012 Pearson Education, Inc.Slide 10-14

15 Convergence and the Transformation of Content: Books Figure 10.5, Page 659 Copyright © 2012 Pearson Education, Inc.Slide 10-15

16 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 Copyright © 2012 Pearson Education, Inc.Slide 10-16

17 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 Copyright © 2012 Pearson Education, Inc.Slide 10-17

18 Revenue and Content Characteristics Figure 10.6, Page 664 Copyright © 2012 Pearson Education, Inc.Slide 10-18

19 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 Digital rights management (DRM)  Use of technology to circumvent DRM  Interests of content creators vs. technology companies that profit from illegal downloads Copyright © 2012 Pearson Education, Inc.Slide 10-19

20 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? Copyright © 2012 Pearson Education, Inc.Slide 10-20

21 Online Newspapers Most troubled segment of publishing industry  60% have reduced staff  Failure to protect content from free distribution 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 Copyright © 2012 Pearson Education, Inc.Slide 10-21

22 Monthly Unique Visitors at Online Newspapers Figure 10.7, Page 671 Copyright © 2012 Pearson Education, Inc. SOURCES: Based on data from comScore, 2011a; Compete.com, Slide 10-22

23 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 Copyright © 2012 Pearson Education, Inc.Slide 10-23

24 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  Timeliness allows competition with TV/radio Industry structure: Has not seen much convergence due to limited returns Copyright © 2012 Pearson Education, Inc.Slide 10-24

25 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 Copyright © 2012 Pearson Education, Inc.Slide 10-25

26 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 distributors Copyright © 2012 Pearson Education, Inc.Slide 10-26

27 E-books Evolution  Project Gutenberg (1970s)  Voyager’s books on CD (1990s)  Adobe’s PDF format Types of commercial e-books  Web-accessed e-book  Web-downloadable e-book  Dedicated e-book reader Kindle, Sony, Nook  General purpose reader  Print-on-demand books Copyright © 2012 Pearson Education, Inc.Slide 10-27

28 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, in-theater movies Book readership is flat, anchored in the 40+ population Professional, educational publishing growing 2 times as fast as economy Copyright © 2012 Pearson Education, Inc.Slide 10-28

29 Growth of E-book Revenues 2009–2015 Copyright © 2012 Pearson Education, Inc. SOURCES: Based on data from Assoc. of American Publishers, 2011; eMarketer, 2011b; authors’ estimates. Figure 10.9, Page 680 Slide 10-29

30 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 Copyright © 2012 Pearson Education, Inc.Slide 10-30

31 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 Copyright © 2012 Pearson Education, Inc.Slide 10-31

32 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? Copyright © 2012 Pearson Education, Inc.Slide 10-32

33 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  Widespread growth of broadband  Business models that eliminate need for DRM Copyright © 2012 Pearson Education, Inc.Slide 10-33

34 The Five Major Players in the Entertainment Industry Figure 10.10, Page 686 Copyright © 2012 Pearson Education, Inc. SOURCE: Based on data from U.S. Census Bureau, 2011; NPD Group, 2011, authors’ estimates. Slide 10-34

35 Online Entertainment Audience Size Online “traditional” entertainment  Online video has largest audiences, followed by music, games 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 Copyright © 2012 Pearson Education, Inc.Slide 10-35

36 Projected Growth in Traditional Online Entertainment (in Millions) Figure 10.11, Page 688 SOURCES: Based on data from industry sources; authors’ estimates. Copyright © 2012 Pearson Education, Inc.Slide 10-36

37 User Role in Entertainment Figure 10.12, Page 689 Copyright © 2012 Pearson Education, Inc.Slide 10-37

38 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 Revenue Models:  Marketing, advertising, pay-per-view, subscription, value-added, mixed Copyright © 2012 Pearson Education, Inc.Slide 10-38

39 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  Netflix  Hulu Copyright © 2012 Pearson Education, Inc.Slide 10-39

40 Convergence in Entertainment Industry (cont.) Content convergence  Significant progress toward digital tools for content creation and production Digital cameras, workstations Music recording and production highly digitized; some distribution direct to Internet, bypassing CD production stage Copyright © 2012 Pearson Education, Inc.Slide 10-40

41 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 Copyright © 2012 Pearson Education, Inc.Slide 10-41

42 Entertainment Industry Value Chains Figure 10.13, Page 693 Copyright © 2012 Pearson Education, Inc.Slide 10-42

43 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? Copyright © 2012 Pearson Education, Inc.Slide 10-43

44 Copyright © 2012 Pearson Education, Inc.Slide 10-44


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