September 2001Chapter 14: Media Transformation1 -Questions answered in this chapter: What is media...

Chapter 14: Media TransformationQuestions 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?

Chapter 14: Media Transformation

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.


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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Table 14-1: Primetime Viewing Shares of Free and Cable Television Networks

Note:For all television viewing Monday-Sunday, 8-11pm EST. Due to multiset use and independent roundings, totals add up to more than 100.All Other includes the FOX network, UPN, WB, other independent stations, pay cable and public televisionSource: Cable Advertising Bureau, Cable TV Facts (1999)

Chart1

0.6930.0750.232

0.5810.1640.255

0.5510.1930.256

0.5490.1980.253

0.5290.2110.26

0.5240.2130.263

0.4870.2430.27

0.460.2670.273

0.4210.2970.282

0.3960.3250.279

Network Affiliates

Basic Cable

All Other

Primetime Viewing Shares of Free and Cable TV Networks1985-1998

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Network AffiliatesBasic CableAll Other

198569.30%7.50%23.20%

199058.10%16.40%25.50%

199155.10%19.30%25.60%

199254.90%19.80%25.30%

199352.90%21.10%26.00%

199452.40%21.30%26.30%

199548.70%24.30%27.00%

199646.00%26.70%27.30%

199742.10%29.70%28.20%

199839.60%32.50%27.90%

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Table 14 2: Penetration of Technologies Into U.S. Households - 2000

Source: National Cable Television Association, Nielson Media Research, Electronic Industries Association, Consumer Electronics Manufacturers Association, U.S. Department of Commerce

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Penetration of Service / Device in U.S. Households

19902000Differenece

Satellite Dish3%13%+10

Video Game Console5%44%+39

Online Services0%31%+31

Camcorder10%33%+23

PC23%53%+20

PDA0%20%+20

CD Player (Audio)19%55%+36

VCR68%91%+23

DVD Player0%22%+22

Home Fax Machine / Modem19%51%+32

Answering Machine31%74%+43

Cellular Phone0%51%+51

Cordless Phone25%78%+53

Corded Phone98%96%-2

Telephone Service48%98%+50

Radio99%98%-1

Basic Cable Television21%68%+47

B & W TV50%47%-3

Color TV96%98%+2

All Television99%99%0

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Table 14-3: Hours Spent Per Year Per Consumer Per Media, 1990 - 2000

Sheet1

Number of Hours Per Person Per Year Using Consumer Media

199219972002

Total Television (Broadcast and Cable)151015611575

Radio115010821040

Recorded Music233265289

Daily Newspapers172159152

Consumer Books1009297

Consumer Magazines858279

Home Video425058

Movies in Theatres111313

Video Games193646

Consumer Online22849

Total Hours Per Person:332433683398

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Sources: Veronis, Suhler &Associates, Wilkofsky Gruen Associates, Nielsen Media Research, Simmons Market Research, Interactive Digital Software Association Paul Kagan Associates, Motion Picture Association of America, Book Industry Study Group, Magazine Publishers of America, Software Publishers Association.


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Exhibit 14-1: Media Fragmentation, 1960s to 2010s

Source:Business Week, February 16,1998

Most Americans watch the Big Three Networks every night

UHF Stations bring more choices, and the fledging cable industry intoduces a few new channels like HBO and Turners TBS Superstation

The VCR becomes commonplace, letting consumers watch recorded shows and movies whenever they want. Cable explodes, with new networks like CNN and MTV.

Digital compression and two-way networks allow cable companies to offer even more channels and services. DBS services grow more entrenched. As TVs are linked to the Internet, new programming delivered via the Internet takes hold. Result: 300 choices at any moment.

Broadcasters may use high-definitionTV spectrum to launch more channels. Internet chat evolves into networked virtual reality games, interactive movies, and other activities being hatched by MITs media lab and others. News Corp. forecasts 1,000 channels, now called context windows.

Direct-broadcast satellites are introduced offering hundreds of channels. Cable systems are slowly upgraded with more channels

1960s

1970s

1980s

1990s

2000s

2010s

TV faces the worst audience fragmentation of all. Here, News Corp. tracks and forecasts the explosion of TV-viewing choices available in any given hour. Once there were three options; soon there will be 1,000

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 2000.90 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 Schwabs online trading site. Internet is emerging as a mechanism for supplementing, not replacing, traditional media sources.


