Chapter 14: Media Transformation
•
•
•
Questions 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?
September 2001
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1
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.
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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.
September 2001
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Table 14-1: Primetime Viewing Shares of Free and Cable
Television Networks
Prim etim e V iew in g Sh ar es o f Fr ee an d C ab le T V Netw o rk s
1985 -1998
1 00 %
90 %
80 %
70 %
60 %
A ll Ot h er
50 %
B a s ic Cab le
Ne t wo rk A ffiliat e s
40 %
30 %
20 %
10 %
0%
1 9 85
19 9 0
1 99 1
1 9 92
19 93
1 99 4
1 99 5
19 96
19 9 7
1 99 8
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 television
Source: Cable Advertising Bureau, Cable TV Facts (1999)
1
September 2001
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4
Table 14 – 2: Penetration of Technologies Into U.S. Households - 2000
Penetration of Service / Device in U.S. Households
1990
2000 Differenece
Satellite Dish
3%
13%
+10
Video Game Console
5%
44%
+39
Online Services
0%
31%
+31
Camcorder
10%
33%
+23
PC
23%
53%
+20
PDA
0%
20%
+20
CDPlayer (Audio)
19%
55%
+36
VCR
68%
91%
+23
DVDPlayer
0%
22%
+22
Home FaxMachine / Modem
19%
51%
+32
Answering Machine
31%
74%
+43
Cellular Phone
0%
51%
+51
Cordless Phone
25%
78%
+53
Corded Phone
98%
96%
-2
Telephone Service
48%
98%
+50
Radio
99%
98%
-1
Basic Cable Television
21%
68%
+47
B&WTV
50%
47%
-3
Color TV
96%
98%
+2
All Television
99%
99%
0
Source: National Cable Television Association, Nielson Media Research, Electronic Industries
Association, Consumer Electronics Manufacturers Association, U.S. Department of Commerce
3
September 2001
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Table 14-3: Hours Spent Per Year Per Consumer Per Media, 1990 - 2000
N um be r o f Ho urs P e r P e rs o n P e r Ye a r Us ing C o ns um e r M e dia
19 9 2
19 9 7
2002
To tal Televis io n (Bro adcas t and Cable)
Radio
Reco rded Mus ic
Daily News papers
Co ns umer Bo o ks
Co ns umer Magazines
Ho me Video
Mo vies in Theatres
Video Games
Co ns umer Online
To ta l Ho urs P e r P e rs o n:
1510
1150
233
172
100
85
42
11
19
2
3324
1561
1082
265
159
92
82
50
13
36
28
3368
1575
1040
289
152
97
79
58
13
46
49
3398
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.
4
September 2001
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6
Exhibit 14-1: Media Fragmentation, 1960’s to 2010’s
TV
TVfaces
facesthe
the
worst
worstaudience
audience
fragmentation
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of
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and
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Once
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options;
soon
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therewill
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be
1,000
be 1,000
1960s
Most Americans
watch the Big
Three Networks
every night
Source:
1970s
UHF Stations bring
more choices, and the
fledging cable industry
intoduces a few new
channels like HBO and
Turner’s TBS
Superstation
1980s
1990s
The VCR becomes
commonplace, letting
consumers watch
recorded shows and
movies whenever they
want. Cable explodes,
with new networks like
CNN and MTV.
2000s
Direct-broadcast satellites are
introduced offering hundreds of
channels. Cable systems are
slowly upgraded with more
channels
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.
2010s
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”.
Business Week, February 16,1998
2
September 2001
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7
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 Schwab’s online trading site.
• Internet is emerging as a mechanism for supplementing, not
replacing, traditional media sources.
September 2001
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8
How do New Media Companies leverage
traditional media channels? (cont’d)
- We delve deeper into this section by considering the
following case examples:
• The New York Times
• Real Networks
• MSNBC
September 2001
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9
Exhibit 14-2: NY Times on the Web Home Page
5
September 2001
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10
The New York Times on the web
- NYTimes.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.
September 2001
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11
RealNetworks
- The 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.
September 2001
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12
Exhibit 14-3: Real Networks Real Player
6
September 2001
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13
MSNBC
- This 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.
September 2001
Chapter 14: Media Transformation
14
Exhibit 14-4: MSNBC Home Page
7
September 2001
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15
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.
September 2001
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16
What are the reasons for Media Megamergers?
