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Scenario Planning Workshop 2industry case studies

August 5, 2005

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EXECUTIVE SUMMARY – INDUSTRY CASE STUDIES

Industry Case Studies – Companies today are pursuing business strategies in each of the four scenario futures.

• My Media Are Local – businesses in this quadrant focus on geographically-based content in a user-driven dis-intermediated experience. Examples include Craigslist and Match.com.

• A3 – businesses in this quadrant offer content that is focused on something other than geography in a user-driven dis-intermediated experience. Examples include Grokster, Yahoo! and Apple’s iTunes.

• Rupert’s World – businesses in this quadrant focus on traditionally intermediated content without a geographic focus. Examples include HBO, NPR and XM satellite radio.

• Groundhog Day (formerly McWal-Mart) - businesses in this quadrant focus on traditionally intermediated content with a geographic focus. Examples include regional theater such as Chicago’s Steppenwolf and Comcast’s approach to cable television.

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craigslist

Traditionally Intermediated

Dis/Re-intermediated

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COMPANIES TODAY ARE PURSUING BUSINESS STRATEGIES IN EACH OF THE FOUR SCENARIO QUADRANTS.

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CRAIGSLIST WEBSITES ARE CITY-SPECIFIC AND ALLOW USERS TO POST JOBS, PERSONALS, ITEMS FOR SALE, AND VOLUNTEER OPPORTUNITIES.

Value Proposition: Primarily free classified ads websites serving 120 cities with job listings, real estate and merchandise. Founded as an online newsletter of San Francisco local events sent to a list of friends. Founder is fierce protector of non-commercial character of the site.

Business Model: $10 million in annual revenue from job listings paid by employers. All other postings (99.2%) are free. 10 million monthly unique visitors and 14 paid staff.

Quadrant: Upper-left. Company is focused entirely on local content and has created tool that is user-community-driven.

Local Strategy: Websites focus on specific cities.

Technology Strategy: Website is very basic so that is loads quickly and has modest maintenance needs. According to founder, 90% of site functionality was based on user suggestions. craigslist

Mission: “craigslist is about giving each other a break, getting the word out about everyday, real-world stuff; restoring the human voice to the Internet, in a humane, non-commercial environment; keeping things simple, common-sense, down-to-earth, honest, very real; providing an alternative to impersonal, big-media sites…”

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CRAIGSLIST’S RICHMOND WEBSITE LISTS LOCAL JOBS, HOUSING AND DISCUSSION FORUMS.

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MATCH.COM ALLOWS USERS TO CREATE PERSONALS CONTENT – ONLINE OR VIDEO WITH THE GOAL OF MEETING LOCALLY.

Value Proposition: Most-used personals site online with 50 million profiles.

Business Model: Users pay a $24.95 per month subscription fee and subscribe for an average five months.

Quadrant: Upper-left. Company provides tools to allow individuals to create content – photos, video, text. Content then serves as introduction to users who begin electronic and possibly in-person relationships.

Local Strategy: Geography is among the most-used screening features.

Technology Strategy: Match.com is working to make its content cell-phone compatible and to link it to GPS technology so that potential matches know when they are in the vicinity.

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GROKSTER AND OTHER PEER TO PEER FILE-SHARING SITES ALLOW USERS TO SEARCH EACH OTHERS’ PC HARD DRIVES AND SHARE DIGITAL CONTENT – MUSIC, FILMS, SOFTWARE, IMAGES AND TEXT.

Value Proposition: Provides free user-friendly tool for users to share digital content.

Business Model: Grokster sells advertising and bundles adware with its desktop file-sharing software – earning approximately $1 per user.

Quadrant: Upper-right. File-sharing is location-agnostic. Users drive the experience.

Local Strategy: None – although local music is among the music being shared.

Technology Strategy: Grokster uses peer-to-peer technology. This means that individual users connect to each other directly, without need for a central point of management. Grokster is a distributed, self-organizing network. By not having a central index, it was able to operate legally for a period after Napster. Neither search requests nor actual downloads pass through a central server.

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MGM vs. Grokster: Supreme Court case centered on whether there were enough legal uses for Grokster such as distributing free software to allow it to continue. The court ruled against Grokster saying that “one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression… is liable for the resulting acts of infringement by third parties.” The film and music industries are working to shut-down commercial services such as Grokster that are more user-friendly rather than the complicated file-sharing options still available for technically-advanced users.

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APPLE’S iPOD AND iTUNES ALLOW USERS TO BUY, DOWNLOAD, MANAGE AND PLAY DIGITAL MUSIC FILES.

Value Proposition: Apple created a unified media player, download service and portable player. Best-designed MP3 music player and most popular tool for purchasing music legally and downloading podcasts.

Business Model: Laptop and desktop computer manufacturer has seen most of its recent growth from iPod device sales. iPod sales now account for 1/3 of Apple’s revenue. iTunes has sold over 500 million songs and represents 62% of online music sales.

