September 2001Chapter 14: Media Transformation1 -Questions answered in this chapter: What is media convergence? What conditions make media convergence possible? How do new media companies leverage traditional media channels? What are the reasons for media Megamergers?

September 2001Chapter 14: Media Transformation2 What is Media convergence? -The media infrastructure includes all of the communication companies and channels of communications such as radio, television, newspapers and magazines. Media convergence is the process by which different types of media content are evolving into a single media platform through the internet.

September 2001Chapter 14: Media Transformation3 What conditions make media convergence possible? -The conversion of analog signals to digital signals has been one of the major steps in making media convergence possible. Some of the key factors are: Continued advances and decreasing cost of digital technology. Low Cost digital network infrastructure. Media Proliferation. Media-Usage Fragmentation in American households. Forecasted continued Media proliferation and media usage fragmentation.

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September 2001Chapter 14: Media Transformation8 How do New Media Companies leverage traditional media channels? -The new economy is actually dependent on the traditional media channels to build an audience for new media. Dot-com companies were predicted to spend an estimated $5 billion to $6 billion in advertising in percent of the amount spent in advertising were to be spent on ads placed in traditional media outlets. Top dot-com advertisers were E*Trade, Dow Jones, Cheap Tickets, Priceline.com and Charles Schwab’s online trading site. Internet is emerging as a mechanism for supplementing, not replacing, traditional media sources.

September 2001Chapter 14: Media Transformation9 How do New Media Companies leverage traditional media channels? (cont’d) -We delve deeper into this section by considering the following case examples: The New York Times Real Networks MSNBC

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September 2001Chapter 14: Media Transformation11 The New York Times on the web -NYTimes.com was launched in 1996 and by the end of 2000 it emerged as the leading newspaper site on the web. It had 14 million registered users and it was getting 178 million page views. The site forces users to register to access the archives of other site services. The site collects user information like address along with basic demographic information. The key differentiating strategy that can be attributed to the success of NYTimes.com is to deliver a targeted, upscale audience to its advertisers.

September 2001Chapter 14: Media Transformation12 RealNetworks -The company was founded in 1994 by Rob Glaser. It has emerged as the leading maker of streaming media software products, which deliver audio, video, and other multimedia services to PCs and digital devices. Currently RealPlayer products (which include RealVideo, RealJukebox and GoldPass) are used by 170 million people. It has alliances with several major media content makers such as CNN, ABCNews.com, Oxygen, ESPN Sports and Bloomberg as well as over 2500 radio stations. The company earned an operating profit of $30.9 million on net revenue of $241.5 million in fiscal year 2000.

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September 2001Chapter 14: Media Transformation14 MSNBC -This cable and online news channel was launched in 1996, which is jointly owned by Microsoft and General Electric, the parent company of NBC. MSNBC.com is the leading news site on the web with 12.3 million unique visitors. It provides 24 hour news and information content on both cable television and the web. Visitors can view segments, participate in audience jury vote or watch the the MSNBC cable news channel live. Strategic alliance with The Washington Post allows MSNBC.com to also post print stories from the Washington Post and Newsweek on its site.

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September 2001Chapter 14: Media Transformation16 What are the reasons for Media Megamergers? -One of the key strategies to capture wide audiences has been to develop vertical integration for content and distribution across all three core media types.This has been possible through media megamergers like: Time Warner and Turner Broadcasting. The Walt Disney Company and Capital Cities/ABC. Westinghouse and CBS. Viacom and CBS. AOL and Time Warner. Tribune Company and Times Mirror.

September 2001Chapter 14: Media Transformation17 What are the reasons for Media Megamergers? (cont’d) -The five most important reasons for the media mega- mergers are: The Telecommunications act of 1996 Vertical Integration Pursuit of multiple revenue streams Advances in new digital technologies Entry into global markets

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September 2001Chapter 14: Media Transformation20 Media Economics -Each form of media has its own economics and hence a different business model. The most commonly discussed media types are: Newspapers Magazines Books Broadcast Television Cable Television Radio Film Videos DVDs Music CDs Video Game Consoles, and MP3

September 2001Chapter 14: Media Transformation21 Media Economics (cont’d) -Newspapers The top 4 newspapers in the United States at the end of 1999 were USA today, The Wall Street Journal, The New York Times and the Los Angeles Times with each of them having a daily circulation of 1 million or more. The average newspaper reader is older, well educated, and earns a relatively high income. Newspaper sales account only for a portion of a daily newspaper revenue with approximately 75% coming from advertisers. 45 % of the advertising comes from retail and classifieds and the balance comes from national advertising which represented national accounts such as financial services, airlines and hotels.

September 2001Chapter 14: Media Transformation22 Media Economics (cont’d) -Magazines At the end of 1998, the top magazines were Modern Maturity, Reader’s Digest, AARP Bulletin and TV guide. Approximately 82% of all consumer magazines are sold through subscription; the remaining 18% are sold through retail outlets such as supermarkets and newsstands. Almost all magazines make money through a combination of circulation and advertising revenue. Many magazines have launched companion websites as a way to enhance subscriber benefits and to build home delivery circulation.

September 2001Chapter 14: Media Transformation23 Media Economics(cont’d) -Books The popular subject areas are sociology, fiction, juvenile and technology. With the continued proliferation of the Internet, book publishers are looking at the possibility of going from “print and distribute” model to “distribute and print” model. Consulting firm Accenture predicts that e-books will be at $2.3 billion business by 2005, which represents one-tenth of the $23 billion book market.

September 2001Chapter 14: Media Transformation24 Media Economics (cont’d) -Broadcast Television The three major U.S networks are: ABC, CBS, NBC, each having approximately 200 local television affiliates. On an average each network airs 90 hours of programming a week. Digital television, which offers lifelike picture and CD quality sound is considered to be the biggest broadcast innovation since color television was introduced in 1950s. Introduction of Digital Television(DTV) will increase the number of network channels offered in the future.

September 2001Chapter 14: Media Transformation25 Media Economics (cont’d) -Cable Television RCA began to transmit programming to independent cable operators around the country, under the name HBO, who then relayed it to subscribers. The number of cable television subscribers has grown from 496,000 in 1975 to 48.4 million in The cable channels make their revenue through a combination of advertising and subscription fees. The top six channels by the end of 1999 were: TBS Superstation, The Discovery Channel, USA Network, ESPN, C-SPAN and CNN.

September 2001Chapter 14: Media Transformation26 Media Economics (cont’d) -Radio Similar to broadcast television, radio generates nearly all of its revenue from advertising by delivering a select audience to advertisers. At the end of 1999, there were 12,641 radio stations on the air, approximately 81% of which were commercial stations. -Film The motion picture industry earned an estimated $7.7 billion in 2000 with various studios releasing an average of 400 films per year. By 1998, average cost of movie making had tripled to $52.7 million, largely due to rising actor salaries, increased demand for special effects and other spiraling costs.

September 2001Chapter 14: Media Transformation27 Media Economics (cont’d) -The other important forms of media are: Video DVDs Music CDs Video Game consoles, and MP3.

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