1. Copyright © 2010 Pearson Education, Inc. E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. Sixth Edition

2. Copyright © 2010 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Slide 10-2 Chapter 10 Online Content and Media

3. Copyright © 2010 Pearson Education, Inc. 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 Rupert Murdoch’s plan to change to a paid content model for all of News Corp online newspapers? Slide 10-3

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

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

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

7. Copyright © 2010 Pearson Education, Inc. Media Utilization Slide 10-7 Figure 10.1, Page 655 SOURCE: U.S. Census Bureau, 2009.

8. Copyright © 2010 Pearson Education, Inc. 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 Slide 10-8

9. Copyright © 2010 Pearson Education, Inc. Media Revenues by Channel Slide 10-9 SOURCE: U.S. Census Bureau, 2009.Figure 10.2, Page 656

10. Copyright © 2010 Pearson Education, Inc. Relative Size of the Content Market, Based on Per-Person Spending Slide 10-10 Figure 10.3, Page 657 SOURCE: U.S. Census Bureau, 2009.

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

12. Copyright © 2010 Pearson Education, Inc. Fee or Free? 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 Slide 10-12

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

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

15. Copyright © 2010 Pearson Education, Inc. Convergence and the Transformation of Content: Books Slide 10-15 Figure 10.5, Page 663

16. Copyright © 2010 Pearson Education, Inc. 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 Slide 10-16

17. Copyright © 2010 Pearson Education, Inc. Making a Profit with Online Content Many online users (25%) 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 Slide 10-17

18. Copyright © 2010 Pearson Education, Inc. Revenue and Content Characteristics Slide 10-18 Figure 10.6, Page 668

19. Copyright © 2010 Pearson Education, Inc. Key Challenges Facing Content Producers and Owners Technology  Bandwidth issues for high definition 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 versus technology companies that profit from illegal downloads Slide 10-19

20. Copyright © 2010 Pearson Education, Inc. Insight on Business Who Owns Your Files? Class Discussion 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? How do Apple’s iPod and iTunes use DRM? In what way did DRM make iTunes possible? How does DRM potentially interfere with “fair use” of copyrighted material? Slide 10-20

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

22. Copyright © 2010 Pearson Education, Inc. Monthly Unique Visitors at Top 10 Online Newspapers Slide 10-22 SOURCES: eMarketer, 2009d; Nielsen Net Ratings, 2009.Figure 10.7, Page 676

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

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

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

26. Copyright © 2010 Pearson Education, Inc. 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 Reader  General purpose PDA reader  Print-on-demand books Slide 10-26

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

28. Copyright © 2010 Pearson Education, Inc. Growth of E-Book Revenues 2009–2013 Slide 10-28 SOURCES: Bookseller.com, 2009; authors’ estimates.Figure 10.9, Page 685

29. Copyright © 2010 Pearson Education, Inc. Advantages of E-books 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 Slide 10-29

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

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

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

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

34. Copyright © 2010 Pearson Education, Inc. Insight on Society The Future of Books Class Discussion 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.com a threat to traditionally published college references? Are some types of traditional books more threatened by Internet technologies than others? Slide 10-34

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

36. Copyright © 2010 Pearson Education, Inc. The Five Major Players in the Entertainment Industry Slide 10-36 Figure 10.10, Page 694 SOURCE: U.S. Census Bureau, 2009; NPD Group, 2009 authors’ estimates.

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

38. Copyright © 2010 Pearson Education, Inc. Projected Growth in Traditional Online Entertainment (in Millions) Slide 10-38 SOURCES: eMarketer, 2009e, Stevenson, 2009; authors’ estimates.Figure 10.11, Page 696

39. Copyright © 2010 Pearson Education, Inc. User Role in Entertainment Slide 10-39 Figure 10.12, Page 697

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

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

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

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

44. Copyright © 2010 Pearson Education, Inc. Entertainment Industry Value Chains Slide 10-44 Figure 10.13, Page 700

45. Copyright © 2010 Pearson Education, Inc. Insight on Technology Hollywood Meets the Internet: Round 2 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? Slide 10-45

46. Copyright © 2010 Pearson Education, Inc.Slide 10-46 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. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall