1. Copyright © 2002 Pearson Education, Inc. Slide 14-1

2. Copyright © 2002 Pearson Education, Inc. Slide 14-2 CHAPTER 14 Created by, David Zolzer, Northwestern State University—Louisiana Online Content Providers: Digital Media

3. Copyright © 2002 Pearson Education, Inc. Slide 14-3 Learning Objectives Identify the major trends in the consumption of media and online content. Discuss the concept of media convergence and challenges it faces. Describe five basic content revenue models.

4. Copyright © 2002 Pearson Education, Inc. Slide 14-4 Learning Objectives Discuss the key challenges facing content producers and owners. Understand the key factors affecting the online newspaper, e-book, and online magazine industries. Understand the key factors affecting the online entertainment industry.

5. Copyright © 2002 Pearson Education, Inc. Slide 14-5 Online Content The Web, by definition, is a source of online content. The average American adult spends over 3,500 hours each year consuming various media. By 2005, this amount is expected to grow to 10 hours per day or 3,650 hours per year.

6. Copyright © 2002 Pearson Education, Inc. Slide 14-6 Media Utilization Page 790, Figure 14.1

7. Copyright © 2002 Pearson Education, Inc. Slide 14-7 Internet and Traditional Media Time spent on the Internet reduces consumer time available for other media. Internet users view television only 12.3 hours per week, compared to 16.8 hours per week for non-users. Internet users spent 15% to 20% less time reading books, newspapers, and magazines.

8. Copyright © 2002 Pearson Education, Inc. Slide 14-8 Internet and Traditional Media Internet users consume more media of all types than non-Internet users. This reflects the demographics of the Internet user as more literate, wealthier, more technically savvy, and more media aware. Internet users multitask when using the Internet, frequently listening to music, watching television, and using instant messaging while working on other tasks.

9. Copyright © 2002 Pearson Education, Inc. Slide 14-9 Media Revenues Page 791, Figure 14.2

10. Copyright © 2002 Pearson Education, Inc. Slide 14-10 Media Revenues Total media revenues were $242 billion in 2000. The Internet constitutes only 3% of total media revenues. Paid content and archived content revenues will increase five to ten times by 2005, making the Internet the fast growing media for content revenues.

11. Copyright © 2002 Pearson Education, Inc. Slide 14-11 Direct Consumer Paid Online Content Forecast Page 792, Table 14.1

12. Copyright © 2002 Pearson Education, Inc. Slide 14-12 Media Industry Structure Media content industry prior to 1990 was composed of many smaller independent corporations specializing in content creation and distribution in separate industries. Media industry is still organized largely as separate vertical stovepipes, with each segment dominated by a few key players. The growing use of digital creation tools and the growth of the Internet as a delivery vehicle offer the promise of convergence toward a more unified creation and distribution platform.

13. Copyright © 2002 Pearson Education, Inc. Slide 14-13 Media Titans Page 795, Table 14.2

14. Copyright © 2002 Pearson Education, Inc. Slide 14-14 Technological Convergence The development of hybrid devices that can combine the functionality of two or more existing media platforms into a single device. PDAs that can be used as cell phones and book readers is an example.

15. Copyright © 2002 Pearson Education, Inc. Slide 14-15 Content Convergence Convergence in the design, production, and distribution of content. Content which is created in an older media technology migrates to the new technology largely intact, with little artistic change.

16. Copyright © 2002 Pearson Education, Inc. Slide 14-16 Convergence an the Transformation of Content Page 797, Figure 14.3

17. Copyright © 2002 Pearson Education, Inc. Slide 14-17 Industry Convergence Merger of media enterprises into synergistic combinations that create and cross-market content on different platforms. The best-known example of media industry convergence is the merger of AOL and Time Warner.

18. Copyright © 2002 Pearson Education, Inc. Slide 14-18 Challenges and Risks of Media Convergence Consumers still prefer traditional media. The technology is not yet quite ready to distribute this content effectively and conveniently. Content creators (artists, writers, and producers) do not yet know what features consumers are willing to pay for and are still creating content for each of the separate media types. A profitable business model has not yet emerged.

19. Copyright © 2002 Pearson Education, Inc. Slide 14-19 Online Content Revenue Models Page 801, Table 14.3

20. Copyright © 2002 Pearson Education, Inc. Slide 14-20 Making a Profit With Online Content Online content companies must continually calculate the revenues they receive by offering free content versus the revenue they might receive by charging for content. In general, most content firms have decided there is more to be gained by offering free content than charging for it.

21. Copyright © 2002 Pearson Education, Inc. Slide 14-21 Making a Profit With Online Content Four factors required to charge for online content: Focused market Specialized content Sole source monopoly High perceived net value Net value refers to that portion of perceived customer value that can be attributed to the fact that content is available on the Internet

22. Copyright © 2002 Pearson Education, Inc. Slide 14-22 Revenue and Content Characteristics Page 804, Figure 14.4

23. Copyright © 2002 Pearson Education, Inc. Slide 14-23 Key Challenges Facing Content Producers Bandwidth Challenges Plenty of long-haul optical fiber bandwidth available Critical bottlenecks in home bandwidth Restrict both the ability for pay-for-view revenue models to develop for films and videos and the development of advanced e-books using video and audio

24. Copyright © 2002 Pearson Education, Inc. Slide 14-24 Key Challenges Facing Content Producers Platform Challenges Current unsuitability of PC screen for viewing DVDs and e-books Unsuitability of PDAs for text display Non-acceptance of wireless cell phones as Web devices

25. Copyright © 2002 Pearson Education, Inc. Slide 14-25 Key Challenges Facing Content Producers Cost Challenges Internet distribution is far more costly than was originally anticipated Substantial costs are faced by media companies in migrating, repackaging, and redesigning content for online delivery

26. Copyright © 2002 Pearson Education, Inc. Slide 14-26 Key Challenges Facing Content Producers Consumer Attitudes Consumers have strongly resisted paying for Web content This may change as media companies learn how to use the Web to deliver high value, focused and deep information and content

27. Copyright © 2002 Pearson Education, Inc. Slide 14-27 Key Challenges Facing Content Producers Cannibalization of existing distribution channels Media companies are often tempted to strike alliances with successful portals or redistributors Risk is the media firm’s brand name will become diluted or displaced Any revenue generated will have to be shared with the intermediary

28. Copyright © 2002 Pearson Education, Inc. Slide 14-28 Key Challenges Facing Content Producers Pricing and value when redesigning content for the Web If the price is set too low, higher-priced and profitable distribution channels could be choked off

29. Copyright © 2002 Pearson Education, Inc. Slide 14-29 Key Challenges Facing Content Producers Rights Management Challenges The ability to protect content from being stolen, duplicated, and distributed for free The issue of royalties paid to artists and writers

30. Copyright © 2002 Pearson Education, Inc. Slide 14-30 Online Newspapers: Audience size and growth More than 4,400 online newspapers 79% of users frequent Spend 30 to 45 minutes per week Most successful online content

31. Copyright © 2002 Pearson Education, Inc. Slide 14-31 Online Newspapers: Content Premium archived content Fine grained searching ability Timeliness Content with reach and depth

32. Copyright © 2002 Pearson Education, Inc. Slide 14-32 Web Reach of Online Newspapers Page 809, Figure 14.5

33. Copyright © 2002 Pearson Education, Inc. Slide 14-33 Online Newspapers: Competition New online classified firms have challenged newspapers by developing deep rich content in specialized areas

34. Copyright © 2002 Pearson Education, Inc. Slide 14-34 Online Newspapers: Revenue Models Predominately rely upon an advertising model Supplement revenues by using a pay-per- view model for premium or archival content WSJ has successfully used the subscription business model

35. Copyright © 2002 Pearson Education, Inc. Slide 14-35 Online Newspapers: Convergence Technical convergence in infancy with only published text moved to the Web Content convergence has occurred in the areas of production and distribution Industry structure has seen no movement to cross-media convergence

36. Copyright © 2002 Pearson Education, Inc. Slide 14-36 Online Newspapers: Challenges Developing wireless mobile delivery platforms and micropayment systems to provide a low-cost mechanism for selling single articles Consumer attitudes have remained intransigent on the issue of paying for content Some online newspapers have experienced cannibalization of their main distribution channel Digital leakage, where paid for and downloaded content is redistributed via e-mail or posted for free viewing on a Web site

37. Copyright © 2002 Pearson Education, Inc. Slide 14-37 E-books Web-accessed e-books are stored on a publisher’s server for consumers to access and read on the Web Web-downloadable e-books are downloaded from the Web, stored as a file on the client PC, and perhaps even printed – may require special software Dedicated e-book reader is a single purpose device with a proprietary operating system that can download from the Web and read proprietary formatted files that can read only on that device

38. Copyright © 2002 Pearson Education, Inc. Slide 14-38 E-Books Page 814, Table 14.4

39. Copyright © 2002 Pearson Education, Inc. Slide 14-39 E-Books: Audience and Growth Generated $74 million in sales, 2000 Reading books online is not a popular activity Buying books online is one of the most popular activities of Internet users Future depends on how rapidly traditional trade and academic book publishers move existing and new works to e-book format

40. Copyright © 2002 Pearson Education, Inc. Slide 14-40 E-Books: Content Instant downloading can reduce transaction costs Text is searchable and can be integrated with new text Modularize down to sentence or word level for easy update or change Lowers production and distribution costs Require expensive and complex electronic devices to use Difficult to read on screen with multiple competing standards Uncertain business models Copyright and royalty issues

41. Copyright © 2002 Pearson Education, Inc. Slide 14-41 E-Books: Revenue Models and Results Industry composed of intermediary retailers, traditional publishers, technology developers, and vanity presses Primary revenue is pay-for-download entirely through online bookstore intermediaries Traditional revenue model for the commercial book industry has not been changed much by the introduction of e-books Second revenue model involve licensing entire e-libraries Similar to subscription model where users pay monthly or annual fee for access to hundreds of titles Neither business model is yet profitable

42. Copyright © 2002 Pearson Education, Inc. Slide 14-42 The Growth of E-Books Revenues Page 817, Figure 14.6

43. Copyright © 2002 Pearson Education, Inc. Slide 14-43 E-books: Convergence Technological convergence has been slowed by: Poor resolution of computer screens Lack of portable reader devices that can compete with the portability of a published book Absence of digital rights management technology Lack of standards to define cross-platform e- books so they can be viewed on different devices

44. Copyright © 2002 Pearson Education, Inc. Slide 14-44 E-Books: Convergence Sub-pixel display technologies help enhance resolution of e-book reader display screens Digital rights management software helps prevent illegal distribution of paid content over the Web

45. Copyright © 2002 Pearson Education, Inc. Slide 14-45 E-Book Industry Firms Page 820, Table 14.5

46. Copyright © 2002 Pearson Education, Inc. Slide 14-46 Standards for E-Books Page 822, Table 14.6

47. Copyright © 2002 Pearson Education, Inc. Slide 14-47 E-books: Convergence Content production and distribution convergence XML and large-scale online text/graphic storage systems has transformed the book production and made it more efficient Web has opened up new distribution channel Internet has created new opportunities for authors, publishers, and distributors.

48. Copyright © 2002 Pearson Education, Inc. Slide 14-48 The Effects of Internet Publishing Insert table 14.7 here

49. Copyright © 2002 Pearson Education, Inc. Slide 14-49 Magazines: Audience Size and Growth All of the top 50 offline printed magazines have developed Web sites Online magazines have become an online consumer success story Few online magazines have turned a profit Challenge for online magazines is to become profitable revenue centers

50. Copyright © 2002 Pearson Education, Inc. Slide 14-50 Growth of Online Magazine Reading Page 826, Figure 14.7

51. Copyright © 2002 Pearson Education, Inc. Slide 14-51 Magazines: Content Same content advantages as newspapers Users can search archives and breaking news stories can be covered Provide access to exclusive content not available elsewhere Allow readers to share ideas with one another through chat groups and bulletin boards Magazine articles are generally short and can be printed for free

