1. 0 Annet Aris SVIAZ-Expocomm Day of Mass Communication May10, 2011 Strategic outloook for media: technology, economy, content Copyright 2011 Annet Aris. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from Annet Aris. This material was used by Annet Aris during an oral presentation; it is not a complete record of the discussion.

2. 1 Is the digitization of media a blessing or a curse? Blessings Curses  More consumer value: transparency, access, choice, own contribution  Higher advertising „Return on Investment“: better targeting, measuring, performance based pricing  Lower costs: production,distribution, storage  Lower willingness to pay, piracy  Exponential growth of advertising inventory  Winner takes it all? Source: Annet Aris For discussion

3. Digital consumers behave like a kid in a candy store 2 Lower rates More advertising Lower effective- ness Low WTP for content Less income/ more ads Lower content quality Source: Annet Aris

4. Impact of digitization on industry structure 3 Key characteristics No competition High barriers to entry High profitability Low consumer benefits Monopoly Oligopoly Perfect competition Limited competition Medium barriers to entry Profitability depends on industry conduct Medium to high consumer benefits High competition Low Barriers to entry Low profitability Medium to high consumer benefits Examples US telco’s/cable co’s US local newspapers TV broadcasters German magazines Music majors Independent TV producers Free lance journalists Book publishing Impact digitization Source:Annet Aris

5. 4 Pay TV Cable operators (Retailers) Terrestial Satelitte Cable Industry structure in the analogue media world Exam- ples Source:Annet Aris TV Game console TV channels Newspapers/ magazines Music majors Book publishers Game publishers Radio channels Artists TV/Movie Producers Sport associations Journalists Content Creator Content packager Platform operator Content bundler Hard-/ Software provider Industry structure Mostly competion Some oligopoly Hollywood) Monopoly for owners of hit rights Mostly well behaved oligopolies BtE: distribution scarcity, purchasing power Monopoly or competitve oligopoly Some competion between small retailers Monopolies or oligopolies BtE: investment in infrastructure Competitive oligopolies BtE: IP, investment in production facitlities Share of value add High (hits) Low (rest) High to medium High to low High to medium Medium to low

6. 5 Search Portals Social networks E-commerce Telecom Impact of digital on industry structure *BtE= Barriers to entry Source:Annet Aris Mobile Set top PC Websites Applications Consumers Hidden talents Crowds Content Creator Content packager Platform operator Content bundler Hard-/ Software provider Impact on Industry structure More competion Competitive oligopolies Functional monopolies? Competitve oligopolies Competitive oligopolies Impact on share of value add Higher (hits) Lower (rest) Medium to low HighMedium?High to low Negative impact Positive impact Uncertain impact New entrants

7. 6 Pay TV Cable operators Portal Search Mobile operators Terrestial Satelitte Cable ISP‘s Telco‘s FVNO Mobile operators MVNO‘S Convergence of platforms leads to vertical integration Video Inter- net Fixed Line voice Mobile Voice Source:Annet Aris TV Set top box PC Game consoles Telephone manufacturers Mobile phone manufacturers TV channels Free Pay Content sites Mobile operators TV/Movie Producers Sport associations Webeditors Users User Mobile content developers Content Creator Content packager Platform operator Content bundler Hard-/ Software provider

8. Pay TV Cable operators Portal Mobile operators Terrestial Satelitte Cable ISP‘s Telco‘s FVNO Mobile operators MVNO‘S TV channels Free Pay Content sites Mobile operators TV/Movie Producers Sport associations Webeditors Users User Mobile content developers 7 Convergence drives integration Video Inter- net Fixed Line voice Mobile Voice Source:Annet Aris TV Set top box PC Game consoles Telephone manufacturers Mobile phone manufacturers Content Creator Content packager Platform operator Content bundler Hard-/ Software provider

9. Pay TV Cable operators Portal Mobile operators Terrestial Satelitte Cable ISP‘s Telco‘s FVNO Mobile operators MVNO‘S TV channels Free Pay Content sites Mobile operators TV/Movie Producers Sport associations Webeditors Users User Mobile content developers 8..and even diagonal integration Video Inter- net Fixed Line voice Mobile Voice Source:Annet Aris TV Set top box PC Game consoles Telephone manufacturers Mobile phone manufacturers Content Creator Content packager Platform operator Content bundler Hard-/ Software provider

10. 9 Media essentially local and highly decentralized Network externalities and global scale Pre digital Post digtal Fundamental change in the rules of game Source:Annet Aris

11. Apple’s ecosystem 10 Apps iBooks Ads iTunes account iTunes account

12. Build up of server infrastructure Google creates major network benefits through systematic learning 11 Adwords Adsense Admob Larger and better advertising offering Continuous Experimenting and Learning ! Network effect Cost effect Paid content services More and better free consumer services Source:Annet Aris

13. 12 Mass marketing Customer lifetime value Media essentially local and highly decentralized Succes increasingly driven by network externalities and global scale Pre Internet Post Internet Fundamental change in the rules of game Source:Annet Aris Company based competition Ecosystem based competition Exposure based advertising Marketing ROI

14. 13 Media in the future: who will win? When we are not careful: nobody!

15. IMPLICATIONS FOR MEDIA COMPANIES Less is more: prevent the negative content/advertising spiral, go for high impact content and advertising Focus more on how to grow the digital pie together rather than on how to share the pie Don’t reinvent the wheel: Learn and create own network effects (content communities?) Innovate not only content and medium but also business models, dare to take risks based on your consumer insights.. Build the right capabilities for a volatile world (people, organization) 14

16. 15 EVERYTHING ELSE YOU WANT TO KNOW CAN BE FOUND IN: Annet.Aris@insead.edu