Copyright © 2012 Pearson Education, Inc.

Online Content and Media Chapter 10 Online Content and Media

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.

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.

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.

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.

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

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

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

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.

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.

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.

Media Convergence Technological convergence: Content 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.

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

Making a Profit with Online Content 25% users will pay for some content Four factors required to charge for online content Focused market Specialized content Sole source monopoly 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.

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

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.

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.

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.

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

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.

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.

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.

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.

E-books Evolution Types of commercial e-books 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.

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.

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

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.

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.

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.

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.

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

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.

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.

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

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.

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.

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.

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.

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

What strategies has Hollywood pursued to combat movie piracy? 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.

Copyright © 2012 Pearson Education, Inc.