Quadrant: Upper-right. Content is not location-specific and allows for a user-controlled experience. iMix lets community members post playlists and other users can download those playlists but “localism” is not part of iTunes strategy.

Local Strategy: Podcasts and radio streams provide access to local station content.

Technology Strategy: iTunes only works with iPod devices (and not other MP3 players). Apple’s Mac computers now come with a suite of software to make it a complete multi-media machine – iMovie (video editing), iDVD (for recording movies), iPhoto (for managing pictures), and iTunes (for managing music). This fall, iTunes will begin selling music videos for $1.99.

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APPLE ITUNES ALLOWS USERS TO CREATE PLAYLISTS OF SONGS THAT CAN BE SHARED WITH OTHER USERS.

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YAHOO’S FOUR BUSINESS UNITS – MEDIA, COMMERCE, PREMIUM AND SEARCH ARE ALL NATIONAL, USER-DRIVEN SERVICES.

Value Proposition: Leading online provider of tools, products and services. Annual report: “The next 10 years are going to be about the integration of everyone’s information and entertainment devices and Yahoo! plans to be at the core of this infrastructure.” Its broad service includes chat, news, travel, finance… recent additions include video search, desktop search and RSS reading.

Business Model: Yahoo! is organized around four business units – media, commerce, premium and search. Advertising from 150,000 advertisers. Limited online subscription services – Internet and broadband access, premium mail, Yahoo! Launchcast and personals. Transactional revenue from shopping and travel sites. 2004 revenue: $3.6 billion. 165 million registered users and 345 million monthly unique visitors (99 million in the US).

Quadrant: Upper-right. Yahoo focuses on a user-driven experience by providing tools to help users filter and search information and entertainment media.

Local Strategy: Most content is not destination-specific but Yahoo! has been focusing on improving its search for local services to improve its usefulness. Yahoo! home pages can be customized to feature local content such as sports, weather or traffic and links to local Yahoo! groups. Yahoo! also has some city-specific pages.

Technology Strategy: Yahoo! is focusing on Hollywood and sees itself as a distribution channel. Yahoo! envisions delivering rich content to any web-enabled device. In June, it launched a low-price music service on a rental basis. Access to unlimited music is available for $6.99 per month while the subscription is active.

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YAHOO! GROUPS ALLOWS USERS TO CREATE SHARED COMMUNITIES OF INTEREST (WITH OR WITHOUT GEOGRAPHIC TIES) WITH THE ABILITY TO CHAT, POST MESSAGES, CREATE POLLS, AND SHARE CALENDARS.

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HBO PROVIDES A CURATED CONTENT-STREAM TO A NATIONAL AUDIENCE. ITS BRANDING FOCUSES ON ITS DISTINCTIVENESS WITH THE END GOAL OF MAINTAINING SUBSCRIBERS.

Value Proposition: Unique programming with filmmakers and actors not often involved in television. Programming mix includes movies, original drama and situation comedy series and some sports.

Business Model: Monthly fees from 28 million subscribers. Ancillary revenues from DVD sales and sales of program rights after airing on HBO have been growing more rapidly and now account for 20% of profits. HBO earned $1.1 billion profit on $3.45 billion in revenue. HBO has been expanding aggressively into the theatrical movie business especially low-cost films that support its brand such as Spellbound.

Quadrant: Lower-right. Service is national without local variations – although secondary channels provide some limited segmentation by interest. Programming is curated to serve audiences and reinforce brand.

Local Strategy: None.

Technology Strategy: HBO On-demand (VOD) launched January 04 and is now used in 2 million homes and is perceived to be reducing subscriber churn. HBO is the most used channel for VOD followed by programs for children on Nickelodeon and PBS.

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NPR HAS CREATED A NATIONAL NEWS AND INFORMATION SERVICE THAT IS DISTRIBUTED VIA LOCAL PUBLIC RADIO STATIONS. NPR’S OWN WEB DISTRIBUTION PROVIDES SOME OPPORTUNITY FOR A USER-DIRECTED EXPERIENCE.

Value Proposition: Producer and distributor of news, cultural and entertainment radio programming to 780 public radio stations. Top-rated programs Morning Edition and All Things Considered are keys to listening and fundraising for many local stations. NPR’s audience has doubled in past 10 years to 22 million.

Business Model: Membership dues – programming and distribution fees are based on listening at station. NPR also receives funds from underwriters and a small percentage from CPB for programming development. Recently NPR Foundation has grown significantly with a $236 million Kroc gift.

Quadrant: Lower-right – but on the line between traditional intermediation and disintermediation. Programming is national with space for local radio inserts. NPR does however provide several outlets for user-driven experience on its website. These distribution efforts have been watched closely by stations who fear disintermediation.

Local Strategy: NPR’s national programming is distributed primarily to 780 local public radio stations. Website provides co-branding with local station.

