Media Economics
What Is Media Economics?
• The commercial media consist of
enterprises that:
1.
2.
•
Create or acquire content.
Distribute content (news, information,
entertainment, or data) to an audience.
Content
Medium
(Method of distribution)
Audience
Four Media Business Models
Advertising Only Advertising/
Subscription
(Single Revenue Subscription Hybrid Only
Stream)
(Dual Revenue
(Single Revenue
Stream)
Stream)
Transaction
(Single Revenue
Stream)
TV
Cable
HBO
DVDs
Radio
Newspapers
Newsletters
Music
Google
Magazines
Mobile
Outdoor
Content
access
is free
Content creation, distribution,
and advertising-delivery
business
Movies
Content
access
cost is low
Content creation,
distribution, access, and
advertising-delivery
business
Content
access
cost is
higher
Content creation,
distribution, and
access business
Content
ownership
cost is
highest
Content creation,
distribution, and retail
business
Media Content
• Content creation includes actually creating it
or acquiring it.
• There are many types of content:
–
–
–
–
–
–
–
Entertainment
News
Information
Opinion
Pornography
Games
Data
Consumers/Customers
• A consumer uses a product: Radio, TV, websites
– Audience or readers
• A customer buys a product: Newsletters, music, HBO,
DVDs
– Advertisers are customers for radio, TV, magazines, newspapers,
websites—they buy access to audience/readers/users.
– Subscription revenue is relatively minor.
– Who is P&G’s customer?
• WalMart
• In some businesses the consumer and the customer are
the same person
– Detergent, razors
Media Economics
• Media economics is the study of how
media enterprises:
1.
2.
3.
4.
5.
Create or acquire content.
Package it.
Distribute it to targeted audiences.
Generate revenue.
Make a profit.
Media Enterprises
• Typically incorporated
– Limited liability
• Types of corporations
– Private (LLC, LP, S Corp) – Flow-through
entities
– Public (C Corp) – Tax-paying entity
– Benefit (B Corp) – Consider society and the
environment in addition to profit – in many
states (no media companies, but Warby
Parker e.g.)
The 7-S Model of a Business
“Structure
follows
strategy”
Strategy
Style
Shared
Values
Structure
Staff
Skills
Systems
“Get the
right people
on the bus.”
Structure of a Corporation
• Board of Directors
• President/CEO
• Divisions/Functions
– Staff and Operating
• CFO (Chief Financial Officer)
• CMO (Chief Marketing Officer)
– Sales, Advertising, Customer Service, Promotion, Distribution
• CTO (Chief Technical Officer)/Head of Production
– Operations, Production
• CIO (Chief Information Officer)
Purpose of a Corporation
• To create and keep customers
– Can’t make a profit unless you have customers
• To serve stakeholders
–
–
–
–
–
Consumers/audience
Customers/advertisers
Society
Employees
Stockholders (owners, investors, lenders)
• To survive
– Need profits
– Need to innovate and adapt (innovator’s dilemma—disruptive
technologies)
Create a Customer
• Must satisfy unmet consumer/audience needs and
wants—benefits sought (might be unrecognized).
– Find an underserved niche (don’t go after McDonalds or Google).
• SWOT analysis (strengths, weaknesses, opportunities,
and threats).
• Create a business concept and strategy (see following
Five-Forces slide).
• Create a differential, sustainable, promotable competitive
advantage that will get customers/audience and keep
them.
– Best way – high barrier to entry.
• Create a business model that monitizes
content/audience/traffic.
Michael Porter
“The Five Competitive Forces That Shape Strategy,” Michael Porter, Harvard Business Review, January 2008.
The Internet Changes Everything
1.
Threat of new entrants:
–
Barriers to entry and been brought down to
virtually zero, especially in the media.
•
2.
Bargaining power of buyers:
–
3.
Not in telecommunications, broadband.
Because of search and easy comparisons, the
consumer is in control.
Threat of substitute products or services:
–
Many potential threats because of low barriers
to entry in the media business.
4. Bargaining power of suppliers:
– Often high because of proprietary technology
(Apple iTunes, Kindle, e.g.).
5. Rivalry among competitors:
– Substantial because of plethora of
competitors – fragmentation of the media.
– More difficult to get and sustain a
competitive advantage.
Competitive Advantage
• The main source of competitive advantage
is barrier to entry.
• Hard to achieve except by mergers and
consolidation, which create huge
companies that are near monopolies.
– Bad for consumers.
Real Competitive Advantage
(Barriers to Entry)
• Economies of scale
– Fixed costs
– Network effects
• Customer captivity
– Habit
– Switching costs
– Search costs
• Cost
– Proprietary technology
– Learning
– Access to resources
• Government protection
– Licenses, e.g.
Sham Sources of Competitive Advantage *
• Deep pockets (Microsoft, e.g.)
• Brands (JC Penny, e.g.)
• Talent (but lack of execution)
– Creative
– Management
• First mover (My Space, e.g.)
* The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, 2009.
Media Industry Structure
Segment
Content
Packaging
*
Retail
Key
Function
* Creative
production
* Aggregation
* Marketing and
promotion
* Wholesale
distribution
* Delivery to
final customer
Examples
* Artist/production
house
* Author/imprint
* Journalist/title
* Cable channel
* Book publisher
* Newspaper/
magazine publisher
* TV/radio network
* Cable systems
* Book retailer
* Newsstands/postal
services
* Newspaper delivery
* Local TV/radio
stations
* Billboards
* The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, 2009.
Competitive Advantage
D
e
c
r
e
a
s
i
n
g
A
d
v
a
n
t
a
g
e
Increasing Competitive Advantage
Content
Packaging
Retail
Continuous
Physical
Local
Mixed
Hybrid
Mixed
Discrete
Electronic
*The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, 2009.
National/Global