(cont’d)
- The five most important reasons for the media megamergers are:
• The Telecommunications act of 1996
• Vertical Integration
• Pursuit of multiple revenue streams
• Advances in new digital technologies
• Entry into global markets
September 2001
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17
Exhibit 14-5: ABCNews.com Home Page
ABC
ABCRadio
Radio
ABC
ABC TV
TV
Affiliates
Affiliates
ABC
ABC Television
Television
ABC
ABC Television
Television
ABC
ABC Television
Television
8
September 2001
Chapter 14: Media Transformation
18
Exhibit 14-6: Sony Playstation 2
Games:
Games:Runs
RunsPS1
PS1
titles,
titles, but
butnew
newPS2
PS2.. will
will
make
makethe
theold
oldones
oneslook
look
like
likePong
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DVD
DVDPlayer:
Player:Can
Canplay
play
digital
digitalmovies
moviesright
rightout
out
of
ofthe
thebox.
box. Not
Notaabad
bad
deal
dealjust
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for that.
that.
Download:
Download:Beginning
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in
2001;
2001;store
storeand
andreplay
replay
digital
digitalmusic
music and
andvideo
video
from
fromthe
theWeb
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Music
Music CD’s:
CD’s:PS2
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spins
them,
too.
Pressed
them, too. Pressedfor
for
space?
space?Give
Givethe
theold
old
player
playeraway.
away.
Internet:
Internet: In
In2001,
2001,Sony
Sony
says,
you
can
says, you canadd
addNet
Net
connectivity.
connectivity.Browse
Browse
and
andbuy.
buy.
9
September 2001
Chapter 14: Media Transformation
19
Media Economics
- Each form of media has its own economics and hence a different
business model. The most commonly discussed media types are:
• Newspapers
• Magazines
• Books
• Broadcast Television
• Cable Television
• Radio
• Film
• Videos
• DVDs
• Music CDs
• Video Game Consoles, and
• MP3
September 2001
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20
Media Economics (cont’d)
- Newspapers
• The 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.
September 2001
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21
Media Economics (cont’d)
- Magazines
• At the end of 1998, the top magazines were Modern
Maturity, Reader’s 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.
September 2001
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22
Media Economics(cont’d)
- Books
• The 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.
September 2001
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23
Media Economics (cont’d)
- Broadcast Television
• The 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.
September 2001
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Media Economics (cont’d)
- Cable Television
• RCA 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.
September 2001
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Media Economics (cont’d)
- Radio
• Similar 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.
- Film
• The 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.
September 2001
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26
Media Economics (cont’d)
•
•
•
•
•
The other important forms of media are:
Video
DVDs
Music CDs
Video Game consoles, and
MP3.
September 2001
Chapter 14: Media Transformation
27
Table 14-4: Summary of Media Economics
MEDIA ECONOMICS
Indus try
S a le s
Ave ra ge $
P e r Cons um e r
Re ve nue
S tre a m s
Tim e s pe nt
With
$69.7 billion
$53.75 pe r
ye a r
Adve rtis ing
a nd Circula tion
3.0 hours
pe r we e k
$20.8 billion
$40.61 pe r
ye a r
Adve rtis ing
a nd Circula tion
1.5 hours
pe r we e k
$17.9 billion
$87.84 pe r
ye a r
Book S a le s
1.9 hours
pe r we e k
$42.7 billion
Fre e
Adve rtis ing
15.5 hours
pe r we e k
Ne w s pape rs
Magazine s
Cons ume r Books
Broadc as t Te le vis ion
Cable Te le vis ion
$54.3 billion
$205.75 pe r
Adve rtis ing a nd
14.7 hours
m onth
S ubs cription Fe e s pe r we e k
Radio
$18.2 billion
Fre e
Adve rtis ing
20.3 hours
pe r we e k
$7.7 billion
$31.67 pe r
m ovie
Box Ticke t S a le s
0.25 hours
pe r we e k
$19 billion
$89.93 pe r
ye a r
Vide o S a le s
1.1 hours
pe r we e k
-
-
DVD S a le s
0.2 hours
pe r we e k
$4 billion
18.71 pe r
ye a r
Cons ole S a le s ,
Vide o Ga m e s
0.8 hours
pe r we e k
$12 billion
$61.64 pe r
CD S a le s
5.17 hours
Film
Home Vide os
DVDs
Vide o Game s
Mus ic CDs
Le a ding
Fra nchis e s
Ne w Y ork
Tim e s , US A
Today
Tim e , S ports
Illus trate d,
Pe ople
McGra w
Hill, Little
Brown, e tc.
CBS , NBC,
ABC, Fox
WB
HBO, Turne r
Ne tworks ,
ES P N, e tc.
Infinity Ra dio
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One
Unive rs a l,
P a ra m ount,
Dis ne y
Unive rs a l,
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S ony,
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S e ga
BMP , S ony
Dis ne y
1
0
September 2001
Chapter 14: Media Transformation
28