How do New Media Companies leverage traditional media channels? (contd)We delve deeper into this section by considering the following case examples:The New York Times Real NetworksMSNBC



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Exhibit 14-2: NY Times on the Web Home Page

The New York Times on the webNYTimes.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 e-mail 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.


RealNetworksThe 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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Exhibit 14-3: Real Networks Real Player

MSNBCThis 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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Exhibit 14-4: MSNBC Home Page

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.


What are the reasons for Media Megamergers? (contd)The five most important reasons for the media megamergers are:The Telecommunications act of 1996Vertical IntegrationPursuit of multiple revenue streamsAdvances in new digital technologiesEntry into global markets



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Exhibit 14-5: ABCNews.com Home Page

ABC Television

ABC TV Affiliates

ABC Radio

ABC Television

ABC Television


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Exhibit 14-6: Sony Playstation 2

Games: Runs PS1 titles, but new PS2 . will make the old ones look like Pong

DVD Player: Can play digital movies right out of the box. Not a bad deal just for that.

Music CDs: PS2 spins them, too. Pressed for space? Give the old player away.

Internet: In 2001, Sony says, you can add Net connectivity. Browse and buy.

Download: Beginning in 2001; store and replay digital music and video from the Web

Media EconomicsEach form of media has its own economics and hence a different business model. The most commonly discussed media types are:NewspapersMagazinesBooksBroadcast TelevisionCable TelevisionRadioFilmVideosDVDsMusic CDsVideo Game Consoles, and MP3


Media Economics (contd)NewspapersThe 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.


Media Economics (contd)MagazinesAt the end of 1998, the top magazines were Modern Maturity, Readers 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.


Media Economics(contd)BooksThe 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.


Media Economics (contd)Broadcast TelevisionThe 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.


Media Economics (contd)Cable TelevisionRCA 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 2000.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.


Media Economics (contd)RadioSimilar 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.FilmThe 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.


Media Economics (contd)The other important forms of media are:Video DVDsMusic CDs Video Game consoles, and MP3.



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Table 14-4: Summary of Media Economics

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MEDIA ECONOMICSIndustryAverage $RevenueTime spentLeading

SalesPer ConsumerStreamsWithFranchises

NewspapersNew York

$69.7 billion$53.75 perAdvertising3.0 hoursTimes, USA

yearand Circulationper weekToday

MagazinesTime, Sports

$20.8 billion$40.61 perAdvertising1.5 hoursIllustrated,

yearand Circulationper weekPeople

Consumer BooksMcGraw

$17.9 billion$87.84 perBook Sales1.9 hoursHill, Little

yearper weekBrown, etc.

Broadcast TelevisionCBS, NBC,

$42.7 billionFreeAdvertising15.5 hoursABC, Fox

per weekWB

Cable TelevisionHBO, Turner

$54.3 billion$205.75 perAdvertising and14.7 hoursNetworks,

monthSubscription Feesper weekESPN, etc.

RadioInfinity Radio

$18.2 billionFreeAdvertising20.3 hoursWestwood

per weekOne

FilmUniversal,

$7.7 billion$31.67 perBox Ticket Sales0.25 hoursParamount,

movieper weekDisney

Home VideosUniversal,

$19 billion$89.93 perVideo Sales1.1 hoursParamount,

yearper weekDisney

DVDsUniversal,

--DVD Sales0.2 hoursParamount,

per weekDisney

Video GamesSony,

$4 billion18.71 perConsole Sales,0.8 hoursNintendo,

yearVideo Gamesper weekSega

Music CDsBMP, Sony

$12 billion$61.64 perCD Sales5.17 hoursDisney

yearper week

Sources: Prudential Securities, Wikosfsky Green Associates, Inc., Entertainment Industry Economics

(Harold L. Vogel, Cambridge)

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MICROSOFT- STRATEGYMICROSOFT- STRATEGY

TODAYFUTURE

Operating SystemsOperating Systems

ApplicationsApplications

MSNBC Joint VentureMSNBC Joint Venture

MSN NetworkMSN Network

Web TVWeb TV

ServersServers

Windows CE for palmtopsWindows CE for palmtops

Microsoft Reader- eBooks

X-Box - Video Games

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