52. Copyright © 2002 Pearson Education, Inc. Slide 14-52 Readership of Online Magazines Page 827, Figure 14.8

53. Copyright © 2002 Pearson Education, Inc. Slide 14-53 Magazines: Revenue Models and Results Advertising model was used unsuccessfully Advertising model may be revived as online advertising expenditures are expected to triple by 2005 and readership is expected to keep increasing rapidly Coupled with excellent demographics, online magazines are expect to boost ad space revenues and allow online magazines to relay on advertising just as their offline counterparts Subscription revenue model is also being used to provide readers with premium content

54. Copyright © 2002 Pearson Education, Inc. Slide 14-54 Magazines: Convergence Very little convergence with other media No readability problems and no need for special readers or software Have not had sufficient investment capital to merge text with audio and video clips Movement of branded offline magazines onto the Web has created the opportunity to leverage content developed for print onto the new Internet channel Single staff develops content that is produced for both print and Web editions

55. Copyright © 2002 Pearson Education, Inc. Slide 14-55 Magazines: Convergence Industry has not changed significantly because of the Internet Without old legacy magazines moving online, readership would not have accelerated as it has in 2001 Offline world of national brand magazines is driving online traffic

56. Copyright © 2002 Pearson Education, Inc. Slide 14-56 Online Entertainment Traditional Entertainment such as films, music, sports, and games Feature films and television shows are expected to generate a very small amount of Internet revenue, given the current technical limitations of the Web

57. Copyright © 2002 Pearson Education, Inc. Slide 14-57 Projected Growth in Traditional Online Entertainment Page 833, Figure 14.9

58. Copyright © 2002 Pearson Education, Inc. Slide 14-58 Sites With Highest Internet Usage Page 834, Figure 14.10

59. Copyright © 2002 Pearson Education, Inc. Slide 14-59 Entertainment: Audience and Growth Music downloads lead the list of traditional entertainment, followed by online games, adult content, sports, and film Music sites do not have high usage Highest usage level sites are those that allow high level of user control and participation Users are defining new forms of entertainment that do not involve the traditional media titans

60. Copyright © 2002 Pearson Education, Inc. Slide 14-60 User Role in Entertainment Insert figure 14.11 here

61. Copyright © 2002 Pearson Education, Inc. Slide 14-61 Entertainment: Content Hugh online digital searchable music archives exist from which users can mix and match to create their own personalized content Enables users to become their own music packagers and distributors Offers users high levels of control both program content and program focus

62. Copyright © 2002 Pearson Education, Inc. Slide 14-62 Entertainment: Revenue Models and Results Television and movie sites typically use a marketing model, attempting to extend their brand influence and the audience of their offline product Early online music sites used an advertising revenue model Most entertainment sites are now moving toward subscription models

63. Copyright © 2002 Pearson Education, Inc. Slide 14-63 Entertainment: Convergence Technology platform for music has converged PCs and handheld devices The PC has become a game station with capabilities rivaling dedicated game stations Technology convergence for movies and television has stalled due to lack of standards and the slow acceptance of high bandwidth connections

64. Copyright © 2002 Pearson Education, Inc. Slide 14-64 Entertainment: Convergence Film and television have yet to experience loss of control over digital distribution By 2006 many homes will have multi-megabit connects to the Internet Digital rights management issues will be an industry concern Content creation and production convergence is occurring with filmmakers and television studios increasingly using digital cameras and film editing is done on digital computer workstations

65. Copyright © 2002 Pearson Education, Inc. Slide 14-65 Entertainment: Convergence The entertainment industry has many players and forces In the existing industry model, creators of entertainment sell to distributors, who in turn sell to retail stores, who then sell or rent to consumers The Internet offers entertainment content providers the opportunity to dominate the industry value chain by eliminating the distributors and retailers and selling direct to the consumer.

66. Copyright © 2002 Pearson Education, Inc. Slide 14-66 Entertainment Industry Value Chain Page 839, Figure 14.12