Technology Strategy: NPR has two channels on Sirius’s network but neither airs Morning Edition nor All Things Considered. NPR is also aggressively pursuing an HD radio strategy by partnering with iBiquity and encouraging the purchase of consumer radios. Limited NPR content is available to consumers via disintermediated media – podcast, RSS, MP3 format and on Audible.com.

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XM SATELLITE RADIO PROVIDES A TRADITIONAL INTERMEDIATED SERVICE FOR A NATIONAL AUDIENCE. LISTENERS VALUE ITS RANGE OF MUSIC ESPECIALLY IN NICHE FORMATS.

Value Proposition: 67 commercial-free music channels and 150 channels total. Premier content includes Major League Baseball, Opie and Anthony and the Bob Edwards Show.

Business Model: $12.95 per month subscription model and advertising on non-music stations. Equity partnership with car manufacturers to get radios in new cars. 4.4 million subscribers (640,000 added in 2Q05). Financial losses are declining as cost of acquisition declines (currently at $50). Most optimistic analysts project 30 million satellite radio subscribers by 2010.

Quadrant: Lower-right. Service is national without local variations. Audiences are divided by music genre-interest. Programming is curated to serve audiences and programming format. XM has easily been able to recruit DJs who appreciate freedom to create long playlists.

Local Strategy: “Faux-local” - Provides traffic and weather for 21 major markets. Biggest content draw is rights to every locally broadcast regular season baseball game.

Technology Strategy: Partnerships with audio technologies companies to provide radios. XM’s equipment is typically smaller and cheaper than rival Sirius’s. Partnership with AOL to develop online radio network. New technology will add increased TiVo-like features – storage and replay. Currently researching ability to provide children’s video programming to cars.

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XM’S NATIONAL REACH ALLOWS THEM TO OFFER NICHE PROGRAMMING LIKE KIDS’ RADIO AND COMEDY SINCE RATINGS MATTER LESS THAN LISTENER SATISFACTION AND SUBSCRIBER CHURN.

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STEPPENWOLF THEATER IN CHICAGO IS INCLUDED AS A CASE STUDY OF A LOCAL ORGANIZATION THAT IS “BETTING” ON LOCAL BY SELECTING CHICAGO PLAYS AND ACTORS FOR ITS CHICAGO AUDIENCE.

Value Proposition: The creator of the edgy Chicago style of theater it is now celebrating its 30 th anniversary. Known as an actor’s theater, its alumni include John Malkovich, John C. Reilly, John Mahoney and David Mamet.

Business Model: Steppenwolf presents 14 plays per year on 3 stages. It has 23,000 season ticketholders and 500 annual performances. It has managed costs by limiting the number of full-time employees relying heavily on part-timers. City has provided large tax incentives to Steppenwolf as it has grown and expanded.

Quadrant: Lower-left. Steppenwolf curates its season by selecting themes, plays and performers that will serve its local audience.

Local Strategy: As a regional theater, Steppenwolf has a physical presence in its neighborhood, features an ensemble of local actors, runs an acting school and often features local plays. In addition, it provides outreach via teen mentoring programs, teacher training, and reduced ticket prices for families.

Technology Strategy: Website allows for ticket purchases, donations, information on upcoming productions and actors.

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COMCAST IS SIMULTANEOUSLY PURSUING A LOCAL STRATEGY WITH LOCAL AD SALES AND CUSTOMER SERVICE BUT IS ALSO SEEKING TO PROVIDE CUSTOMERS WITH GREATER CONTROL WITHIN ITS “WALLED GARDEN” OF CONTENT.

Value Proposition: Country’s largest cable and high-speed Internet provider with 21 million households. To maintain market share, particularly from satellite, Comcast is focusing on putting “the viewer in control” with big investments in on-demand content.

Business Model: Comcast earns $20 billion annually in revenue. It averages $50/month from subscribers with digital cable adding $10-$15 to the monthly bill. After its merger with AT&T, Comcast worked to renegotiate and lower content costs and get access to free on-demand content. It now has 2000 hours of content offered for free to digital customers. Customers use the on-demand service an average 8x per month with usage growing with tenure. Comcast reported a 64% increase in net income in 2Q05 and credited customers adding DVRs and HD video services.

Quadrant: Lower-left. Comcast offers a “walled garden” of content via its channel choices and on-demand content offerings.

Local Strategy: Much of its strategy is focused on localization – its 3200 member ad sales network are spread across the country as is its customer service centers. Local content is a way to distringuish itself from satellite and in Denver it tested local on-demand content by including video from both 2004 senate race contestants.

Technology Strategy: Comcast has seen a 300% increase in on-demand use. Roll-out of DVRs with monthly $14 fee and emphasis on HD programming. Also working on VOIP service and video email which may push the products from niche status.

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COMCAST’S ON-DEMAND SERVICE PROVIDES CHOICE AND CONTROL TO USERS WITHIN A “WALLED GARDEN” OF CONTENT OPTIONS. HBO, NICKELODEON AND PBS ARE THE MOST USED CONTENT SOURCES.